Student Loan and Planning

A loan refers to any type of credit where a principal amount of money is lent out to an individual, corporate or an organization, where the amount lent out attracts some interest that is payable alongside the principal amount. There are two types of loans which include commercial loans, loans with and without security as well as personal loans. Student loans are not much different from ordinary loans, only that a student loan is an amount of money that the government or any other private lender give to students to facilitate their college upkeep. This money has to be paid later, together with the accrued interest which all depends on the prevailing rates of interest and the economic state financial institutions and the country. Students use this money solely to cater for their tuition, boarding and purchase of books. Student loans can be either federal or private where all loans issued out by the government are classified as federal loans while private student loans can be secured through banks, various agencies and credit unions. Student loans crisis in the U.S has resulted to a huge debt which has affected the country’s economic growth because many lenders are almost filing bankruptcy due to the large sums of unpaid loans. 

Over the recent past, there has been a student loan crisis in the United States, where the current value of the debt stands at $1.6 trillion, a situation that has raised concerns among the stakeholders. On average a student owes the government a total of $25,000 in both student loans and credit card debt for college duration of less than three academic semesters. More shocking statistics have revealed that the student loan debt has registered an exponential, linear growth of over 130% since the decline of economic activities in the Great Recession of 2000. In the United States, the student debts are among the fastest growing division as compared to other household debts, with the country having more than 44 million students with active loans and thousands of many others in the process of applying for the loans (Callender & Mason 2017) 2019, more than 6% of the students servicing the students loans were almost 3 months late on the payment schedules, which has so far turned out to be the highest rate of delinquency to be witnessed in household debt; higher than auto loans and mortgages. 

These statistics have attracted criticism and skepticism in equal measures, making many experts in financial matters to questioning the legitimacy of the planning and financial management strategies employed by the students while utilizing these loans. From the look of the above statistics, it is clear that the planning aspect is missing in almost every student who applies for this loan. Many students do not take time to draft a plan on how the money from the loan will be allocated among all the needs, starting with the most critical needs like tuition and cutting down expenditure on assorted student luxury. Many financial analysts (Ryan 2017) have unanimously agreed that there is need to sensitize the students on proper ways of planning their student resources, including the loans, educating them how to spend the money and how not to. This is important especially when it is understood that most students have proved to be very poor financial planners, applying for too much money that surpasses their needs, together with failing to scout for the most favorable interest rates, hence ending up with both a wrong plan of repayment and an outrageous repayment plan. In this proposal, several (Ryan 2017) strategies of raising public awareness regarding acquiring, planning and utilizing student loans will be covered, as well as educating members of the public on the various public policies and practices regarding acquiring and planning the student loans. These strategies include creating media contact with student loan holders, facilitating public awareness among the students and the general public and creating interactive websites that will be used to collect student feedback. 

Problem Statement 

Ineffective planning on the usage of student loans is a problem that has not only resulted to a spiraling value of student debt but has also ensured that many students do not commence the servicing of their loans on time. Lack of proper plans in place before acquiring a student loan has made many students apply for these loans just for the sake of it, and with little information on the choice of repayment plans and interest rates, which has given many private lenders an avenue to exploit the unsuspecting students by setting the interest rates rather high and having the most exploitative loan repayment plans (Hartlep et al., 2017).The planning emphasized in this context involve sourcing for the relevant market information regarding the loans, by establishing who are the best lenders with a convenient degree of flexibility, what amount of money is sufficient to a college student, which is the most appropriate time to apply for a student loan, among many other factors. Some of the obvious causes of student loan planning problems include lack of information and technical advice especially to the high school students; hence they have limited information when making critical financial decisions such as applying for loans (Hartlep et al., 2017). Furthermore, the problems are attributed to inadequate education and apt support systems intended to help the students together with their families to make a variety of flexible and smart choices concerning the loans. Most government authorities and agencies have shifted all their efforts and resources into regulatory services and teen sensitization on substance abuse, forgetting that young college students too need to be trained and sensitized on financial matters. Through this shifting, students have continued to source the loans from lenders with little information, which has made repayment difficult resulting to the current student loan crisis in the country. 

Objectives 

The purpose of this proposal is to identify some of the student loan planning problem and how best the students and the general public can benefit from sensitization efforts to equip them with financial literacy that will enable them to overcome the challenges and make informed financial decisions in future. The specific objectives of this proposal include: 

To outline the various strategies to use in creating awareness on student loans and planning. 

To establish sensitization strategies to use in educating students servicing student loans on the prevailing public policies and practices that govern the loans and their repayments in terms of loan duration and payment plans. 

To identify the key stakeholders in addressing the problem of student loans and planning. 

To access of the specific social, political and economic contextual factors related to student loans and planning. 

To find out of the suitable lines of investigation and the information types to be gathered to address the problem of student loans and effectiveness of the planning measures. 

Literature review 

As the number of college student loan borrowers continue to increase, the collective amount that they continue to owe both federal and private debtors is also increasing with equal speed. From the statistics reviewed earlier in this proposal, more than 44 million students both in high school and senior category have active loan statuses, owing the creditors approximately $1.6 trillion in both debts and accumulated interests (Hartlep et al., 2017). Such shocking statistics describe a really unhealthy trajectory in terms of the devastating impacts of high unpaid debts to the economy. Several recent surveys have revealed that the loan debts are causing an economy drag as those students with outstanding loan balances have a rather worse credit score as compared to their counterparts who have cleared the debts (Hartlep et al., 2017). Further, many surveys have speculated grave economic impacts if the government decided to pardon both student loan defaulters together with those with outstanding balances. 

A group of American economists and financial analyst have predicted that if the student loans were canceled from the national’s debt skip trace and recovery agencies, then the government should be better prepared for a huge net negative in the economy, which may end up ruining the country’s GDP as well as vital economic support frameworks. Despite these escalating trends and statistics regarding student loans and planning, things are not completely out of hands and something can definitely be done to correct this trajectory, which is otherwise a time bomb to the country’s economy together with federal and private lending agencies. If the government just observes these trends doing absolutely nothing, there might reach a point where the major lenders in the country with either file bankruptcy or decline advancing more loans to students in both high school and senior categories. This is because the rate at which new loan borrowers are applying for student loans doubles the rate at which the graduate students are servicing their loans, which makes lesser money available for new borrowers. This in turn, translates to very high interest rates as well as unfavorable repayment plans to keep things balanced as the lenders try to keep their businesses afloat. 

Public awareness raising strategies 

The major intervention that can be made to salvage the current situation is ensuring that both the students with outstanding loan balances and those intending to borrow the loans for the first time are properly sensitized on how to plan their spending effectively and minimize the need for these college grants as well as managing the money awarded as loans. Planning is one of the key ingredients of financial literacy hence it is important to teach the students how to properly plan their money once the loan applications are approved and the money disbursed into their account. This planning should take effect from the time the money is credited into the individual student accounts throughout the various expenditures. Effective planning will enable the students to adjust their spending accordingly so that the loan money can sustain them for as long as possible, without necessitating appeals for more cash. Planning will help them develop financial discipline and fully utilize the loans on important things like college accommodation and upkeep, tuition fee and textbooks purchase, instead of directing the money into luxurious uses. 

Several strategies can be used in raising public awareness and progress meaningful campaigns against unplanned uses of loan money, as a way of making the allocated amounts sustainable. Some of the strategies that can be employed to boost the aspect of student loan planning and financial literacy include establishing media contact with the general public, in which students who are servicing loans as well as those about to apply for the loans are part. The media contact can be established through specific television programs, newspaper columns, dedicated journals, printed financial circulars and newsletters which teach about the importance of planning student loan money and guides the students on how to embark on productive financial plans such as bulk purchasing to save on cost. Also, public awareness can be created through social media platforms such as twitter and Facebook, where the government lending agencies engage the students on these platforms to discuss and train them on various financial matters and how to make best use out of the student loans through proper cash management and usage planning. More so, interactive websites can be used to enable members of the public and the students to share their experiences and feedback which will help the governmental financial lenders and other agencies identify the common challenges faced by students as they manage and utilize the money. This will guide the agencies in designing tailor-made educative programs to help the students plan their expenditures hence optimizing the allocated loan. 

Building public policy and practices 

In light of the aforementioned challenges concerning planning the use and management of student loans, it is important to focus on some of the fundamental public policies and practices that govern funding of students in terms of education loans. These policies have a direct effect on the nature on the way the student debts are structured and how the lenders have drafted the repayment plans and set the interest rates. In doing this, it is possible to pinpoint out the specific policies that do not work in streamlining the student loans and maybe suggest how the authorities can step up these policies through re-organization of such policies. For instance, among the important policies regarding student loans is the National Funding Policy, which is responsible for organizing student financing through lobbying collectively between the private stakeholders such as students and their families and the public stakeholders like the government and private lenders. These public policies can be improved to increase student funding from the government hence reducing their overdependence on student loans. Also, the policies can be restructured to regulate and apply checks on the interest rates that student lenders assume together with guiding on the structuring of the repayment plans to make sure both sides benefit simultaneously with neither the student beneficiaries being exploited nor the lending agencies incurring losses. This will ensure that the lenders only give the students what is enough rather than what the students ask for, which will help in preventing the upsurge of student debt. 

Also, cost sharing public policies such as the tuition-free policy should be fully implemented to allow government access into higher education institutions such as colleges and streamline the rates of tuition fees which will ensure that the cost of education is affordable to many students especially those from the low socioeconomic potential areas, who are more prone to applying for student loans (Callender & Mason 2017). This intervention will not only lower the tuition cost but also significantly reduce student dependence on the loans, which expose them to exploitation by unscrupulous lending agencies that set incredibly high interest rates. Tremendous policy progress will apply checks on the amount of money that a particular student is eligible to, after a thorough assessment of his or her social economic background, to ascertain that each student gets what is enough and what he or she is capable of repaying comfortably within the shortest time possible. This will in turn reduce the unhealthy buildup of student debts. More so, The restoration of divergent interests such as the bankruptcy proposal are being deliberated upon by policy makers to ensure that students with outstanding loans are protected from bankruptcy by the policy, hence making the lenders to assume responsibility and work collaboratively with student borrowers who are struggling to make ends meet. 

Key stakeholders 

In understanding the problem of student loan and planning, it is important that we focus on the various stakeholders together with their roles, and how they have contributed in one way or the other to the huge debt of student loan. One of the stakeholder group is the students, who have an upper hand in the current student loan crisis that is threatening the country’s economy. As the cost of undertaking a college degree continues to balloon with each passing day, the student loan borrowers have opted to the readily available option, which is applying for a study loan, especially given that the loan application process takes less than 10 minutes and does not require any assets to use as collateral. It is worth noting that recently, there has been a significant increase in the average age of the borrower, mostly due to parental borrowing, where financially unstable parents secure loans to send their children to college. This increase has also been attributed to the outstanding loan balances that need to be serviced. 

Other stakeholders include the schools such as universities and colleges, which have contributed to the loan crisis by having extremely high college tuition fees which makes it hard for the students coming from middle income families to sustain their upkeep and tuition without applying for student loans (Ryan 2017). The private universities are particularly becoming pricy with time, further encouraging student borrowing. 

Lenders, whether private or federal want their money back together with the accrued interest after the stipulated amount of time. Some of the identified areas of inquiry in solving this crisis include college and university fees structures, different lenders manifestos and terms and conditions of engagement together with prevailing government policies. 

Social, Economic and Political Contextual Factors Affecting Student Loans and Planning 

A closer look at the student loan crisis in the United States today indicate that the situation is more of a result of the state of the economy rather than the high cost of education. This is because the prevailing high rates of unemployment and the looming economic down run in the country has forced many students to take up the loans to cater for their living expenses. Politically, the lenders have contributed into the student loan crisis by heightening the loan consumer protection, which has gained momentum due to well-funded campaigns spearheaded by paid lobbyists. Such strategic political influences have actively contributed to the crisis. The social and cultural background of some students, coupled with the shrinking jobs in the country, has ensured that parents borrow for their children because it has become hard to harness enough savings to send their children to college (Hartlep et al., 2017). 

Proposed lines of investigation and information types obtained 

The proposed lines of investigation that can be used to understand and solve the problem of student loan and planning include researching intensively from secondary materials on the relationship between poor financial planning and management and the current student loan crisis. Also, another line of investigation may include conducting random interviews to ascertain how political forces and influences play a role in the ballooning student loan crisis. Online surveys can be conducted using online survey tools such as survey monkey or Amazon Turk mechanical tools to get the reactions and feedback of various stakeholders regarding student loan and planning, as well their suggestion on ways of stabilizing the crisis. From these lines of investigation, primary, secondary and tertiary data types will be obtained. The surveys and the interviews will yield primary data on how different people feel about student loans and their effective management and planning. Secondary information will come from journals and textbooks showing how prevailing political forces affect the student loan crisis. Tertiary sources will be sourced from lenders’ databases showing how many students are having active loan statuses and those who are yet to commence servicing their loans. 

Conclusion 

Regarding the current student loan crisis, it is clear that several multidimensional approaches are inevitable to keep things in track and ensure that the high value of student debts do not result to devastating impacts to the economy. Furthermore, it is recommendable that various agencies should pioneer training and sensitization campaigns oriented towards financial literacy and loan management to help the students plan their financial requirements according to priority, an effort that will reduce the dependence on these loans for the college study duration. 

References 

Callender, C., & Mason, G. (2017). Does student loan debt deter higher education participation? New evidence from England. The ANNALS of the American Academy of Political and Social Science, 671(1), 20-48 . 

Hartlep, N. D., Eckrich, L. L., & Hensley, B. O. (Eds.). (2017). the neoliberal agenda and the student debt crisis in us higher education: indebted collegians of the neoliberal american university.Taylor & Francis. 

Ryan, W. L. (2017). us higher education financing has significantly changed, so too should seventh circuit student loan discharge law. n. ill. ul rev ., 38, 436.