Pros and Cons of Student Loan Systems

Introduction

Academic education has become an essential topic in today’s world. Students all over the world are trying to focus on their colleges and universities and obtaining perfect scores, which can be quite costly in terms of dollars. Funding students’ education has turned into a problematic issue in our society and economy. Consequently, many students evaluate whether student loans could be helpful or not. In the article “Why student loan debt can be good,” author Katie Brazis discusses the bright sides of student loans, including social benefits, academic rewards, job opportunities, and in general higher life quality. I agree with Brazis about the benefits of student loans, no one can ignore the fact that these loans help many students with going to college. However, Brazis has mentioned different benefits of the subject but she has failed to indicate less glorious aspects of it. Therefore, through this article, there are various factors to be considered including students’ performance and efficiency after getting a loan, accountability of colleges and universities, physiological impacts on students, the interest rate, and the build-up of debts, in order to clarify student loan drawbacks more precisely. The target audience of this article is undergraduate students, senior high school students, parents, and the government.

Student Loans: Advantages and Problems

Student loans are considered by many to be the main way to pay for a college or university education. However, what isn’t largely acknowledged is that there are difficulties associated with receiving a student loan, especially when one needs to reimburse their debts in the years to come. Students must be informed of what they are getting into when they benefit from a loan, which they have to reimburse shortly with interest after they get hired. Most often, students are obliged to take out a loan in order to maintain their education and quality of life. Some loans that students typically receive consist of credit card bills and government loans. Eventually, some students might think that they have no alternative but to avail of student loans since they think that it would considerably assist them in organizing their finances while getting into college. But they are uninformed of the drawbacks that lie ahead. This is because while the benefits of student loans are emphasized, the drawbacks are frequently downplayed.

The Cost of Education and Student Loans

While a college or university education may be the key to better-paying occupations once one has graduated, for many individuals it also results in a pile of debt that can take ages—or even decades—to repay. Americans currently owe an all-time high of $1.41 trillion in student loans. In general, there are two types of student loans: federal student loans and private student loans. Based on the applicable loan, the interest rate varies remarkably. For instance, subsidized loans charge no or lower interest, while unsubsidized loans start piling up interest from the start. If one doesn’t recompense the interest while attending school, the charges simply would be added to the loan balance. The interest rates for each college or university year are adjusted by federal law and are pinned to the rate on 10-year U.S Treasury security. Student loans disbursed from July 1, 2019, to July 1, 2020, are accompanied with a determined interest rate between 4.5% to 6.1% according to the level of the study. Moreover, PLUS loans, which are applicable to graduate scholars and parents via the federal program, currently charge around 7% interest.

Limitations and Private Loans

However, sometimes federal loans aren’t sufficient to pay all education costs. At most, one is able to extract $5,500 per year from subsidized federal loans—the real limit relies on the student’s rating level and whom he or she is reliant on for tax purposes. Likewise, unsubsidized loans have a limit of $20,500. That’s one of the motives students and parents turn to private sector creditors, who can assist in filling the gap. Similar to other bank debts, private student creditors will naturally evaluate applicants' credit in advance of offering them a loan. Consequently, since most students don’t have much, if any, loaning background, they might require a cosigner to aid in getting their submission accepted. This indicates the involvement of both students and their relatives in the loaning and, of course, repayment procedures. This actually could lead to the formation of a debt society as Bernie Sanders said, “The cost of college education today is so high that many young people are giving up their dream of going to college, while many others are graduating deeply in debt.”

Impacts on Life Goals and Financial Stability

Furthermore, reimbursing student loans implies putting off other life goals. Research showed that the average monthly student loan payment in 2018 was approximately $350. But lots of college graduates end up paying greater amounts, particularly those who had to use private student credits. This is money that one could use to save for a deposit on a property, fund a wedding, or finance long-term business goals. If a student gets a sizeable amount of student loan credit, he or she might not be capable of starting to pursue other financial goals until after they finish reimbursing the debt, and at that moment one has to double their efforts to compensate for lost time, not considering future struggles. On the other hand, defaulting on student loans can damage the credit score. Although using student loans one can form a decent credit background and, using it, a credit rating that will be beneficial throughout the rest of their life, the opposite could also occur: If one is careless with their student loan use, they can instigate substantial damage to the credit rating. In other words, pulling out more than one would be able to pay back after graduation, neglecting to make the monthly reimbursements on time, and defaulting on the student debts can wholly have significant undesirable penalties for the credit rating. Defaulting is the worst part of it, as it indicates that one has gone for more than 9 months without making payments on student debts. A poor credit rating can follow one through life, forcing individuals to recompense more for everything, including credit cards, car loans, and mortgages. It could also make people lose their jobs, the very thing that they have undergone all these troubles for.

Conclusion

All in all, student loans, if implemented correctly, can have numerous advantages throughout a student’s life. The real problem isn’t the idea of student loans, but the actuality: Notable interest rates, regulations that render it near unfeasible to discharge student loans, and excessive college or university tuition fees that every year pull the joy out of college students and terminate millions of Americans' dreams. That’s the reason why this is a significant issue and must be handled carefully by all who aspire to enter college. In the end, with the help of governmental organizations, students, and their families, these issues could be tackled. Students must apply for the right amount of loans according to their pay-off capabilities and needs. Future parents must think about their child's future and start making early plans for their education to decrease the number of student loans they would need. Additionally, the government has to implement new financial plans to support free education or at least make current courses more affordable for average Americans.

References

1. Brazis, K. (n.d.). Why student loan debt can be good.
2. Sanders, B. (n.d.). The cost of college education today is so high that many young people are giving up their dream of going to college, while many others are graduating deeply in debt.
3. U.S. Department of Education. (2019). Federal student aid: Types of aid. Retrieved from https://studentaid.gov/types
4. Federal Reserve Bank of New York. (2020). Quarterly report on household debt and credit. Retrieved from https://www.newyorkfed.org/microeconomics/hhdc.html
5. College Board. (2020). Trends in college pricing. Retrieved from https://research.collegeboard.org/trends/college-pricing