Student Loan Crisis: Is the Government Really To Blame?

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The USA is one of the most expensive countries when it comes to the price of higher education. And yet, the number of college students has continued to rise in the last ten years, with over 21.9 million students enrolled in universities and colleges in 2019.

On the other hand, the total student debt has skyrocketed with over $1.5 trillion, it has become a substantial burden to the US economy, and it goes without saying that it has a profound impact on the personal life and financial freedom of millions of Americans.

The Main Difference Between Private Loans and Federal Loans

Federal loans are granted by the federal government to students that apply through FAFSA from June to October.  The interest rate of student loans is announced once a year based on the sale of the 10-year treasury notes, and last year the interest rate increased from 3.76% to 4.45% for direct subsidized loans.

But today, as we battle a COVID-19 pandemic, there are lower interest rates for federal loans than ever before. In fact, the interest rates for federal loans have dropped from 4.53% to 2.75% of undergraduate student loans in 2020. This means that students will be able to save roughly $9 billion on interest in a period of 10 years and more. If you’re interested to learn more about the current interest rates of federal student loans, beststudentloans.com expert gives information about this topic.

Next, private loans are offered by financial institutions like banks, credit unions, and other lenders. The interest rates for private loans have also decreased, although not as much as for federal loans in 2020. Another difference between the two is that generally, credit checks aren’t part of the application for federal loans, there’s an option to change repayment plan, and also there are income-driven repayment plans.

Private loans offer more flexibility, fixed or variable interest rates, and there’s a great option to make a fixed payment or interest-only payments while you’re still in college. If you’re wondering what portion of student debt is accounted for private loans, approximately 7.76% of the total student debt, while roughly 92% is federal student loan debt.

Who’s Responsible for the Student Debt Crisis?

However, the question still remains who is responsible for the outstanding student loan debt. This is a complex issue multiple parties, including the government, students, colleges, and universities, that have contributed to a certain extent to this situation.

First, student loans and scholarships are one of the main reasons why higher education became more accessible, thanks to the National Defense Education Act in 1958 and later with the Higher Education Act of 1965.

But, as the number of students had grown steadily over the years, so did tuition costs.  Actually, the overall cost of higher education increased by 25% in the last ten years.  Moreover, students and parents prompted with flexible options, and repayment strategies relied on student loans, as one of the main options to fund their studies.

So, ironically, the government programs that made higher education more affordable and accessible actually made higher education an expensive dream for millions of high school students.

Is a College Degree a Good Investment Today?

According to the latest statics, still, over 80% of college graduates earn higher salaries than high school graduates. Hence, it’s understandable that 90% of private student loans are co-signed by a parent.

Your BA or MBA has a great deal of influence on your financial future, and therefore a lot of students decide to pursue an undergraduate or postgraduate degree. Furthermore, we live in a highly digitalized society, and for many, a decent livelihood requires a certain set of skills and knowledge that can be obtained through an undergraduate degree.

Conclusion

Nowadays, most countries not only deal with the consequences of a global pandemic but also an economic crisis. Still, higher education is undeniably a part of the American dream, and high-quality institutions will undoubtedly find a way to provide first-class courses.

And even though we would always want a better future for ourselves and our children, it’s up to the students to make the best decisions for their future, based on the cost of borrowing and the expected return on investment. For many, a college degree will be the right decision for their future, and luckily today, there are a lot of funding options that you need to take into consideration.

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