What to know before applying for financial assistance
In 2019, more high school graduates than ever will be going to college, which is good news.
But tuition fees are skyrocketing; the cost of college has more than sevenfold since 1983. Students regularly attend more than four years to get a diploma. Students are increasingly taking out loans, both public and private, to cover costs, and the federal government has responded by increasing the amount people can borrow.
And Washington already holds or guarantees $ 1.4 trillion in student loan debt to nearly 43 million borrowers.
In other words, America’s multi-billion dollar student debt has many fathers. Solving it will require everyone to work together to better educate students and borrowing parents on the balance between aspirations and debt – and ensure that students graduate on time with the skills. demanded by employers so that they have a hope of repaying.
The federal government, whether on purpose or not, has helped make the rise in university tuition fees possible by subsidizing student debt – capping interest rates for undergraduate borrowers at 8.25 percent. In 2013, President Obama nearly cut interest rates on undergraduate student loans half by linking them to financial markets.
The government has also raised the aggregate limits on Perkins loans for four-year undergraduate students from about $ 17,000 in 2006 to $ 27,000 in 2008. Overall limits on subsidized Stafford loans for undergraduate dependents. jumped from $ 17,250 in 1987 to $ 23,000 today. And undergraduates who are independent of their parents or whose parents do not qualify for federal loans can borrow up to $ 57,000 in federal loans to finance their studies. Private loans not subject to government restrictions only add to this potential burden.
These can be understandable responses by policy makers to the rising cost of college education. But alongside the rise of private student loan markets, they fueled tuition inflation. Better access to government funding for colleges has encouraged colleges to raise prices because they know borrowers can count on government to cover costs.
Students borrowed more in response, but paying off higher balances takes longer. Alone 44 percent of borrowers have repaid at least a dollar of principal within three years of starting their payments.
The huge debt burden – combined with a difficult job market for university graduates – would increase the risk of default under normal circumstances. But, for those who do not graduate, that risk multiplies.
Only 59 percent of Americans complete a bachelor’s degree program within six years at a public institution, and non-graduates are thrice as likely to fail. Many of these defaults relate to relatively small debts: two-thirds of defaulters owe less than $ 10,000. But a four-figure student loan could still haunt them for decades, in the form of lower wages once their payments are deducted and higher borrowing costs for other big purchases like cars and homes.
But colleges and lenders know that student defaults often happen, in part because students aren’t given adequate information about what it will cost to graduate or what their monthly payments will be. This information is available to students looking for it, but it is often not automatically provided as part of the loan application process.
One in five borrowers don’t understand the terms of their loans, says a recent study sponsored by George Washington University. More than half of those surveyed had no idea what they owed each month when they took out their loan.
All students receiving federal loans are required to go through online consultation developed by the US Department of Education. Corn 40 percent of those who used the counseling tool had no recollection of it.
Student borrowers too tend not to know how much they will earn in the field of their choice and, therefore, how easily they will be able to repay their loans. Yet the federal government generally funds studies in high-paying and low-paying fields on equal terms, as well as for schools with low and high graduation rates and low and high placement rates.
Simply put, the student debt crisis is a problem of insufficient education and information. This is something that colleges and the federal government should be well equipped to deal with.
They may start by counseling students long before they sign on the dotted line – for example, when, to qualify for federal loans, borrowers complete their free application for federal student assistance. Some borrowers find out too late that their choice of major or school is not what they expected, or is beyond their means or comfort level. Intervening earlier with personalized advice could help students avoid going into debt before they drop out – or push them to a different educational path.
Schools should also keep students informed of their debt while they are enrolled. Indiana public colleges, for example, must send students an annual report on how much they borrowed, as well as links to financial literacy resources. According to a study by the Federal Reserve, programs like these keep students focused on their academic goals and encourage them to borrow less.
In addition, the government can streamline the reimbursement process. Borrowers now have over 50 options: if they want to sign up for income-oriented repayment plans, for example, they have to fill out long applications themselves and loan officers can’t help them. . Even simple changes can make big improvements.
A pilot program Provided borrowers with pre-filled income-based repayment plan applications that they simply had to sign. Almost 71 percent of those who participated returned the form within 10 days, and 27 percent of those who had to complete the forms manually returned them within 60 days.
Finally, higher education and government need to make college completion a higher priority. Schools should have some responsibility, since they receive the proceeds from taxpayer subsidized loans. Those with increasing graduation rates should be rewarded, and those who fail to help their students cross the finish line should be penalized.
A college degree is still the surest path to prosperity. Student loans should facilitate this lawsuit, not hinder it.