Student loans are debts that are owed to the government or institution by attending and graduated students of institutions of higher learning. The definition also applies in cases where students withdraw from schooling or drop classes. In most instances, the students are given grace periods when they are expected to provide information regarding their employment or earning. The information is aimed at facilitating payment negotiations with the lender. Like other categories of debts, student loans are considered defaulted whenever students fail to respond within a specified amount of time (Kay 25). After students have defaulted on their debts, the lender initiates deliberations with collection agencies or Student Loan Guarantors with the aim of recovering the money.
Student indebtedness results into a number of ripple effects. Among the most common one is the situation whereby an education institution resolves to hold transcripts and records of students, even after they have completed their studies. In most cases, such a move disqualifies students from attending other educational institutions. This is due to the fact that most institutions require archives of the applicants. Since such archives incorporate the students’ past attendances, their indebtedness is usually revealed. However, upon the initiation of monthly payments on debts, most former schools provide the student with unofficial copies of transcripts. The transcripts may also be sent to the latter institution as proof of attendance (Kay 25). The former students are the removed from the black list, and this enables them to borrow again if need be.
Student loans differ from conventional loans in a variety of ways. Firstly, their interest rates are at 6 percent, a value which is higher than most categories of home loans. Additionally, students do not negotiate with the lenders. Their repayment begins from 6 to 12 months following the leave from school. In most instances, the repayment is compulsory, whether the student completed studies or not. Some terms require the student to begin payment after the course load has dropped to less than half its duration (Alan 10).
Students are provident with varied alternatives during the repayment exercise. For instance, it has been noted that an extension of the repayment duration reduces the amount of the monthly payment. However, this increases the interest rate, a scenario which worsens the situation for individuals from poor backgrounds. The extension terms include the payment period being offered to the students by the lending institution and the federal government’s loan consolidation (Beck 120). Other extension options include the income sensitive loan repayment arrangements as well as deferment due to hardships. The issues of consolidation and extension will compound to the principle. In most instances, the unpaid penalties and interests are capitalized.
During the research, the signing of the Master Promissory Note has been noted to be a requirement. In its signing borrower promises the lender to repay the amount owed as par the terms and conditions of the lending. The document is a bidding contract that directs the manner in which the students will obtain the loans after being consider eligible, as well as the mode of repayment. Several borrowers have been expressing disgust due to victimization by the loan corporations on the basis of the possibility of default. They argue that most of those who go for loans have no other means of facilitating their college education (Alan 10). In America, there have been several instances when individuals have missed opportunities as a result of huge loan balances. Many critics argue that such a situation bankrupts the students. In regard to this, there have been varied opinions in the press regarding student loans and their effects on bankruptcy. According to an article in a recent New York Times publication, most Americans are endorsing views of bankruptcy protection among the private students (Beck 120). This is especially so due to the effects of the recent economic downturn in the face of increasing tuition fees in graduate institutions.
This study evaluates the effects of unmanageable indebtedness on a person’s life. In particular, it focuses on college graduates and their increasing dependency on tuition loans. It has been noted that grandaunts of four-year courses carry unmanageable debts. The scenario is even worse for those that get in the public service. As such, the debt burden deters dedicated and skilled graduates from remaining in their careers. Most individuals shun courses such as education and social services. Neglecting these areas affects the nation to a great degree as children is not adequately educated a scenario that leaves the country vulnerable to the inadequacy of knowledge.
According to Mary Pilon’s study, The Student Loan Effect, student loans obstructs youths from humble backgrounds from schooling at institutions of higher learning. There have been noted worsening of the situation as a result of the latest effects of economic downturn and unemployment. Many youths fear that attending costly courses may leave them heavily indebted, besides being unemployed. One such case is that of Michelle Bisutti. Bisutti had taken a student loan of about $250,000 with a view that on completion of her medical schooling, she will repay the loan without difficulty. Upon her graduation, she did not manage to repay as fast as she had planned, and as of 2010, the debt had ballooned to over $555,000 (Beck 120). Such issues have prompted the congress to fix an interest rate of 6.8 percent for all students with federal loans.
Cases of outstanding debts are widespread. In fact, as of February 2010, the outstanding student loan in America was more than $ 730 billion. During that time, active repayments were less than 40%. Most of the outstanding balance was in the process of being declared bad debt as a substantial number of students had either defaulted or deferred their repayments. Nonpayment reduces creditworthiness of a person (Beck 120). Most institutions and government agencies are reluctant to provide financial assistance on defaulters. Black listing youths decapitates their goals and endeavors, a situation which results into resentment and social instability.
College education benefits a nation’s economy, a scenario that improves its image and its global standing. Realization of this fact has prompted authorities to take necessary measures aiming to deflect the cost of education to enable people to graduate with lesser amounts of loans and lower interest rates. According to Stephen Seaward of St. Joseph's West Hartford College, cutting student debts creates more employments. He adds that cutting of student debts enhances financial security. This leads to a free and prosperous society.
In the United States, students’ financial aid is aimed at facilitating the payment of educational expenses such as tuition fees, books, supplies, board, and rooms. The loans are accessible to students of private schools, colleges, and universities (Alan 10). The American government provides funding for specific categories of students based on a couple of criteria. At times, the authorities use the term scholarship while referring to the financial aid, grants, and other packages that are awarded to students from intended schools and colleges. In most instances, the federal and state governments awards scholarships to need-based and merited students (Dept. of Education, 30). It has been noted that scholarships reduces the burden that students and their families have to carry at the end of college education. Such a scenario makes education appealing to the less fortunate in the society as they hope to complete studies in order to facilitate the uplifting of their living standards.
According to the United States department of education, the fear of indebtedness is among the main deterrence to college education. Most young people from the under privileged families consider student loans as another form of government censorship to their freedom after schooling. This scenario is prevalent among the minority groups, especially the blacks. Although the American society has made remarkable improvements towards the eradication of segregation, members of the black community have retained the suspicion that existed in the period before 1960s (Dept. of Education, 30). Nevertheless, it has been noted that most members of the society long for college degrees and diplomas. After careful evaluation, it has been established that had there been a substation of the loan system for tuition subsidies, many high school students would gain motivation to work for grades that would enable them to join college.
Currently, many students know that indebtedness restricts their educational advancement, career choices, as well as financial credibility. There is a widespread belief that the summation of credit card bills with student loans results into limitations that can hinder any chances of advancement. However, the less fortunate have few chances of advancing education without loans. They consider borrowing as the only solution to their fees problems (Lynnette, 70). Nevertheless, whenever a student borrows more than he needs, he invites the repayment burden. The burden may result into missing of opportunities that the student would have exploited.
Several economists including Saul Schwarz and Sandy Baum have published reports proposing establishments of benchmark systems for application during the estimation of burdening student debts. The economists express concern that recently graduated individuals cannot manage their loan repayment as a result of their minimal salaries. They have established a threshold minimum that establishes the level below which individuals are not expected to repay their loans (Lynnette, 70). They use a formula evaluates facts that lead to constraints for students who come from low income families.
In American, universities and colleges play a central role in educating the citizens, as well as immigrants. These institutions have made innovators, educators, and public servants. Presently, university education is the goal of a substantial number of high school students. Individuals aim at attaining college degrees due to the benefits and promises that it presents to an individual and society at large (Nancy 50).
Nevertheless, a section of the society has been raising concern regarding the impact of the debt that individuals incur as students. Many argue that the huge debts reduce their credit worthiness upon completion of college education. Many financial institutions avoid lending to newly graduated individuals fearing that the summation of the debts would be overbearing for them. The newly graduated persons end up suffering, especially if they do not get immediate employment (Nancy 50). Unemployment compounds their troubles as the interest keeps increasing the amount they owe the government and other financial institutions. Many critics blame the government. They argue that, in recent years, successive governments have been reducing their support for college education. The decline has resulted into a rise in tuition amount. The amount of grants being offered has been inadequate, and as the fees continues to swell, students are ending into more debts before the completion of their courses (O’Connell 30). The criticism of the government has risen following the realization that the percentage of indebted students has doubled between 2000 and 2009.
The system has been criticized of inequality as students from moderate and low income families suffer the most as compared to the other categories. This is because these families spend most of their earnings on rent, food, and health care. As borrowers with struggling families, students from poor backgrounds borrow huge sums of cash, a portion of which goes into the family contribution. For these students, chances of advancement are curtailed. Loan repayment is a significant impact of an individual’s credit worthiness. As such, whenever students from poor back grounds fail to secure gainful employment, their lives are negatively impacted. Moreover, their debts become unmanageable as well as burdensome (Reyna 20). This scenario has lead to critics wishing for subsidizing of college education instead of loaning students. They prefer such a case since the students would no longer be indebted.