Getting higher education in the U.S is expensive. According to the Education at Glance, America spends more money on higher education than any other country in the world.
The U.S. spends more or less $30,000 per student per year, money from individual contributions, and the government included. This is twice the average tuition fee in other developed countries. For this reason, most people resort to student loans.
With its flexible payment options, many are compelled to apply for one. For most students, applying for a student loan is the only way to get into college. However, with the ongoing surge of people struggling with student debt, the situation turned for the worst, and the economy is affected.
What Are Student Loans?
A student loan is a type of financial assistance that hopeful college students can apply to be able to acquire higher education. These fees include tuition, books, school supplies, and other school-related expenses. These loans have lower interest rates and have a grace period where students wouldn’t pay the loan back until after completing their education.
The U.S. spends more or less $30,000 per student per year, money from individual contributions, and the government included. This is twice the average tuition fee in other developed countries
There are many types of student loans. Some loans can be applied from private institutions or federal loans. The latter offers loans that have a lower and fixed interest rate, making them more tempting compared to private institutions.
What Is the Student Loan Crisis?
In the U.S., one in five American adults is burdened with student loans. According to research conducted by the Federal Bank of New York, 44.7 million are subjected to pay off their student loans immediately after finishing their degrees. In 2020, the entirety of the student loans in the U.S. amounted to $1.56 trillion.
With nearly $1.6 trillion debts, the student loan debt had exceeded the accumulation of other loans, such as credit card loans and car loans. This is a crisis, especially to graduates with debts taking at least a decade to pay off in full.
However, the debt is expected to still increase exponentially in the future. By 2021, economists predict that the total accumulation of student loans in the entire U.S. might reach $2 trillion. This is with a growth rate of 7% every year.
How Does This Crisis Affect the Economy?
Because of how much the student debt increased, many graduates had put some of their lives on hold. Some have put off getting married, while others are struggling to pay off their other debts along with the student debt. Others choose among the top credit repair companies to resolve this matter in a different way.
Compared to Boomers and Gen X, who had 45% homeownership percentage after finishing college, only 37% of Millennials were able to have a home. According to ProgressNow, 36% of graduates will less likely buy a house of their own.
These struggles are amplified with the inability to find decent work in a college graduate’s field. Apparently, despite meeting the qualifications needed jobs aligned with their degree, many college graduates settle on lower-paying, lower-skill jobs so they can immediately start with paying off their student debt.
Some students are applying to other loans to ease their burden. Be it quick cash loans with same day payout, unsecured personal loans, or other loans with lower interest. Many graduates resort to them and hope that they can pay off their debt in fewer years.
Because of how much debt college graduates get into, there are quite a number of defaults and delinquencies. The rate of defaults went up to 11.55%, and according to Rohit Chopra, most of the borrowers that defaulted are not graduating or finishing their degree.
The crisis had also influenced the minds of those who are about to graduate high school. Many high school students fear the burden that student loans offer. That is why many students, especially ones with lower income, have been hesitant about the idea of getting a degree.
What Will It Take to Solve This Crisis?
The best thing that the government can do to lessen the already bloated student debt crisis is to reform the program itself. The loans that college students were offered meets the immediate need of the students while they are still in college. However, it is harmful to economic sustainability and long-term cost-effectiveness.
The policy had been under discussion recently. Federal Law had required colleges to show much more transparent information about the cost of their schools. Both public and private sectors have been recognizing how widespread the problem is with student loan debts.
Because of a newly introduced legislation making it a goal to rewrite the laws and rules regarding student loan interest, refinancing, and method of repayment, the crisis could take a turn for the better. Sen. Elizabeth Warren had introduced a bill that can forgive the student debt of at least 45 million Americans. The Student Loan Debt Relief Act had been proposed in April 2019 and has been updated during its most recent introduction.
Getting a higher education can help us reach our dreams. Not only will it have a higher likeliness of getting us decent-paying jobs, but it can also set us up in career satisfaction. However, because of how expensive college can be, many resort to student loans to reach their goals.
As years pass by, these student debts are not only affecting one American individual, but also the economy of the country. By revising the laws that are shackling college graduates from a seemingly never-ending pool of student debt, the quality of life might increase, and the economy will progress with it.
Scarlett Wells is a full-time content writer who contributes articles on various topics. She likes to write about travel, investment, real estate, and finance. In her free time, she plays different kinds of board games, like scrabble and chess.