Student Loans

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A student loan as the name implies is a loan an institution grants to a student to pay for tuition, books, student housing, food, or whatever the student need in order to get through the college experience. The money is distributed in some degree in a lump sum kind of fashion such that some goes straight to the school or institution of learning and the other portion goes to the individual. The student loan companies offer everyone these loans with a low interest rate when compared to other loan available. Also, these loans have a grace period typically sometime after an education is completed which means that a student will not have to pay this loan while in the course of his education.

Not all student loans are the same, some are federally funded by the United States of America, some are private and some are designed specifically like Pell grants to help financially needy students, some offer protection for borrowers and then of course interest rates that should be below market and when the federal government issue these loans, they offer low fixed interest rates and that makes them more attractive in contrast with the private loans. One of the primary qualifications to get a student loan is that you must be a student. Currently now, there are more than 44 million borrowers and people who have a student loan. This astronomical figure is as a result of the increase in the overall cost of college which rose by 63% between 2006 and 2016 which increases the student loan debt, currently value at 2.2 trillion dollars. This means that the American student loan debt is worth more than Facebook and Microsoft put together. It is about 521 billion more than all the credit card debt in the country combined.

In many ways, this large agglomeration of debt has altered American society. Multiple generations now are far less likely to successfully purchase a home or start a family around the same time their parents, their grandparents, or other predecessors did. It's simply not the reality anymore that someone can get out of college get an entry level job, buy a car and buy a house. That doesn’t happen anymore. Instead, what people would end up doing is to figure out a way out of these debts or to at least get it to a more manageable place. This has led to the question of whether this is a case of pure mistake, misstep, or errors on the part of economist, people in charge of deciding how much tuition should cost, the federal government, private lenders, would be college students, continuing college students, people who were returning students, is this accidental mismanagement? Or is there something else in play?

HISTORY OF STUDENT LOANS[edit]

The first student loans in U. S. were offered exclusively to kids at Harvard in 1840, and there were no public loans until the 20th century and the US department of education was founded in 1867. No federal student loans were given out until the passage of the Higher Education Actor (HEA) in 1965. In the two decades before the institution of federally guaranteed student loans, the US experienced a significant increase in college attendance thanks in large part to the passage of the 1944 GI bill and fulfilling the need for affordable higher education, the GI bill actually subsidize or entirely paid for the cost of college education for nearly half of Americans returning for World War two. Since its inception, the program has remained popular over the years and it's true that a lot of people nowadays make it a choice to join the military because of the GI bill benefits. Thus, by 1976 all undergraduate students became eligible for the Pell grants and these two popular programs; the GI bill and the Pell grant increased college attendance rates because people who previously would never have had a chance to obtain the financial support to go to college finally had doors that were close to them opened.

The problems with student loans started to show up way back in the 1980s when the country realized that it had incurred around ten billion dollars in student loans. In that same year, more than a quarter of students borrowed and they owed more than ten thousand dollars in student loan debt which is almost equivalent to almost 23,000 dollars in 2018. By the 1990s, student loan debt really began to skyrocket. In 1993, the average debt of a bachelor’s degree the average debt burden was about nine thousand bucks and in May 2003¸jumped to around 18 thousand dollars.

THE CONSPIRACY[edit]

The question to ask then is “who profits from this?” The first on the list would be the colleges and universities. Colleges have been caught raising cost and blaming the increase on various outside uncontrollable economic pressures. A lot of excuses have been raised to justify this, such as the need for more infrastructures, maintenance of infrastructures, increment in the salaries of teachers, etc. While in essence, they've been swirling away massive cash reserves outside of endowments. Recently, a school in West Virginia was caught doing this, and their defense was that other schools do it.

Also, Wall Street investors are in on the game. One thing that sticks out is that student loan debt unlike many other kinds of loans cannot be discharged. Thus, they are going to be in this game because it is a debt that will always need to be paid and in some cases, it is a debt that follows people for decades or the entirety of their lives. There are people who have retired and are around 65 years old still paying their student loans. In some cases, we have people who are paying entirely on the interest of the fees of their loans rather than the principal. There is a great anecdote in the Rolling Stone about a lady named Veronica mortgage, a sixty eight year old veteran at the time of writing who served in the armed forces during Vietnam. She’s a grandmother with a clean record her entire life and she considers herself a patriot. But student loans ruined her life. In 1989, she took out an eight thousand dollar student loan through Sallie Mae and then five years later, after some people died in her family, she fell behind on her payments. She entered a little rehab program and with fees and interest, that originally eight thousand dollars loan ballooned into twenty seven thousand dollars. To the date of that article which was relatively recently, she has paid more than sixty three thousand dollars to date and is nowhere near getting rid of the principal.

The federal government is the biggest lender of American student loans for years. A lot of this money was managed by private banks and loan companies like Sallie Mae. However, in 2010, congress cut out the middle man their landing fees and Sallie Mae spun off its servicing arm and formed a publicly traded company called Navvy led by former executives from Sallie Mae and the company describes itself as a leading provider of asset management and business processing solutions for education healthcare and government clients. However, the company is well known on the financial streets as one of the very lucky companies that coveted federal contracts to make sure students repay their loans. The company is the primary point of contact or the servicer for more students than any other company handling twelve million borrowers and three hundred billion in debt. There have been a lot of complaints against the company that it has failed to live up to the terms of his contract, and illegally harasses consumers. The company responded that most of the problems the people are complaining about come from the structural issues surrounding college finance like terms of the loans which is up to the federal government and the private banks as they don't make the rules and just doing their job filling the contract so the complaints are not about their customer service.

The question remains, is this some sort of bubble? a bubble in terms of economics according to Goldfarb a professor of business at the university of Maryland snow, author of a book called “bubbles and crashes the boom and bust of technological innovation” says the best way to think of a bubble in financial terms is to think about a stock that people keep buying mostly because other people are buying the same thing it's our heard movement. Also, Vice wrote a pretty solid article about this and they said the best known examples of recent bubbles would be the mortgage crisis, the homes that people live in the US, so what happened is at least two different sets of people started thinking the price of something housing in this case was just going to keep going up so people kept buying property for inflated prices and people kept lending the money to do so ray eventually the center cannot hold like Chinua Achebe says.

People feel like companies like Navvy in Wall Street investors and colleges and universities are accelerating this bubble because people believe that college education is worth so much over the span of their life that they should go to college even if it is costly

Now we are in a situation where some economists worry that we will reach a point where we have generations of people who can never afford a home, ever having a very difficult time raising children let alone saving for retirement, and eventually they may reach a breaking point where they may just stop paying their loans. And if more people start acting like that, that's when the bubble burst happens right then. Some people have gone so far as to leave the US entirely and start an entirely different life in a foreign country. Referring to vice again on an excellent article on this by Alexander cog in debt Dodgers, “the Americans who moved to Europe the what a wall in their student loans” where you can find stories of people who moved to Europe and maybe some other countries because they felt like they had no choice, they had no way to get a decent job that would allow them to pay back the loan.

FORBEARANCE[edit]

When forbearance is entered on the student loan, the loan freezes, while the interest continues to accumulate as you're not making any payments for whatever the allotted period of time is it, which can be a year or six months depending on the terms of the loan, and then the interest gets added to the principal of the loan. The issue with forbearance is that as you are adding to the principal loan, you're talking about how hard it is to pay off your principal because you are paying such a large percentage of interest with every payment. A lot of people are stuck in this kind of deal because they were either told that forbearance would be a good idea for them or it would be a band aid basically to fix their current financial situation where they can't afford to pay for student loan payment, but, this wraps them up for the next thirty years. According to statements by former loan servicing employees, the easiest way to tell somebody about the joys of forbearance under seven minutes is that it is a short term band aide with long term ramifications.

Student loans began as a means of allowing less privileged Americans to chase previously unattainable parts of the American dream. However, this has become a paralyzing generational problem on a national level, with questions such as what happens when no one can pay the debt? What happens when no one can buy a house? Thus, there is the need for students to be fully informed of what they are signing up for.

COUNSELING FOR STUDENT LOANS[edit]

There are numerous counseling services for student loans. It is advisable to go with a nonprofit one or a government sponsored one because some might be scams. Get online find out what people are saying about whatever company it is or whatever group were governed governmental organization before you do anything.

There is the need for more mandatory financial awareness classes where people should just have to take a budget class that teach them basic budgeting. Also, there are forgiveness programs that may be of great interest that teaches student loan forgiveness program and public service loan forgiveness program. This means if you work in a qualified job for a number of years, you can get your loan erased. But the problem here is that not everyone can take these sorts of jobs for one reason or another.

STUDENT LOAN REFINANCING[edit]

What if borrowers could reduce their interest rates? This is the question that proponents of refinancing are asking. In this case, technically, they would be able to pay back their loans on time improving their own credit and financial well being while supporting the integrity of sustainability of the federal loan programs.

However, refinancing is incredibly expensive. In 2014, the Congressional Budget Office estimated the Elizabeth Warren's refinancing plan would cost just shy of sixty billion dollars over a three year period or twice the annual cost of the federal Pell grant program. Also, the way it would work out, the savings on that refinancing wouldn't be that much on an individual level and it would help people who are already capable of paying loans more than it will help people who were already defaulted or having difficulty.