STUDENT LOAN CRISIS
Student loan crisis has been an issue in the country, as there are a lot of economic predicament that will come along when the problem is not checked. The research paper elaborates on various financial aid available to students. The research will also look at the impact of the student loan on the economy and the students themselves. Some of these effects include college dropouts, poor living conditions and a crisis to the country as it owes a lot of money which is described in details on the paper. Lastly, there are some recommendations made based on the finding that could be used to correct the crisis.
Students loans are of the essence as they facilitate the attainment of a degree, but the degree would not be worth it if one spends his/her entire time paying for it. There are far better ways to develop oneself and live comfortably without having to worry about the loans.
Keywords: Student loan, Lender, Debt, Federal law
Student Loan Crisis
Student loans can be defined as the grants given to students who are pursuing the college education. There are two types of these loans. The first kind is the federal student loans which are issued and governed by a substantial body of the federal law in pursuit of a national program. The other type of loan is the private student loan. The financial institutions, schools, and the state offer this kind of loans. They are the kind of loans that are governed by the applicable laws of financial credit products. The federal student loans are further classified into three programs which include the federal family education loan (FFEL), the Direct loan program, and the Federal Perkins Loan Program (Rendleman & Weingart, 2014). The Federal Family loans and the Direct loan programs can be further classified as PLUS loan and Stafford. The Stafford loans comprise 60 to 80 percent of the annual student leading as they are the most preferred. It can be attributed to the fact that Stafford loans offer better terms as they have subsidized or zero interest when the student is in school. They are provided to students with an immense need for financing of their studies. The PLUS loans, on the other hand, have a higher interest rate and are only available to parents of individuals already enrolled as undergraduate or graduate students. Credit history is an important aspect when asking for this loan as it determines the eligibility. Students who have qualified attending institutions of higher education receive money from the federal government through the direct loan program (Rendleman & Weingart, 2014).
Under private student loans, as mentioned earlier, these loans are typically offered by states, schools, financial institutions, and even non-profit organizations. Compared to federal loans, the private loans come with higher interest rates are subject to prepayment penalties. In most cases, these kinds of loans are treated just like any other credit product by the law. The student loans, however, are subject to one key exception which is that they are exempted from discharge from bankruptcy just like the federal student loan. Like the federal student loans, private students’ loans have a substantial percentage of the students’ loans. From 2000 to 2004, students taking up on loan increased but tripled between 2006 and 2008 which accounted for up to 25% of the total number of students borrowing loan at the time. The number, however, fell sharply during the recession. There have been some changes ever since as the situation has changed and more students are now taking on the loans but are however below 40% (Rendleman & Weingart, 2014).
The cost of study has increased over the past three decades with other 1000% increase. A graduating student leaves campus with a debt of between $25,000 and $54,000. It is a situation that renders the students to spend most of their young lives trying to pay the debt hence denying them a chance for entrepreneurship, acquiring an automobile, saving for retirement or even proper housing (Hillman, 2015). Student loans according to Johnson, Ostern & White (2012) are the second largest household debt in U.S from mortgages. With a total of $150 billion on private student loans and $864 billion of federal student loans, this amount exceeds $1 trillion (Bradshaw, 2013). A total of $1trillion is held in student’s loans by over forty million people in the country. It is in contrary to the decline in other consumer credits over time from the Great Recession. Other than the recession, an increase in the cost of college can also be attributed a consistent decline in the state funding which in most cases made the college education more affordable. With the rise in the cost of college cost, more students were inclined to borrowing money as scholarships were no longer reliable for anyone who wanted to pursue a college degree. The increase in the cost of living on things like food, healthcare, and gas also made it impossible to save for college (Hillman, 2015).
Another thing is the rise of the for-profit college sector. Students in the colleges that do not offer complete four years’ colleges and are established for-profits have primarily increased the student loan debt. The trend is as a result of lack of oversight on the marketing practices and the private lenders for the for-profit schools. The worst part about the private institutions is that they market to desperate students who then make a hasty decision of borrowing from them without considering other options hence results to massive debts. With the private student loan borrowing on the increase, there is a vast defaulted loans totaling up to $8.1 billion on just the private loan sector. Due to the huge interest rate of repaying the loans, students end up paying a lot more than the tuition costs (Johnson, Ostern & White, 2012).
Whether the loans are private or federal, all students borrowing for the sake of studies face the challenge of repayment which results to defaults and this, on the other hand, affects the economy of the country. Bradshaw (2013) in his article cited Patton saying that the loans affect not only the fresh graduates but also adults aged 60 and older who lose their Social Security at old age because they were unable to pay their student loans. The article states that over $155 billion was owed by people between the age of 50 and above by 2012.
Other than the poor quality of living student loans may lead to dropouts. According to Johnson et al. (2012), 30% of students in college dropped out of school in 2009. The situation of having borrowed money and at the moment the student walks away without the degree certificate makes the predicament even impossible. It would be at least understandable if one had a degree to show for it, but now the student gets to pay the loan even though he/she did not complete the studies. According to the research, as at 2012, over 36 million Americans had attended college but never waited to earn the degree certificate. The student loans affect the decisions an individual makes, be it savings, fertility, marriage or even purchasing a home. If the situation with the student debt is not addressed, the effects may be felt by generations to come.
There is a series of actions that can be done to eliminate the crisis brought about by the students’ loan. One of these recommendation includes paying attention to other technical and well-paying jobs that do not require one to attend college for four years. Some of these career paths include but not limited to plumbing, electrician, carpentry, mechanic and more. The people who perform these tasks are significant, and therefore students need to consider.
Students may also need a financial guide on how to take care of their education. The guidance would enlighten them on the downfall of various financial aid and probably help them to choose lenders wisely. The federal authority may also put in place regulations that prevent the exploitation of young people otherwise the for-profit financial institution will continue marketing and getting the unknowing students to take loans that they may continue paying for the better part of their lives (Archuleta, Dale & Spann, 2013).
The other recommendation is cut off the payment paid to student presidents in colleges and buyouts for those athletes who have failed. The money could be saved and used to provide facilities needed in school. As a result, students would be able to pay a lesser amount of money.
In other words, finding the unnecessary spending in the college and using the money to support the necessary projects to move the school forward and reduce the cost of education. With this, the schools can be able to save a substantial amount of money that would help solve the crisis. Otherwise, this can be detrimental to the economy if left unchecked.
Archuleta, K., Dale, A., & Spann, S. (2013). College Students and Financial Distress: Exploring Debt, Financial Satisfaction, and Financial Anxiety. Journal Of Financial Counseling And Planning, 24(2), 51-52. Retrieved from http://afcpe.org/assets/pdf/v24_2_50-62.pdf
Bradshaw, W. (2013). Student Loans: the Problem and Solutions. HuffPost. Retrieved 18 October 2017, from https://www.huffingtonpost.com/william-b-bradshaw/student-loans-the-problem_b_3406099.html
Hillman, N. (2015). Borrowing and Repaying Student Loans. Journal Of Student Financial Aid, 45(3), 41-43. Retrieved from http://publications.nasfaa.org/jsfa/vol45/iss3/5
Johnson, A., Ostern, T., & White, A. (2012). The Student Debt Crisis (pp. 1-23). www.americanprogress.org. Retrieved from https://cdn.americanprogress.org/wp-content/uploads/2012/10/WhiteStudentDebt-3.pdf
Rendleman, D., & Weingart, S. (2014). Collection of Student Loans: A Critical Examination. Washington And Lee Journal Of Civil Rights And Social Justice, 20(2), 218-221. Retrieved from http://scholarlycommons.law.wlu.edu/crsj/vol20/iss2/4
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