How Can We Solve The Student Debt Crisis?

Unlike several decades ago where one could secure a good job even with a high school certificate, the majority of good job opportunities in the modern US job market require at least a college diploma certificate. This trend has pushed many families to do whatever they can to ensure that their children reach the highest possible academic levels, according to their capabilities.

Students who can’t afford to raise their college or university fees in full turn to loans, scholarships and grants to cover up the deficit and make their academic dreams come true. Unlike grants and scholarships which are free, loans have to be repaid. Unfortunately, a huge percentage of students who take these loans are unable to repay them when they fall due and this has resulted in a serious student debt crisis.

The US student loan debt is currently over $1.5 trillion, thanks to approximately 45 million borrowers! The figure is higher than that of auto-loans and credit-cards combined.

student loan rise

And guess what…the figure is still growing as more students seek to finance their studies through loans from private lenders as well as the federal government. 

Something needs to be done to address the issue, lest the situation runs out of hand. However,   the statistics leave nearly everyone wondering how the country can free itself from the burden. The U.S learned patriots have been brainstorming about possible effective measures and here are some of their suggestions:  

  • Extension of loan repayment periods

Short loan repayment period is among the major factors that have contributed to the student debt crisis. If you compare the repayment periods given to the American students and those offered to students in some other countries like Sweden, you’ll see that the former is unfavorable.  In Sweden, student loan repayments are spread over a long period of up to 25 years.  England offers an even longer period of 35 years while in Germany is 30 years.

On the other hand, the typical student loan repayment period in the U.S is 10 years only. Therefore, a Swedish, English or a German student pays less installment amounts over a longer period of time while an American has to pay larger sums over a shorter period to settle a borrowed loan. 

That explains why although student loan borrowing in Sweden is  huge as it is in the U.S, Sweden doesn’t have any student like crisis like the U.S.  Besides, unlike in the US where the loan repayment amount is constant, the Swedish repayment schedules allow students to start out low in their repayment and rise gradually with time as their income increases. As such, Swedish students are arable to repay the loans comfortably without having to forego life essentials.

repayment of debt

The rule of thumb in finance is that the length of the period of the repayment of debt should be in accordance with the life of the asset to be financed by the debt. That explains why you’ll be given a shorter period of let’s say 5 years when you want a loan to buy a car than when you are looking for a loan to buy or develop a home. The lifespan of a car is definitely shorter than that of a home. Now, considering the skills and knowledge that one acquires from formal education are lifetime resources, it’ll be sensible if the federal government and states do something to extend the repayment periods of the loans given to students. 

  • Financial literacy

When students are schooling the learning institutions to enroll in, most of them base their choice on prestige, peer pressure and other financial-unrelated factors.  Only a small percentage of them consider affordability and in most cases, a finance-prudent person has something to do with the choice they make.

As high-school students prepare to go to the next level of education, they should be made aware of how their choice of colleges can influence their future financial plans. It’s important for them to know that the loan they take to fund their education has to be paid in future. So, the higher amounts of loan they take, the higher the amount money they’ll have to part with in future to offset the debt.

Students who can’t afford to raise their entire college fees on their own or by their families can avoid huge loan burdens if they are encouraged to choose less expensive colleges which are near their homes.  As long as the colleges and universities can help them achieve their career goals, learners need to know that they can get the same value from the institutions just like what they’d get from prestigious ones. Financial literacy comes in handy for these learners to see their study debts as real and start considering the available lower-cost options.

Besides, students experience difficulty as they try to understand various loan-repayment options as their descriptions are quite confusing. If a student doesn’t have someone to help him or her distinguish the options, he/she might end up making a costly and unaffordable choice.

unaffordable-choice

Besides, when students are applying for these loans, most of them see them like grants, notwithstanding the fact that they’ll be required to pay them back in future. As such, if the learners are equipped with sufficient financial acumen regarding these loans, they’ll be able to make less expensive choices which they can pay back comfortably when they are required to repay.

  • Increase state funds for learning institutions

Following the Great Recession which took place in 2007 and 2008, the funding that public leaning institutions receive from state governments has reduced significantly. To be precise, the funding has declined by nearly $9 billion from 2008.  Colleges and universities are left with no other option apart from putting the burden of their budget deficits on their students. Consequently, the resulting high cost of education force students to take unaffordable loans.

On this note, one of the ways that states can solve student debt crisis is to increase their funding to public education institutions.  When they do so, the institutions will be able to fiancé more of their operations without having to rely on money from students. As such, they’ll charge fewer fees which students will be able to rise without having to take huge loans or any at all.

These are some of the suggestions that could relieve debt crisis in the US if implemented.