5 C's Of Credit

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Giovanni Corsetto
5 Pinkerton street
Derry, NH 03038

May 26th, 2015

A. Duncan
US Department of Education
400 Maryland Avenue, SW
Washington, D.C. 20202

Dear Mr. Duncan,
The lending process is used by banks to evaluate loan applications and many of them use the “five C’s of credit” to do so. The five C’s include character, capacity (cash flow), capital, conditions and, collateral. These are essential because banks wants to lend to people who are responsible, generate a steady cash flow to repay the loan, invest some of their own money into their business, have favorable conditions, and have a collateral in case of default. In 2006, home prices rapidly increased but not only to go back down by 2009. Even though these prices were still over 50% higher than in the late 90’s, a recent article in the Journal of business Inquiry has shown that there were still “low mortgage interest rates, low short- term interest rates, a relaxed standard for mortgage loans, and an irrational quality of excitement that all led to the bursting of this speculative bubble”.
Most students are entering college without the funds to pay for it requiring them to apply for student loans which have hit an all- time high of $50,000 plus in some areas of the country. Although you don’t have to repay it right away, there is an accrue interest on them. Many undergraduates are not having an easy time finding jobs right out of college so the question of going to a four year college is starting to come up. There is no surprise that this is being compared to the US housing bubble of the last decade because the amount students are in debt right now, does not surmount the peak of the 2006 housing crisis. The cause of this student loan speculative bubble is that we are encouraged and most of the time required to get a higher education and this was made do- able by the affordable care act of 2010 allowing the government to loan money to students. This made the price of tuition for college increase and as we obtain loans every year and our total student loan debt becomes outrageous, many people will choose to not go to a four year college and the value of college will plummet. We will then expect student loan default rates to rise higher and the bursting speculative bubble will cause disastrous losses for the US federal government along with the colleges and universities themselves. We should expect to
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