More students wishing to be enrolled in a university are eying student loans to subsidize the increasing higher education cost in private colleges and universities in the United States. Due to inflation that started in the earlier quarter of 2008, private colleges and universities are reaching a minimum of $50,000 tuition fees a year. The said fees were too expensive for low income students.
As a result, the student loans became an option to pay for education cost. In fact, this year, it has reached its peak at $1 trillion passing the rate of credit cards debt. Americans now owe more from student loans than from credit cards.
The increase in student loans started last 2009 when the House of Representatives passed a legislation expanding aid to students by shifting the direct federal lending. It was projected to save $80 billion over 10 years. The legislation was cored to help low income students get higher education which lowered due to inflation.
While the number of student loans has increase, the payments have decreased. According to a survey of state education officials in the US, 1 out of 6 borrowers is behind their payment deadlines amounting to $76 billion default loans for the year 2012. As a result, the Department of Education were force to pay $1.4 billion to lending agencies. These efforts from the government have critics saying that the government may have taken for granted the prevention of increasing default student loans before it even went to its peak.
Student loans are generally categorized into three categories. These are the federally guaranteed loans made by banks and other lenders; federal direct loans made directly by the government; and private loans.
In federal student loans that are made by the students directly, no payment is made upon enrolment but amounts are limited. In 2008, the changes made by the Higher Education Opportunity Act made it easier for students to avail of the loan and terms and on loan deferments. On the other hand, in Federal student loans made to parents, parents pay an amount immediately but have higher loan limits.
Both, federally guaranteed loans and federal direct loans have a fixed interest rate. The government subsidizes an about of the loan and protects lenders from losses. On the other hand, the private loans do not have a fixed interest rate but they have way higher limits. The private student loans are paid after graduation but the interest starts on the onset of the loan. It is in private loans that students and parent usually fall short in payment.
Despite the increase in unpaid student loans, programs to help borrows are in place. Promotions such as payday loans and emergency loans are handed out as a remedy for unpaid student loans. Another program for borrowers is to pay 15 percent for 25 years from their discretionary income. After 25 years, the rest of the loan balance is good a deleted. This was set out by the IBRR program enacted in 2009.
With the IBR, only students with chronic low incomes can default their loans. Meanwhile, the program will also prevent other borrowers who have good economic background and history from defaulting on their loans. Instead, a 25 year term is being presented. The program aims to help borrowers who really have no means to pay while further giving terms to non-chronic low income borrowers.
Although, these schemes may be advantageous for borrowers, critics mentioned that it may be put to no use. This is because companies in charge to administer information regarding these schemes are not paid enough. Furthermore, complexities of the schemes are not well disseminated. As a result, borrowers may not be well informed with the solutions and it would result to more confusion.