In this episode, Robert talks to Travis Hornsby about how the student loan crisis came to be.

Robert Leonard:
I want to talk about how and why the current student loan crisis came to be. Studying student loans and working with thousands of people with student loan debt, how did we end up in the current situation we are in, with regards to student loans?

Travis Hornsby:
Yeah, just unlimited borrowing for school. You have the ability to borrow anything you want, sarting in 2006. There’s no longer any underwriting at all. You can borrow for any degree as much as the school asks you to borrow. You can borrow for living expenses, you can borrow for covering family expenses. If you have kids, you can borrow up to the cost of attendance and the school can inflate that in cost of attendance by adding on ridiculous fees and unnecessary expenses on top of tuition as well. So in my view, what really caused the horrendous student loan crisis, like there would not have been a student loan crisis in general, because the value of higher education had been going up for so long. The schools were basically just interested in capturing some of that, right? If you think about, like, any kind of business out there that helps you get more money, like what do people do a lot of the time, right? Like hedge fund investors, like that’s where two and 20 came from. It’s because they’re helping people be so much more successful. So they want to capture some of those extra gains for their own profit, right?

So honestly, university started to act, in my opinion, a little bit more like corporations and hedge funds than actual not for profit institutions. And the government enabled this by throwing gasoline on to the fire and the gasoline was on capping borrowing in the mid-2000s. And so that’s where you see student loans going from about 300 billion, which is still a large amount, but you could argue that that debt would be classified for most people as good debt because that’s debt that’s funding, you know, a valuable education that has higher returns than ever, right? Whereas now, we have this 1.6 trillion debt and you have a lot of really questionable degrees being funded. And a lot of it are degrees that are legitimate but are just frankly vastly overpriced. So, you know, you’ll have all of these online degrees from regional state schools, you know, MBA programs, for example. And is an online MBA from a regional state school worth 10 to 20 grand per year? Absolutely not. In most cases, it’s probably worth, I don’t know, a few thousand bucks and yet, we’re having situations where schools are charging 10-x that and people are just paying it because you can get such easy access to credit.

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