The Financial Crisis Of 2008

1326 WordsDec 16, 20156 Pages
were reaping the rewards while taxpayers were inheriting the risk. In 1993 Congress met the opposition half way by slowly incorporating direct federal loans but still keeping guarantees in place for the banks. After the financial crisis of 2008, President Obama completely eliminated the middleman and fully implemented direct student loans (Kingkade). Although this stopped large banks from profiting off of government backed loans, it still didn’t reduce the supply of loans or the ease of obtaining them. Availability of Credit As tuition has been on the steady rise, student debt to finance the education has been increasing exponentially. As stated above, this is the main driving for behind the higher education bubble. Nicholas Hillman of the University of Wisconsin cites four primary changes that are responsible for the increased amount of student borrowing. The first one being a change in federal aid policy that decreased spending on federal grants and increased loan eligibility. This enables students to borrow more by decreasing interest rates, raising the federal loan cap, and expanding the eligibility for Stafford loans. Secondly, enrollment has been increasing, specifically for for-profit institutions. Adding to this, a cut in state funding has increased tuition resulting in students needing to borrow more to cover the difference. Lastly, median housing income has been on the decline since 2005, which again results in a need for students to borrow to cover the

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