In the US, the average cost of attaining higher education has gone up over the past couple of years. According to the Federal Reserve (n.d.), the tuition, board, and room fees over 2017 and 2018 is at an average of $46,954 (four years private) and $20,770 (four years public). This implies that students who join public and private educational institutions have to pay a very large amount of money over the four years in university. Most families in the US cannot afford these costs and as such, they end up taking student loans to cater for the expenses.
In 2016, it was reported that the estimated student loan had accumulated to $1.3 trillion with more than 44 million Americans taking student debts (Avery & Turner, 2017). Out of these numbers, 7 million had defaulted in payments over the previous year. Most of those who had graduated in that year still had outstanding loan balances amounting to more than $37,000. The truth of the matter is that even though these loans help students to join universities and colleges, the impact of student loan debt is very severe on an individual level. One would think that after taking out a student loan to pursue a degree, there is a guarantee of employment but this is not the case.
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According to Hershbein & Hollenbeck (2015) , 9.2% of Americans between the ages of 20 to 25 are still unemployed, which serves as an indicator of how bad the system has become. These statistics point to the fact that even after the students take out the loans, they are still not able to pay for them after school because they end up becoming jobless. In 2017, the Federal Reserve Bank reported that there was massive unemployment among college graduates, proving for a fact that the financial aid program had pushed up the cost of attaining higher education in the nation. Once a student takes out this loan, he or she is unable to start their own business because they cannot afford to pay their previous debt. Below is a summary of student loan debt by statistics over 2016.
STUDENT LOAN DEBT STATISTICS BY LOAN TYPE:
Stafford Subsidized | $272.5 billion | $29.4 million borrowers |
Stafford Unsubsidized | $449.6 billion | $27.9 million borrowers |
Stafford combined | $722.2 billion | $32.6 million borrowers |
Grad Plus | $55.7 billion | $1.1 million borrowers |
Parent Plus | $81.5 billion | $3.4 million borrowers |
Perkins | $7.9 billion | $2.6 million borrowers |
Consolidation | $464.5 billion | $12.0 million borrowers |
In America, the cost of living has gone up over the years and as such, this has increased the costs in other critical areas such as the education sector. The loan subsidy program has not made anything better because whenever a student decides to take out a student loan to pay for college education, they give up the money that they would have earned working as full-time employees in the future (Fossey & Bateman, 2008). A big chunk of their money would be taken to settle the monthly installments until the loan is cleared, which may consume more than ten years depending on the type of job secured. Most of the students who took loans to pay for university or college normally start out their lives in debts. There are those who would argue that once you get employment, it would be very easy to clear these debts but this is not the case. Depending on the loan amount that was given, one may end up spending the first few years of employment in financial turmoil. Moreover, there is a high likelihood of ending up jobless and struggling to make ends meet, and yet you have a debt trailing your back every time you want to invest or become an entrepreneur.
One of the main downsides that come with student loans is that you would have to start paying off the interests while you are still in school. The implication of this is that a student would have to work while in school so that he or she can be able to pay the installments. At the end of the day, those who are given loans enroll as full-time learners meaning that they will have a limited time frame to work on a part-time basis. At this point, keeping up with the school workload may become impossible and as such, a student may end up posting bad grades.
Most people would think that declaring themselves bankrupt will lift off the debt from their list of burdens but this is not the case. If a person cannot afford to pay for their car loans, credit card bills, medical bills or mortgage, they normally have one last escape option in place, declaring themselves bankrupt. This is, however, not the case with student loans because making such a declaration does not get rid of the debt. The law clearly states that by no means shall a person use this status as a reason not to pay off their debts.
If a student defaults in repaying the loan, this may ruin their credit score. A good credit history is a very important aspect for a student because it will determine their financial status in the future. This implies that if a student takes more than they can pay, they will most likely fail to settle the debts after graduation and as such, they end up becoming defaulters. If they join this category, they will pay more for things like mortgages, car loans, and credit cards. Taking another loan in the future will also be a problem because the person will lack creditworthiness.
The opportunity cost of taking out a student loan to pay for higher education has its perks because it gives one a chance to pursue their dream career ( Rothstein & Rouse, 2011 ). Without this subsidy program, many people would not be where they are today. It is because of these programs that many of our leaders and innovators have come to grow and nurture their talents. For those who graduate with their degrees and get well-paying jobs, life becomes easy because they are able to cater for their cost of living. In addition to this, they are also able to afford other luxuries in life and build a better life for their future generation. Those who have attained higher education earn higher salaries as compared to those who have not as seen from the table below (Federal Reserve, n.d).
Student loans have ricocheted throughout the country and affected the economic patterns and individual lifestyles of the society. There have been increased rates of people postponing their investments, ambitions, purchases, marriages and even childbearing plans as a result of student loans. These increasing trends of the debts have worsened the level of economic inequality thus undermining the social mobility and opportunities that have been promised by the education system. Most people believe that getting a college degree would lead to financial progress but what they fail to acknowledge is the fact that debts are always hindrances to success, especially large ones. People are, therefore, better positioned to succeed if they graduate from college without a student loan.
References
Avery, C., & Turner, S. (2017). Student Loans: Do College Students Borrow Too Much--Or Not Enough? Journal of Economic Perspectives , 26 (1), 165-92.
Federal Reserve. Retrieved from
https://www.federalreserve.gov/releases/g19/current/default.htm
Fossey, R., & Bateman, M. (2008). Condemning students to debt: College loans and public policy . Teachers College Press, PO Box 20, Williston, VT 05495-0020.
Hershbein, B., & Hollenbeck, K. (2015). Student loans and the dynamics of debt .
Rothstein, J., & Rouse, C. E. (2011). Constrained after college: Student loans and early-career occupational choices. Journal of Public Economics , 95 (1-2), 149-163.
