Otherwise, why wouldn't someone just run up $300K, declare bankruptcy the day they graduate, suffer credit-wise for 7 years and celebrate their 30th birthday completely debt-free without ever paying a dime of the loans?
I noticed that with my school. I was in graduate and under-graduate school at the same university. I was there for 7 years. The tuition kept going up at an enormous pace and the school just stared building stadiums, shopping areas, recreation centers and other seemingly useless stuff. Incoming students and their parents had to take higher and higher loans.
I graduated without any loans and we payed my wife's loans in 2 years but that is definetly not the norm.
Producing graduates that are enslaved to paying back giant loans makes less able to competitively choose work places (they can't quit a job they don't like as easily because they have to keep paying another, rather large monthly bill).
Easy loans lead to higher tuition... ...higher tuition leads to more debt on graduation... ...more debt on graduation leads to a need for a higher salary... ...the need for a higher salary increases the prices companies charge for goods and services delivered by college educated...
A prime example everyone is familiar with is the rising cost of healthcare.
If this continues we're going to stratify the income in the US so far we'll end up with an aristocratic and peasant class of citizens and the only way the non-college educated peasants will be able to live is through indentured servitude to a "lord or lady".
Just replace "lord or lady" with the name of a large multi-national corporation (Wal-Mart for example).
- exacerbated income disparity, since only the elite are hired, which makes the job market extra-tough on all but the most capable new graduates, as well as
- higher professor salaries, since professors and potential professors in the field have attractive non-academic options, but also
- more willingness of students to take on more easy loans, since "everyone knows" that lawyers, etc. make so much money that it's okay to take on a lot of debt.
Increased availability is not always good. This is a clear case where getting the loans was a terrible financial decision, since she's only earning enough to pay off a tiny fraction of the principal. We should be decreasing availability to people who have no realistic possibility of paying off the loans, especially when they don't even have the option of bankruptcy.
The idea that making loans available to people with marginal prospects of paying them back is always helping them is bogus. It removes pressure on colleges to trim their costs to help poor students, as well as encouraging people who financially won't benefit from a degree to pursue one anyway.
I'm saying this as someone who got mired in debt going through college and spent years climbing out of that hole. Things worked out for me in the end, but the loans were so easily available that I didn't consider the alternatives. Now I'm so allergic to debt I don't even want a mortgage.