Interests on loans too much for students
POSTEDFebruary 24, 2014
No student in America should have to forgo higher education for the lack of financial resources. There are scholarships for students offered by universities, colleges and many for profit education institutions such as DeVry.
But what about students who are not able to get the limited number of scholarships or those who don’t qualify because their parents make a little more money that precludes them from scholarships or even federal student financial aid programs?
This leaves all the students who make the choice to take loans from public and private institutions. Financial Application for Federal Student Aid, or FAFSA, loans along with other federal government subsidized loan programs, such as the GI bill for veterans, all help students who want to attend or return to school.
The question to ask in this underperforming and shaky economy, where the stock market jumps every time there is a slight decrease in the unemployment numbers, is whether the U.S government need to make this much money off the backs of students who are paying the economy back by getting jobs, earning more and spending more?
$185 billion and $1.2 trillion are some of the numbers being thrown about when it comes to the topic of student aid and loans from Forbes and the New York Times.
The joy of finding a job and getting your first paycheck is reduced when a chunk of it is doomed to go to the butchery of loan payments. One’s total earning potential over the course of a career is diminished as interest payments on the total loan ensure the absence of equity that could have been put towards a mortgage or a down payment on a house.
Over the next decade, student loans are projected to bring in $185 billion to the federal government, according to the Congressional Budget Office.
The CBO estimates an average of 36 cents of profit for every dollar worth of loans taken by a student. When you take the amount of $185 billion and spread it over the next 10 years, it makes the student federal agency one of the 20 most profitable companies in the world according to Shahien Nasiripour of the Huffington Post.
It is usurious to make this much money off the back of students who bring more money to the economy once they graduate and get jobs. A monthly payment of $300 can be used to pay down a mortgage or built up a retirement nest egg, reducing the burden on the economy and Medicare.
Foreclosures and bankruptcies would be reduced if there would be more disposable income floating around. Even if one were to make the argument that people are more likely to spend the money and not save it, it still benefits the economy, especially one that is dependent on the retail and housing market.
The NYT has written about how future generations of students will have to pay for the overhaul of the federal loan program, but this is not a solution, nor is it even a band-aid to stop the bleeding of money that leaves the pockets of students when they graduate. A more permanent solution that ensures that every student in America should be able to study if they choose to is required. A lack of this solution will set up the American economy for another windfall as more students who are unable to keep up with payments will default, which will have a ripple effect. This is reminiscent of the housing market crash not too long ago.
Once again, America is more alone in this situation amongst the countries of the G8, as it is with many other issues such as health care. Most colleges and universities in other countries offer degree programs that are free or almost free for its students. Other developed nations offer interest free loans, or loans that have a higher chance of being forgiven. Free higher education in America will not happen, and one should not even have any expectation of that. The best one can hope for in terms of a permanent solution, rather than just an overhaul, are interest-free loans as a best-case scenario.
It is important to keep in mind that students here do have the option of applying for loan forgiveness, and there are programs that allow lower monthly payment or payment deferral for student loans.
Interest-free loans may be one solution, but that would require a change in the answer to the fundamental question of garnering profits off the backs of students who choose to take loans. I am not sure that America is ready to answer that question, but this will be one of the central issues that face politicians in the next election. Until then, it is best to start looking for the first and second job after graduation, and one shouldn’t forget the possible advantages of paying a dollar each week for a lottery ticket of which some of the profits go back into the school system.