How the Government Controls Your Student Loan Debt

First the government thought the private sector wouldn’t be willing to loan money to students because their ability to earn and repay was not certain. So the federal government guaranteed private student loans. This only means that in case of default the government would pay back the lender and go after the borrowers to collect the loan.

Then in 2010, a new bill was signed by President Obama cutting subsidies for private banks that provided federally guaranteed student loans. Through this move, private lenders could no longer make federally-backed student loans. In effect, the government eliminated the  middle man and started making loans itself. Although students can still take out loans from private banks for their college education, they’re not as good a deal anymore because they are not backed by the federal government. Most private lenders offer variable rate loans and demand a co-signer, making it very difficult for most students to qualify. For this reason, most students max out federal loans before resorting to private student loans.

Then came the shocking news—student loan debt has reached a staggering $1.2 trillion! Since 2008, student loan has swollen by 84% affecting 40 million people across the nation. A study from Experian analyzing student loans from 2008 to 2014 indicated that student loan debt is the only type of consumer debt which is not declining.

The student loan debt is bleeding millions of borrowers dry and many are protesting. The president responded by easing terms of forgiveness and repayment. But he didn’t tell them that in fact, it’s the federal government’s fault.

In the past, the maximum federal student loans which one could take was set at $2,500. On the average, students graduated with $10,000 of debt, which with hard work and perseverance could be paid down in a few years. That’s all changed. Students now can take as much as $31,000 for four years. So now borrowers graduate with an average of $26,500 in student debt, an amount which would haunt them for most of their adult life.

But this is not just an issue of how much federal loans should be given to students. This is more about reducing the cost of college tuition. Since 1985, tuition fees across all private and public schools in the United States have increased by more than 500%. In fact, it has been rising more rapidly than the inflation rate, and has been hurting middle-class families.

There have been speculations that the “easy money” coming from the student loan system is the culprit for the mounting college tuition fees. As students gain access to higher student loan funding, colleges respond by increasing the costs so they can finance modern campus amenities and draw more, better-paying college freshmen. Colleges can impose tuition fee increase because they know students will pay them anyway.

“It’s a vicious cycle,” says Neal McCluskey is the director of Cato’s Center for Educational Freedom, in a speech. “Students tell the politicians, ‘We don’t want to pay this much for college,’ and politicians respond by throwing more money at them, and colleges respond by increasing costs.”

Now many young people are wondering if going to college should really be part of the American dream. While it’s true that the government is giving them aid to fulfill that dream; it is also giving rise to a more expensive education, massive debt, and, even devastated lives.



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