Housing crunch affecting the student loan market

Clark recently told you that there have been changes in student loans laws. Now the latest news is that the student loan market is drying up as fallout from the housing crunch. Michigan has completely shut down its student loan program. The reason here is that student loans are funded by bonds or securities, the trading of which has been hurt by our slowing economy. So the credit squeeze is affecting areas that are completely unrelated to housing.

Clark has a thought that may seem callous to some. He believes there's an advantage to student loans being difficult to get. Think about it: College costs have grown way beyond the rate of inflation because it's been too easy to borrow for school. But if students have a hard time getting money, then schools will be forced to rein in their spending and become more efficient. They'll also have to deliver an education at an affordable price. Previously, the unlimited spigot of student loan borrowing provided no incentive for them to do so; the very oversupply of money fed the rise in college costs.