How Financial Aid Fueled the Student Loan Crisis

Now, let’s step back and take a look at the bigger picture. When financial aid first became a thing, college tuition wasn’t the beast it is today. Schools were relatively affordable, and a little help went a long way. But fast forward a few decades, and suddenly, tuition costs are through the roof. How did we go from affordable education to students taking out loans the size of a small mortgage just to get through four years of school? The answer lies in the very thing that was supposed to make college more accessible: financial aid.

Here’s what happened. Colleges figured out that, thanks to government-backed loans, students weren’t really price-sensitive anymore. I mean, why would they be? The government was offering to cover the bill—for now, anyway. So, schools started raising tuition, knowing that students would just take out more loans to pay for it. And guess what? It worked. Colleges raised their prices year after year, and students just kept borrowing more and more money, convinced that they were doing the right thing by investing in their education.

But here’s the dirty little secret no one likes to talk about: financial aid didn’t make college more affordable. It just made it easier for colleges to charge more. It’s a vicious cycle. As schools raise tuition, students borrow more money. As students borrow more money, schools feel free to raise tuition even higher. And where does that leave students? Saddled with debt they’ll be paying off for the next 20, 30, even 40 years of their lives.

And it’s not just the sticker price of college that’s gone up. Look at all the “extras” colleges have added to justify those skyrocketing tuition rates. Fancy dorms, state-of-the-art fitness centers, sprawling campuses that feel more like luxury resorts than places of learning. Schools are competing with each other, not on the quality of education, but on how many bells and whistles they can offer to lure in more students—students who are all too willing to sign up for massive loans because, hey, everyone else is doing it, right?

Now, let’s talk about those students for a minute. They’re told from the time they can walk that going to college is the only way to be successful. High schools push it, parents push it, society pushes it. So by the time they’re 18, most of them have made up their minds that they’re going to college—whether they can afford it or not. And here’s where financial aid comes in, promising to bridge the gap between their dreams and reality.

But what these young, often naive students don’t realize is that they’re being lured into a trap. They don’t fully understand what it means to take on tens, even hundreds of thousands of dollars in debt. They’re convinced it’ll all be worth it when they graduate and land that high-paying job. Except, that’s not how it works out for most of them. Many graduate into a tough job market, where the salaries they were promised don’t materialize, and suddenly they’re faced with a mountain of debt and no clear path to pay it off.

And let’s not forget the interest. These loans aren’t free money—they come with interest rates that can turn a $30,000 loan into a $60,000 or even $100,000 burden over time. And because they’re government-backed, there’s no negotiating. You can’t walk away from them in bankruptcy, and there’s no real incentive for the government to lower those rates, because, hey, they’ve got you locked in.

So what’s the solution? How do we fix a system that’s been broken for so long that it’s now leaving millions of people financially crippled? The answer is simple, though not necessarily easy: we need to get the government out of the equation.

Think about it. What if colleges couldn’t count on government-backed loans to cover their ever-increasing tuition? What if schools had to actually compete for students based on cost and quality, instead of just assuming that every student who walks through their doors will have access to unlimited loans? Without the government propping up the system, colleges would be forced to lower their prices. And as tuition goes down, the need for students to take on massive debt would diminish.

Some might argue that without financial aid, lower-income students wouldn’t be able to afford college. But that’s missing the point. The reason college has become so unaffordable in the first place is because of financial aid. Take away the endless stream of government money, and colleges will have no choice but to bring tuition back down to earth. In a truly competitive market, schools would innovate, offering more affordable options, like online programs, trade schools, and accelerated degrees that allow students to get the education they need without spending a fortune.

And let’s not forget about private lenders. If the government steps out of the student loan business, private companies would step in. And here’s the kicker: they’d have to compete for borrowers, which means better terms, lower interest rates, and more flexibility for students. Right now, students are stuck with government loans that come with rigid, high-interest repayment plans. Private lenders would offer a variety of options, allowing students to find loans that work for them, rather than being forced into a one-size-fits-all solution.

But it’s not just about lowering the cost of college. Getting the government out of the way would also open the door to new forms of education. Right now, we’re stuck in this mindset that a four-year degree from a traditional university is the only way to success. But that’s just not true. Trade schools, apprenticeships, certifications, online courses—there are so many other paths that can lead to well-paying, fulfilling careers. If the government stopped pushing loans to every high school graduate, more students might explore these alternative routes, freeing themselves from the burden of debt and finding careers they love in the process.

Let’s face it, the student loan debt crisis isn’t going to solve itself. The government got us into this mess, and they sure aren’t going to get us out of it. The only way forward is to bring real market forces back into higher education. Let colleges compete, let private lenders offer better loans, and most importantly, let students make informed choices about their future without being tricked into thinking that debt is the only option.

It’s time to stop treating financial aid like a lifeline and start recognizing it for what it really is—a crutch that’s keeping the entire system broken. Getting the government out of the business of education would force colleges to lower their prices, give students more options, and finally start to alleviate the crushing burden of student loan debt that’s holding so many people back from the lives they deserve.

Written By: Stephen Despin Jr. | Founder/Contributor