Student Loan Crisis In The United States- The Problem

A student loan is a kind of financial aid designed to help students access higher education. Presently, the student loan in the United States has reached up to $1.67 trillion, which is the second-highest consumer debt after mortgage debt. The increasing debt shows the startling condition of America with  about 45 million borrowers. However, there is no escape from student loan as the higher education in America is quite expensive, and not everybody can afford to pay hefty fees.

Besides, the advancement in technology has made it even more difficult to get higher-paying jobs without attaining some advanced degree. So what is the solution to the student loan problem? Let’s dig deeper to have a better understanding of the current state of student loan crisis in the USA.

An insight of Student Loans

In simple terms, a student debt incurs when students use a particular amount of loan to pay for educational expenses that otherwise would not be paid from their assets, scholarships, grants, or loans taken by their parents. The escalating fee structure of higher education has narrowed the possibility for students to take out the required sum from their savings.

Often students assume that after pursuing a higher degree from a reputed university, they will be able to land a job to repay the loan over time, however, there is no guarantee to straight away find such employment after completing the degree course.

In this case, if the average tuition fees for a Masters degree in Computer Science is $78,000 (excluding the living cost), then after postgraduation one can end up under a debt of $100,000 with limited knowledge of coding.  

The student loan is interrelated to the cost of tuition and college fees.On average, students from the top US universities have a debt of $22,957. Take a look at the top 10 universities and their corresponding average student loan in 2020:

Sr. No. University Average Student Debt
1 Northwestern University $32,395
2 Brown University $29,620
3 Cornell University $29,762
4 Columbia University $27,908
5 Johns Hopkins University $25,697
6 University of Notre Dame $27,686
7 Massachusetts Institute of Technology $22,696
8 Rice University $24,635
9 Washington University in St.Louis $22,555
10 Vanderbilt University $22,854

The vicious circle of student loan has many downsides. For instance, sometimes students incur debt but never really graduate, while some students take on more loan than they can afford to pay back. Also, a majority of people incur loan at a young age, so they barely understand its implications.

Another downside of student debt is that it is difficult to discharge through bankruptcy and can only be done if you demonstrate undue hardship to yourself, such as being unable to maintain the basic living standards.

Who gives the Student Loan?

Anyone can take a student loan either from the federal government or through private lenders who run student loan copmpanies. Federal student loans have more flexible terms, income-driven repayment plans, & fixed interest rates, in contrast to private student loans. Here are the head-to-head differences between federal student loans and private loans:

Terms of Differences Federal Student Loan Private Student Loan
When loan payments become due The loan payment isn’t due until you graduate from university or change your enrollment status to less than half-time. Students need to pay while they are still in the university, but some private lenders do allow you to put off payments until you graduate.
Rate of Interest The interest rate of federal student loan is fixed and often lower than the credit card rates. Private loans do not have a fixed rate of interest and may vary lower or higher than federal loans based on the circumstances.
Credit Score Check Students don’t need to get a credit check to become eligible for federal loan expect for PLUS loans. Private student loans usually require a cosigner or an established credit score.
Subsidies If you want financial aid, you may qualify for a student loan for which the U.S. government pays the interest until you complete your college on at least half-time basis. This loan is known as subsidized loan. Private lenders do not provide a subsidized loan. Instead, they offers unsubsidized loan for which students are responsible for paying the loan interest by their own.
Repayment Plans Federal loans have many student loan repayment plans like income-based payment in which you get an option to tie your monthly income to the loan payment. The repayment plans in a private loan differ based on the lender’s terms and conditions. So you need to check with your lender to know about your repayment options.
Debt Consolidation Federal student loans can be consolidated into a direct consolidation loan. Private loans cannot be consolidated but may be refinanced.
Postponement of Loan In case you struggle to repay your loan, you can temporarily lower your payments or postpone it. Not all private lenders provide the postponement options, so you need to check with your lender.
Student Loan Forgiveness If you work in public service, then you may become eligible to have some part of your loan forgiven. There is no option of loan forgiveness given by private lenders.
Prepayment Penalties The federal loan does not impose a prepayment penalty fee. When taking a student loan from a private lender, you need to ensure if there is a prepayment penalty fee or not.

Student Loan Crises in America

Several Americans are still recovering from the adverse impact of the Great Recession that shattered the entire economy. For curbing the situation, many lenders introduced some risky lending options like adjustable-rate mortgages which enabled borrowers to take higher loans than they could afford to repay. It resulted in default payments & ballooning debts.

Today, another crisis of student loan is looming in the country. With the increase in higher education, Americans are burdened by more outstanding student debt than ever.

The following statistical data depicts a clear picture of student loan in United States:

  • Currently, Americans owe a student debt of $1.67 trillion, which is around $587 billion more than the total credit card debt of the U.S and 10% of the national household debt.
  • The largest lender of student loan in the United States is the U.S. Department of Education which is guaranteed by the federal government. In fact, 92% of $1.67 trillion debt is in the form of federal loans and the rest 7.7% is owned by the private lenders.
  • Over the last decade, the total average student loan debt, including both federal & private loans has increased more than $1,000.
  • The average amount of the student loan in the U.S. is $32,731, with an average monthly loan payment amount of $393.
  • Nearly, $685 billion of student loan is in repayment status, while $128.4 billion loans are in deferment and $45.2 billion loans are in the grace period.
  • The delinquency rate of student loans was 10.8%, wherein 2.8 million borrowers owe $122.9 billion loans that are in forbearance, and 5.5 million borrowers owe $119.8 billion loans that are in default.
  • In 2019, 52% of U.S. adults felt that taking a student loan is not worth it.
  • At present, more than 30% of student loan borrowers are in default and have stopped making payments 6 years after their graduation.
  • As per some sources, by 2023, around 40% of students who enrolled in universities in 2004 will default on student loans. If the growth of total outstanding student loan debt continues to grow, then it can reach $2 trillion by 2023 or early 2024. 

Consequences of Student Debt

Student loans are the most common financing source for college aspirants, but the never-ending burden of loan repayment lingers in their lives for years. Many people have to disrupt the major life events such as getting married, buying a house, having children, or saving for retirement due to the outstanding student debt.

Some student loan borrowers can afford to repay their debts in 10 years or less timeframe if the total amount of their debt is less than their annual income. Otherwise, the borrowers will struggle to repay their loan and will have to reduce their monthly student loan repayment by extending the term of the loan through an income-driven repayment plan.

Why Student debt has rapidly increased?

Let’s illuminate the reasons behind the increase in the student loan debt:

1. Financial difficulty- There are several challenges that student borrowers experience while paying down their loans, as most of them come from a low or middle-income family. So, financial instability becomes a barrier for student loan repayment.

2. Higher education has become costly-The tuition fees of colleges has inflated at a faster rate. If the annual fee of private and public colleges in 2008-2009 were $38,720 & $16,460, then it raised to $48,510 & $21,370 respectively in 2019. With a rise in college fee, there has been an equivalent rise in the student loan crisis. Some of the prominent factors that made colleges so expensive are:

  • The sudden surge in demand for college degrees;
  • A higher number of enrollments contribute to the expansion of financial aid;
  • Colleges need more funds to pay experienced faculty;
  • Lack of financial support from the government.

3. Not getting employment opportunities- Even after spending tons of money on pursuing a degree, new graduates cannot find a job due to their lack of real-time experience and required skills. Thus, they fail to make loan repayments and get overburned with thousands of student debts.

What Should Students Do?

To protect yourself from sinking under the constant pressure of repaying student debt, you need to determine if getting a higher degree worth it? Conduct market research to understand if the college graduates were able to secure good jobs after completing the degree course or are they still struggling to earn their living.

  • Evaluate the scope of a degree and the corresponding amount of loan it may require.
  • Also, look for substantial alternatives to a college degree that suits your pocket.
  •  Before directly enrolling in a college, it is utmost essential for students to assess the prospective results they will get after completion of a four-year degree. If it results in a vast amount of loan with a piece of degree, then it is definitely not worth it.

Higher education is becoming irrelevant as it does not provide the required knowledge, skills, & expertise to students for starting their career soon after they graduate. Also, the outdated curriculum of degree courses fails to cope with the ever-changing demand of employers who look for top-notch candidates with specialized skills. Thus, college graduates do not get jobs and end up with big debts.

In case, you want to have a better understanding of why higher education or degrees are not value for money, have a look at this blog; https://synergisticit.com/is-getting-a-computer-science-degree-worth-it/.

Conclusion

The current situation of the student loan crisis is horrifying & could adversely strike the US economy if no action is taken shortly. It calls for collective efforts from the state government, colleges, federal student aid, private lenders & students to mitigate the increasing risk of loan crisis.

Besides, students should stop following the crowd blindly and rely more on the nontraditional methods of learning like online training. Instead of going for a degree, students should take skill enhancement training to establish new skills which are in-demand that can help them get lucrative career opportunities.

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