Category: Student Loan Debt

In modern-day society, a post-secondary degree is needed to compete for a well-paying job in the labour market. Higher education is viewed as a necessary long term financial investment to better oneself in their career, however, in reality, it is often a financial risk for students. Student loan debt is an unfortunate norm for many students who choose to pursue post-secondary education. Tuition for higher education is quickly increasing, and as this incline continues, many students are unable to pay for their education on their own. As a result, these students must borrow money through the form of loans to finance their education.

Student loans typically have high-interest rates, which sends borrowers plummeting into a downward spiral of accumulating debt. This is a common reality for students, as ‘almost 70% of US college students borrow to finance their degree, amounting to an average debt burden of $28,950 for four-year graduates’ (Despard et al. 2016). This ongoing trend of student loan borrowing has become a global financial crisis, impacting both postgraduate students and the overall economy. Cumulative student debt has now surpassed credit cards as the largest form of consumer debt worldwide (Despard et al. 2016). Students are faced with seemingly insurmountable debt once they graduate from post-secondary institutions, which continues to accumulate until the full loan and its accompanying interest is repaid. Since student loan repayment begins almost immediately after graduation, it forces ‘graduates to make employment decisions based on what can best contribute to loan repayment’ (Canadian Federation of Students, 2015). Countless postgraduates are not in a secure financial position to pay off their student loans until many decades after receiving their degree. This trend of immense student debt has profound effects on the financial wellbeing of individuals for the rest of their lives. Student loan borrowers are faced with greater financial difficulty in their future due to the debt they possess.

Student loan debt has a diverse array of future consequences such as decreased net worth and reduced ability to start a family and purchase a house or other assets. These impacts were proven in a study conducted by R.M. Despard. The authors examine the relationship between student debt and material, healthcare hardship and financial difficulty among a sample of LMI (low-to-moderate income) households. The researchers conducted a study with an analytical sample of 5558 participants that obtained a university degree. Participants were categorized depending on whether or not their completion of a university degree was accompanied by student debt. Propensity score analysis measures were used to balance the sample on factors associated with loan borrowing for postsecondary education, such as age, gender, income, and the number of adults and dependents in the household. This method reduces selection bias that might affect the relationship between student debt and financial hardships. Each participant was given a survey and instructed to give a detailed assessment of their demographic characteristics and financial circumstances. The findings of this study concluded that participants with higher student loans have a greater likelihood of financial hardship and social and economic disadvantages. Those with student debt also tend to have difficulty meeting basic needs such as ‘housing, food and healthcare’ as well as difficulty managing general finances and bill payments (Despard et al. 2016).

Elliot and Lewis analyze research conducted from multiple studies to prove the ‘correlational relationship between student debt and students’ financial outcomes’ later in life (Elliot & Lewis, 2015). Multiple studies were conducted by a variety of researchers using different methods and samples. Each study analyzed several different financial outcomes, such as net worth, homeownership, and asset accumulation, etc. affected by student debt. The collective data from the many studies conclude that there are ‘long‐term, volatile, and often hidden effects of student loan dependence’ (Elliot & Lewis, 2015). Indebted post-secondary graduates have a lower net worth, less home equity, and more difficulty accumulating assets, when compared to other individuals with the same level of education but no student debt. This article supports the research paper, as it examines and proves that the financial wellbeing of postsecondary graduates is greatly impacted by student debt.

Luang examines the financial position of student loan borrowers compared to non-borrowers post-graduation. The conducted study uses the Survey of Labour and Income Dynamics (SLID) and the Survey of Financial Security (SFS) to compare income, savings, retirement pension plan investments, homeownership, mortgage, and total assets, debts and net worth for student loan borrowers and non-borrowers (Luang 2010). The sample population of each survey included postsecondary graduates between the ages of 20 and 45, who were no longer attending school. The findings of this study conclude that non-borrowers were in a better financial situation post-graduation than student loan borrowers. Those who had student debt were less likely to have savings and investments, own a home, or have adequate wealth accumulation. There was not, however, a significant difference between borrowers and non-borrowers ‘in terms of employment rates, total personal income and the likelihood of having an RPP’ (Luang, 2010). The researcher hypothesized this is because the education level of postgraduates is the strongest correlate of employment and income levels, thus a similar return on education between postgraduates, regardless of their student loan borrowing status. This article supports the research paper, as it shows the debt held by student loan borrowers affects their finances for years after their postgraduate education.

This research paper identifies the common effects and consequences of student debt, focusing on the financial implications presented by student loans. The annotated articles each have a different approach towards examining the effects of student loan debt and prove the hypothesis.

Annotated Bibliography

1. Despard, M. R., Perantie, D., Taylor, S., Grinstein-Weiss, M., Friedline, T., & Raghavan, R. (2016). Student debt and hardship: Evidence from a large sample of low- and moderate-income households. Children and Youth Services Review, 70(Complete), 8-18. http://dx.doi.org/10.1016/j.childyouth.2016.09.001
2. Elliott, W., & Lewis, M. (2015). Student Debt Effects on Financial Well-being: Research and Policy Implications. Journal of Economic Surveys, 29(4), 614-636. doi: http://dx.doi.org/10.1111/joes.12124
3. Luang, M. (2010). The financial impact of student loans. Perspectives on Labour and Income, 22(41), 29-42. Retrieved from http://libaccess.mcmaster.ca/login?url=https://search.proquest.com/docview/742950423
4. Student Debt in Canada: Education Shouldn’t be a Debt Sentence. (2015). Retrieved November 10, 2019, from https://webcache.googleusercontent.com/search?q=cache:ug0L-t4AT0 8J: https://cfs-fcee.ca/wp-content/uploads/2018/10/Factsheet-2015-05-Student-Debt-EN.pdf+&cd=1&hl=en&ct=clnk&gl=ca.

Loans taken for the right reason and used efficiently are beneficial to students. Most loan debt crisis among students arises when the borrowed funds are taken for the wrong reasons and also because of poor financial planning. There are various reasons why students take loans, one being to cater for their living expenses. The cost of living in colleges and campuses has increased over the last few years. Students who study in big cities have to face the high cost of food, housing, and clothing (Powell, 2018). The amount of money provided the parents may not be enough, and hence the student will have to borrow to meet the extra costs. Another reason why students take loans is to meet emergencies. Emergencies such as accidents or diseases may force one to borrow to meet immediate medication costs. Other students borrow with the aim of investing. They may start-up businesses with hope that they will grow and be productive, but they may later fail and collapse, leading to debt crisis because the anticipated income will not be available to repay the loan (Powell, 2018).

Studies carried out show that some students borrow for peace of mind; for example, a student will borrow to be sure that he has rent for next month (Hillman, 2015). A high tuition fee is another reason why students borrow. Parents may fail to meet the full tuition fee, and hence one will borrow to pay the remaining amount. Low-interest rates on students’ loans attract them to borrow (Hillman, 2015). They are only repaid once a student starts to earn and the interest rates are lower compared to other loans. Most students deem student loans to be good debt as they get something good from it. With the loan, one gets college education that will forever be beneficial to him or her, and hence a good debt. Before taking a loan, students should first consider its cost, its purpose, and the terms of the loan.

A debt crisis arises when the student fails to repay the loan. There are various reasons why students fail to repay loans, and one of them is the difficulty in finding a well-paying job. After school, students secure graduate entry opportunities, and the amount of salary they receive is not enough to cater for their expenses and at the same time repay loans. This causes them to default their loans and hence a debt crisis arises. Students do not have any source of income, and this is the reason why most of them are unable to repay their loans. They accumulate loans from different sources, which later become difficult to repay.

Failure of businesses is another reason for a debt crisis. Some borrow with the aim of establishing businesses such as cosmetic shops, but the investment may not give positive returns as expected. When it fails to generate any income, the student will not have money to repay the loan, and hence he or she will default. Dropping out of college is another reason for a crisis. When a student drops out, it becomes difficult for him or her to secure a steady job in future, and hence he or she will not have enough money to repay the loan. Unforeseen contingencies may result in student loan debt crisis. Contingencies such as accidents or death may result in the student failing to repay loans. These causes can be avoided through repayment options that are favourable to students.

There are various strategies that students can use to avoid a crisis. As soon as the student realizes that he or she is at risk of loan default, he should speak to the lender to find out if there are any available options as they have solid advice on how one should proceed. The lender will be willing to help because he also needs his money back (Perna, Kvaal, & Ruiz, 2017). Alternate repayment plans may be provided, and one of them is the income-based repayment plan. With this plan, the student will peg his monthly income to his monthly payment. It will ensure that every month, the student repays a certain percentage of the loan and this minimizes the burden and hence reducing chances of a loan crisis.

A graduated repayment plan is the second alternative (Abraham, Filiz-Ozbay, Ozbay, & Turner, 2018). With this plan, the student will begin with lower monthly payments, which will increase gradually over time. This plan is effective because an employee earns little when he is just a graduate, but over time, one’s earning potential increases after a few years of experience. With a small salary, the student will pay a smaller amount, but after a few years, the amount will increase. Although the repayment period for this plan will be long, the chances of a debt crisis are minimal.

The third alternative is an extended repayment plan. With this option, the student will make minimum monthly payments. Although the plan prolongs the life of the loan, it eases the financial burden. The extended life of the loan means that the student will end up paying a substantial amount due to accrued interest for the extra period (Perna et al., 2017). Compared to the other two alternatives, this plan is more expensive in terms of interest amount repaid. The plan is effective for student graduates who have not secured any job opportunities and hence their sources of income are limited.

Other alternatives available to avoid student loan debt crisis is loan consolidation, deferment, and refinancing (Abraham et al., 2018). For loan consolidation, the student can consolidate all his student loans, and this means that he will only have one payment amount to make. This plan minimizes the student’s chances of forgetting. Be for opting for this plan; the student should first ensure that the amount of interest is lower compared to the original interest rate. For the deferment option, the student can delay the payments for a period of one to three years. Before opting for this alternative, the students should first understand the repercussions, the terms and conditions, and the eligibility criteria (Abraham et al., 2018). For the refinancing option, the student can look for a lender who offers the best rates. For one to be eligible for refinancing, his payment history must be stellar.

In conclusion, the consequences of student loan default can adversely affect a student’s financial plans. Before taking a loan, the student should ensure that it would be used reproductively to prevent it from being a bad debt. In case of difficulty in repayment, repayment options such as a graduated payment plan, an income-based repayment plan, and an extended repayment plan. Loans taken for investment purposes should be well invested to avoid losses that will lead to debt crisis. The debt crisis can be avoided by taking loans for the right purposes and having a proper repayment plan.

These days, it is common knowledge that university is luxurious. Most who attend college should take out student loans to even have enough money it. Although some agree with the scholar loan debt disaster is solely fictional, the pupil loan disaster need to no longer be taken into consideration a fable like Chris Lewis and Layla Zaidane propose of their article ‘Here’s Your Crisis: Student Loan Debt Isn’t a Myth’. Due to economic aid and college students not taking gain of pupil loans, humans believe scholar loan debt ought to not be considered a crisis, even as others argue excessive university training quotes and the weak task marketplace are reasons to trust it’s far a real problem.

One purpose people think the scholar mortgage debt crisis is legendary is due to the financial help students usually get. With grants, monetary resource, and scholarships, students typically do not grow to be paying the entire fee for university. The common 4-yr student at Harvard, after grants and scholarships were implemented, owed $17,360 rather than $27,453 with out the extra resource. Only 1.2% of college students owe more than $150,000 in pupil mortgage debt (Allan). However, presents and economic aid have no longer stored up with the growing university expenses. As of 2016, the average debt of a student at college graduation is set $35,000 (Kantrowitz). While this could not be as excessive as the formerly mentioned $150,000, it’s far nevertheless a high quantity, especially with the terrible activity marketplace. Although economic useful resource allows with the price of university, in most instances, college students aren’t given enough to sincerely help them, in particular with rising university quotes.

Another cause human beings believe the scholar loan debt disaster is is a fantasy is due to the fact that a excessive variety of those who are eligible for student loans are not taking advantage of them. During a 2012 study, it became observed that one in six full-time university college students that certified for pupil loans were now not using them. Another have a look at confirmed that households with low-income felt that college turned into too pricey and did now not even make an attempt to follow. It become proposed that those families may additionally had been worried through the complex financial aid documents (Allan.) While this is a fair point, it is viable that scholars may not understand they qualify for scholar loans. This emphasizes the importance of teaching students graduating high college about student loans so as for them to make an informed decision about attending college and enduring the costs that include it.

On the opposite facet of the scholar loan difficulty, university has certainly gotten lots extra expensive in the past few a long time. Back in 1993, only approximately fifty percentage of college students pursuing bachelor stages graduated with debt. About $10,000 became the common debt again in 1993 (Kantrowitz). Over the remaining thirty years, the quotes of college tuition have tripled. Since 1988, the lessons fee of public university has multiplied by way of over fifty percentage. Of adults among the a while of eighteen and thirty four, 48 percent cannot have the funds for to go to college. The modern-day overall scholar debt, in keeping with the Consumer Finance Protection Bureau, is a couple of trillion dollars (Lewis). When almost fifty percentage of humans cannot have enough money university, a place maximum jobs require a diploma from, there’s a trouble.

An extra cause the scholar loan disaster have to be considered a actual trouble is the vulnerable job marketplace. Due to the delicate task market, humans are not putting their tiers to use and are struggling to make the payments. 53% of university graduates are both unemployed or now not the usage of their diploma. In ten years, it’s miles projected that there can be extra human beings with university stages than jobs that demand a degree. Without a activity, paying student loans off is genuinely impossible. Between 2007 and 2012, federal student loan delinquencies increased with the aid of twenty seven percentage. The default rate for pupil loans is presently ten percent, the most important percentage it has been within the past sixteen years (Lewis). With extra families bringing home a decrease profits, public universities and two-12 months schools have been extra famous among students, which means much less people have become bachelor’s stages, some thing plenty of high-paying jobs, together with positive types of engineers, require (Kantrowitz). Due to the provision of jobs becoming scarce, people are having plenty more trouble paying off their pupil loan debt. This places a burden on the previous students as well as the financial system in trendy.

While some agree with the pupil loan crisis isn’t always actual, in step with ‘Here’s Your Crisis: Student Loan Debt Isn’t a Myth’ via Chris Lewis and Layla Zaidane, the pupil mortgage debt disaster need to now not be considered a fable. Some might argue that monetary useful resource and eligible people no longer using pupil loans are motives it need to be taken into consideration a myth, but I agree with excessive training fees and the frail task market show the scholar loan debt crisis is a true trouble.