They are complex structures designed to encourage private lenders to make loans that they would otherwise view as too risky. In this complex program, the Federal government guarantees that the loan will be paid back in full and subsidizes the interest payments so that the lenders will be willing to charge a lower interest rate. Under this program a new kind of secondary loan market has developed nationally that specializes in buying and collecting on student loans. Yet, Mumper raises the question as whether the new complex system is discouraging disadvantaged students from attending higher education because of the large debt that lower-income students would incur in attending college in the late 1990s. Another interesting point that Mumper makes is that the Federal financial aid program has a limited amount of dollars.
Loan defaults constitute the principle cost of the federal loan-guarantee programs.
Mumper points out that since 1980 when the net college price rose, more and more lower-income students have to borrow loans in addition to their grant aid. The typical defaulter as described by a 1988 Congressional task force is an individual with very limited resources and academic preparation who is taking out loans, enrolling in a college and failing to complete his or her studies. The percentage of the cost of public higher education paid for by the state continues to decrease as the state takes on more responsibilities for social service programs and the rising cost of correctional programs. Mumper concludes by stating the perhaps most fundamental is that loans do not reduce college price barriers. They simple postpone their payment.