Student Loan Debt Crisis Essays

Going to college has been taught to be the next step in education after graduating high school but is it truly that easy? The main factor to attending college now is the money issue. In today’s generation receiving a scholarship would be the best way to get through college without the burden of student loan debt piling up as you get further into college. Even though financial aid is available for students seeking college education, some of those students will not all qualify for financial aid. With them not being able to qualify, it leaves taking out student loans to afford those college expenses. By them having no other option but to take out student loans, it is the start to a long road of student loan debt issues.

Majority of student loans today are through the popular loan company Sallie Mae. In 1972, Sallie Mae was founded as a private company for loans but since late 2004, it generally became a publicly traded company. The biggest challenge with student loans is finding one that offers the lowest interest rate. Rising interest rates may make obtaining and paying off student loans more burdensome, particularly for students from financially disadvantaged households. Students from lower income households rely on federal loans more heavily than their higher income counterparts, meaning that students from households with fewer financial resources may be disproportionately affected by increases in interest rates. For instance, over half of all lower income students pay for college with federal loans (ranging from 48% to 56%), whereas less than half of all higher income students pay with federal loans (ranging from 27% to 49%).

While some research suggests that the overall percentage of students is small who report substantial problems with repaying their loans, those with lower current and lifetime earnings report the greatest difficulty and are perhaps overburdened. Given this, it is critical to find ways of reducing students’ reliance on loans, particularly for those from households with fewer financial resources. Where some students take a turn for the worst is not paying attention to the interest rate numbers which adds up over the years causing the owed amount to double and even triple in some cases. As of the beginning of this year, it has been reported that Sallie Mae will split in the fall for money reasons. Sallie Mae will split into two companies with one keeping the name Sallie Mae and the other called Navient who will service most of Sallie Mae’s existing student loan portfolio. With Navient taking over, payments will now go to them instead of Sallie Mae.

Financial aid is given to students based on their household income. Students with a lower based income will be more likely to receive a full amount than a two parent wealthy home. Even though Without the help of financial aid for students, taking out student loans would be the next step for affording college. At that time, student loans could be a great way to help students by giving them a chance to still be able to attend college without the help of financial aid but there is also a downfall to student loans as well. According to the Federal Reserve Board of NY, there are approximately thirty seven billion student loan borrowers with large student loan debt amounts. These student loan debts can take years before they are paid and in some cases, they never get fully paid. This situation with student loan debt is what makes the decision to attend college even more difficult.

With the debt loan rapidly increasing from year to year, it is not only effecting young adults but the economy as well. With Students having this load of debt to pay, it decreases the ability for them to be able to afford things such as cars and their first homes. Without the purchasing of these items, it causes problems such as unemployment. (Bidwell, n.pag)

The Student loan debt crisis not only affects the graduates of the university but also the future students as well. The future students who have one day dreamed about going to college are now taking a second look on attending school because of this debt problem. Without receiving a scholarship or financial aid it is virtually impossible for students to attend college without the possible outcome of being drowned in a large amount of student loan debt. (Bidwell, n.pag)

`Because of the money issue with college, some students do not get to become better educated as well. The skills that you will be able to learn in college are very different from high school teaching. You will learn to think more critically and have reasoning skills that will stay with you for a lifetime. Students will also have a much greater opportunity in the job market as well if they were able to obtain a college degree. Having a college degree is the main source that jobs look for in the work field today whether it is to become a lawyer, doctor, or either some form of office worker. Being able to provide that you have some type of college degree can increase your chances of acquiring a better and high paying job but because of some students do not attend college because of money issues, it lowers their chances of having those same opportunities in general as well. (Raumont, n.pag)

Going to college may be easier for some more than others. Whether it be financial aid issues, student loan debt fear, or some students cancelling the college dream out very quickly because they think financially it is impossible and causing them to miss out on good opportunities

When discussing the student debt crisis, most people focus on the rapid growth in outstanding debt and several recent milestones. For example, student loan debt exceeded credit card debt in 2010 and auto loans in 2011, and it passed the $1 trillion mark in 2012.

But these milestones don’t tell us much about the impact of all that debt on the students who must borrow to pay for a college education.

Average student loan debt at graduation has been growing steadily over the last two decades. In 1993-94, about half of bachelor’s degree recipients graduated with debt, averaging a little more than $10,000. This year, more than two-thirds of college graduates graduated with debt, and their average debt at graduation was about $35,000, tripling in two decades.

Student loan debt is increasing because government grants and support for postsecondary education have failed to keep pace with increases in college costs. This has shifted much of the burden of paying for college from the federal and state governments to families. The government no longer carries its fair share of college costs, even though it gets a big increase in income tax revenue from college graduates.

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Since family income has been flat since 2000, students must either borrow more to pay for college or enroll in lower-cost colleges. That shift in enrollment, from private colleges to public colleges and from four-year colleges to two-year ones, has also been responsible for a decline in bachelor’s degree attainment among low- and moderate-income students.

What the Numbers Really Say

In a recent policy paper, I defined student loan debt as affordable if half of the after-tax increase in income that a student gains from obtaining a college degree is sufficient to repay that student’s loans in 10 years or less.

For example, the average starting salary for a bachelor’s degree recipient in the humanities was about $45,000 in 2015, according to the National Association of Colleges and Employers. That compares with about $30,000 in average income for high-school graduates—or a $15,000 difference. After considering taxes, the net increase is about $9,000. Half of that ($4,500) is about 10% of gross income and would be enough to repay roughly $35,000 in student loans over a 10-year repayment term. This is also consistent with my rule of thumb that total student loan debt at graduation should be less than the borrower’s annual starting salary.

Given this definition of affordable debt, I analyzed data from the Baccalaureate & Beyond Longitudinal Study and found that the percentage of bachelor’s degree recipients graduating with excessive debt grew from 9.8% in 1993-94 to 14.4% in 2007-08. If the percentage has continued to grow at the same rate, about 16.7% of college graduates are now graduating with excessive debt.

However, even this percentage underestimates the problem. That’s because it includes all students who graduate with a bachelor’s degree—even those without any debt at all. If we look only at students who borrow to attend college, it appears that more than a quarter (27.2%) of them are graduating with excessive debt.

The Lasting Impact on Students’ Lives

I also found that students who graduate with excessive debt are about 10% more likely to say that it caused delays in major life events, such a buying a home, getting married, or having children. They are also about 20% more likely to say that their debt influenced their employment plans, causing them to take a job outside their field, to work more than they desired, or to work more than one job.

Perhaps not surprisingly, they are also more likely to say that their undergraduate education was not worth the financial cost.

Unfortunately, there are no similar studies that can be used to analyze excessive debt for other college degrees, such as associate degrees, certificates, and graduate or professional-school degrees. It is also not possible to evaluate the financial impact of student loan debt on students who drop out of college, even though they are four times more likely to default on their loans.

What Can Be Done?

Increasing national awareness of college spending is the first step in exercising restraint. It is therefore imperative that the federal government and the colleges and universities begin tracking the percentage of their students who are graduating with excessive debt each year. This information can then be used to improve student loan counseling.

Colleges must also be given better tools to limit student borrowing. For example, college financial aid administrators must be permitted to reduce federal loan limits based on the student’s enrollment status and academic major. Students who are enrolled half-time should not be able to borrow the same amount as students who are enrolled full-time.

Finally, our colleges must also help students better understand the debt they are taking on, by making the distinction between loans and grants clearer in their financial aid award letters.

 

Mark Kantrowitz is one of the nation’s leading student financial aid experts. He is the author of several books about paying for college, including Filing the FAFSA, Twisdoms about Paying for College, and Secrets to Winning a Scholarship. He is publisher of Cappex.com, a website that helps students achieve their college dreams, and previously served as publisher of the FinAid, Fastweb, and Edvisors websites.

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