Should Student Loan Limits be Placed?
In early 2012, the portfolio of federal student loans had already reached the $1 trillion mark, and the figures continue to increase. Moreover, this portfolio does not only consist of student loans from low-income households, but also of over $100 million dollars worth of loans that college grads have taken out without completely repaying their loan debts.
Quite recently, nearly a third of graduates were fortunate enough to leave school without any debts. They either have well-off relatives or parents who financed their college expenses, or they decided to attend inexpensive community colleges during the first two years and transferred to senior colleges eventually. Other students had part-time jobs and saved for their higher education costs.
However, the proportion of seniors with existing student loan debts continue to increase as the college spending keeps rising. In fact, an average 4-year college grad who took out a student loan in 2011 owed more than $26,000, and this does not include dropouts who incurred massive debts before quitting school. Furthermore, the average unpaid debt was over $23,600 for 2008 college grads, as compared to the $18,600 loan debt of 2004 graduates.
Why are Student Loans Easily Available?
The Department of Education offers direct loans to college students that demonstrate financial need without thoroughly examining their evidences of credit-worthiness and academic ability. From a liberal viewpoint, this policy may offer significant education opportunities to students from low-income families. Unfortunately, liberals tend to ignore the fact that these students have already received Pell grants and other need-based college scholarships that do not require candidates to present proof of good credit and excellent academic performance.
In fact, the Pell Grant program has always been a costly drain on the government’s budget. In the 2009-2010 academic year, Congress awarded over $25 billion for Pell Grants for nearly 8 million students in the U.S. In 2011, $34.5 billion in grants was given to more than 9 million college students. However, many students also need other fund sources since there is a cap placed on Pell grants, and this fails to provide sufficient money for the expensive tuition rates and other fees at most universities and colleges in the country.
Ways to Limit Student Loans
According to the 2012 study by the Associated Press of U.S college graduates ages 25 and below, 50 percent of these grads are either unemployed or in careers that do not require employees a college degree. In addition, there is a high percentage of that students drop out of school and do not graduate at all. Although these students are not degree-holders, they often still have massive loan debts that remain unpaid.
With college costs of over $60,000 per year for most private schools and $40,000 annually for state schools, an increasing rate of students graduate with debts of more than $100,000. Fidelity Investments released a study in May 2013, which showed that 70 percent of the graduating class of 2013 has an average college-related debt of $35,200.
To solve the issue on excessive student loan debts, it is necessary for college costs to remain under control. The Goldwater Institute conducted a study in 2010, which presented “administrative bloat” as one of the primary reasons for higher costs of college education. According to the institute, several U.S colleges have more salaried administrators and office staff members than teaching faculty.
Another practical way to approach this problem is to eliminate incentives for schools to accept government-guaranteed loan money regardless of the student’s gainful employment or prospects of graduation. Schools instantly get the money up-front through student loans, while the burden always falls on taxpayers, as well as the students themselves, in case the loan is not paid in full.
It may also help if federal aid is capped at a national average or consumer-price index, so that schools will find it more difficult to raise tuition fees. Additionally, colleges that receive money from subsidized loans should be placed on the hook for a certain percentage of the loan debt if the student defaults.
With this kind of policy, schools will be more cautious about encouraging students to apply for a loan unless they are confident about paying off their debts. At the very least, it is important for schools to warn students of possible risks that loan debts can bring.
With the existing issue on student loan debts in the country, it may be only a matter of time before traditional higher education experiences a meltdown. Although getting a college degree offers students a promising future, there are several alternatives to attending a conventional university or technical school.
Online education with lively video classroom discussions, as well as discussion groups are growing so quickly, and these serve as venues for students to learn without having to pay high tuition and fees. Unless effective solutions to loan debts are introduced and implemented, it cannot be long enough before the traditional college education system collapses entirely.
What do you think? Should Student Loan Limits be placed?