If the student loan system is going to be reconfigured, certain realities need to be kept at the forefront
The new government plan is designed to help millions of students go to school and strengthen the citizenry of the United States, the original reason that the government began student loans 70 years ago
As the approximately 18 million university students in the U.S. now return to the classroom for the 2010-2011 school year, they all assume-by and large correctly-that the benefits they will receive from attending college, be they economic, social, or cultural, will outweigh the costs. But those students might be paying those costs for years to come, mortgaging their futures in the process.
Americans across the political spectrum also believe, generally correctly, that higher education is the main way that most people can improve their lives. College administrators and testing agencies make sure that everyone knows that a college education is worth a cool million dollars over one’s lifetime.
Of course, by relying on an economic accounting based on lifetime incomes, we run the risk of miscalculating what a college education really means. Personal growth and intellectual engagement cannot be quantified, and the benefits they grant to students are not directly related to their ability earn a larger paycheck.
At the same time, there is almost nowhere more fun and enriching for an 18-22 year old to spend his or her time than an American university. This, along with increasing college enrollments, show that the demand for a spot on a college roster is mostly independent of tuition price changes.
In the past few years, however, the growth of student loans and the collapse of the credit erican public to take a longer look at college funding systems and whether or not the cost is worth the price. They have examined how students fund their pricey college education, the student’s ability to repay the loans, or why they choose loans at all. The new FDLP looks to address those concerns by putting the government, instead of independent and private creditors, as the agent between consumers (college students) and colleges.
1) College costs have expanded much more quickly than personal income. 2) The rules about collecting those loans heavily favor lenders. And 3) the billions of dollars made with government guarantees are largely kept by private corporations. Only by addressing all of these points will any new configuration of the student loan system work.
It also represents the latest attempt to pay for democratizing higher education and improving America’s global competitiveness. By stepping into the student loan market, the federal government promises to serve as a benevolent agent to allow students to make the choice on funding higher education under the best terms possible.
As the costs of a university education have spiraled upwards over the last few decades, the task of making school affordable has become an ever more important social and economic policy goal for leaders in Washington.
As larger numbers of people enrolled in colleges, the consumer credit e comfortable using credit. However, without much precedent for lending to young adults with no collateral, most private lenders in the credit market were slow to enter the student loan market. They did so only after the federal government set up frameworks and guarantees to protect them. In this way, credit became a principal way students paid for college.
No one ever questions the economic benefits of securing a college education. For the past decade, college administrators and test preparation companies have claimed that, over a lifetime, a college education is worth $1,000,000 in wages (compared to those with just a high school education). A major benefit, even if a student takes out thousands in loans to realize it. A student would have to invest around $100,000 at the age of 18 to make up that difference.
While the level of federally subsidized loans and grants are pretty well known, the level of private student loans is more difficult to document
These numbers do not tell the whole story, however. Private loans make up about 23% of the total student loan market. Sallie Mae makes both types of loans; its private loan portfolio is about half the size of its federal loan portfolio. However, Sallie Mae makes student loans at about 9% interest, 5% more than federally backed loans.
One way that the current administration is helping students is through a new repayment plan, called Income Based Repayment (IBR). The IBR plan allows students to pay a certain percentage of their current income, even if it is lower than the minimum payment, without penalty. Interest does not accrue on the unpaid principle, so this allows the debtor to keep making smaller payments without making his payments higher in the long run. If the debtor pays lower payments using the IBR formula (these forms must be redone at least every year) for 20 years, they will not owe any remaining debt. This time period is shorter for students who enter public service.