Bad credit? Can’t find a job? Rent and bills to pay? Why not take out a student loan? Don’t worry, you don’t even have to take any classes.According to the WSJ, more and more people are taking out student loans to cover costs well above and beyond tuition and ordinary living expenses. Nearly a quarter of all borrowers have taken out more in loans than they paid in tuition. The problem is particularly acute in online programs, where many of these borrowers are taking very few credit hours—and in some cases none at all.These new debtors are taking advantage of several rather large loopholes in the federal student loan system. Federal lenders rarely perform credit checks, making it relatively easy for people with poor credit to receive loans by enrolling in a school regardless of their intention to get a degree. And online schools with low admissions standards and high allowances for living expenses are particularly good candidates for abuse.The WSJ profiles several people who have taken out student loans to make ends meet:
Take Ray Selent, a 30-year-old former retail clerk in Fort Lauderdale, Fla. He was unemployed in 2012 when he enrolled as a part-time student at Broward County’s community college. That allowed him to borrow thousands of dollars to pay rent to his mother, cover his cellphone bill and catch the occasional movie.“The only way I feel I can survive financially is by going back to school and putting myself in more student debt,” says Mr. Selent, who has since added $8,000 in student debt from living expenses. Returning to school also gave Mr. Selent a reprieve on the $400 a month he owed from previous student debt because the federal government doesn’t require payments while borrowers are in school. […]Tommie Matherne, a 32-year-old married father of five in Billings, Mont., has been going to school since 2010, when he realized the $10 an hour he was making as a mall security guard wasn’t covering his family’s expenses. He uses roughly $2,000 in student loans each year to stock his fridge and catch up on bills. His wife is a stay-at-home mother who also gets loans to take online courses.“We’ve been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don’t have to worry about food,” says Mr. Matherne, who owes $51,600 in federal loans.
Some might be tempted to read this story only as an indictment of the online education programs that offer spots to these students in return for taking on debt. That’s certainly an issue, but the bigger problem here is the federal student loan system itself. Rather than focusing on finding ways to push college costs down, the government has chosen to facilitate access to higher education by making borrowing pitifully easy to do.