The Student Debt Crisis.
Would you lend a 17-year-old your own money? A 17-year-old without a job and no assets to speak of? Of course not. Then why is there such a thing called student loans? Well, as most people think, getting through a good college is a guarantee for success. Many even go as far as to think that they can pay back a huge loan after passing out and getting a job. But what makes banks lend their money to students in the first place? And what makes these students’ parents accept this risk? Let’s learn more about why this happens and what’s the cause of Student Debt.
There are answers to all of these questions. Suppose a bank is willing to lend $100,000 to a student and expects it back with interest after a few years. The student’s parents or guardian would think ten times before making this decision. However, in this case, the student is only supposed to pay back the debt if he/she passes out. If otherwise, the bank that lent the money would be at a loss, right?
Wrong! The banks get their credit back, regardless of the student passing out. This is because even politicians support this! And the government takes responsibility for paying back the loans in case the debtors don’t pass out. So, this is how the build-up happened; students who couldn’t afford college started getting loans.
In the beginning, many students unlocked their full potential and were able to pay back their debt. Especially the students who went on to be high-paid doctors. Many of them could pay back their debt in less than five years. Also, as more and more individuals were flourishing, it soon became a norm; bringing up the demand for these loans. It was a win-win situation; until it turned into a crisis.
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In fact, as Harvard Business Review Home mentions:
“The central problem for many is the accumulated student loan debt. At nearly $1.6 trillion, student loan debt exceeds accumulated car loans and even credit card debt.”
How it became a crisis
Soon enough, colleges and universities realized that students are getting loans from banks to pay for tuition. This created an opportunity for these institutions to raise tuition prices. Now due to this, even the ones who could afford the standard tuition fees had to take loans to be enrolled. What began as an act to make college more affordable, slowly backfired.
Along with more students being trapped in debt, there should also be a question about those who pass out. Not everyone who passes out of a respectable college can raise enough money to pay back their debt. Initial paychecks are just not enough to aid the masses, and it takes years of hard work to get promoted. As mentioned before, interest is also a major concern; which typically adds up per month.
A similar situation took place in 2008, where companies lent out mortgages to people who couldn’t afford to pay them back. If mortgage debt isn’t paid, the lender has full authority to seize personal assets and wages. On the other hand, student debt is not secured by a property and remains stuck to the debtor until it’s paid back. This has ruined many lives and is driving people to protest.
An article by the name of FORTUNE says:
“Private for-profit schools are the worst offenders of promoting loans to students less likely to be able to pay them off. About 48% of borrowers who attended private for-profit schools defaulted on their student loans during the first 12 years, compared with 12% for attendees of public colleges and 14% for nonprofit private schools. According to the Education Department, the 15 schools with the highest default rates are all for-profit private schools”
Expectations from college
What is the one service that people pay for, even when they criticize it? It’s fairly obvious; college. If colleges are supposed to guarantee success, and if students don’t get that success, then the students need a refund, right? If that happens, they would have to be up to date with their teaching, teachers would have to work night and day and these institutions would have to ensure that their students get a job after graduation. Unfortunately, there are only a handful of schools that have such practices. The others are just concentrating on status, by introducing new swimming pools, exotic sports such as sailing and horse riding, fine dining and much more.
If more students are trapped in debt, the next generation won’t be able to afford necessities, let alone services and lifestyle products. This would also contribute to the slowing down of the economy, as employers would find it difficult to find capable employees. Disguised employment in the economy would also increase and debtors would take to the streets. Violence would also be a matter of concern in the long run.
What is driving the need for student loans?
Slowly, colleges and universities realized that students are getting loans from banks to pay for tuition. This created an opportunity for these institutions to raise tuition prices. Now due to this, even the ones who could afford the standard tuition fees, had to take loans in order to be enrolled. The lavish service and status of top-class colleges attracted even more students.
How will the student debt crisis affect the economy?
If an increasing number of students get trapped in debt, they won't be able to afford basic necessities, let alone services and lifestyle products. This would also contribute to the slowing down of the economy, as employers would find it difficult to find capable employees. Disguised employment in the economy would also increase and debtors would take to the streets. Violence would also be a matter of concern in the long run.
How is the competition better?
There are only a handful of colleges that guarantee their students’ success. They look out for job opportunities, provide up-to-date information and employ hardworking and knowledgeable teachers. This way, these unique institutions ensure their students’ success.