College is a rewarding experience where students can study a field of interest and prepare for their careers. It’s also a time to meet new people and explore differing viewpoints. But the bad thing about college is the tuition. Between paying for classes, room and board, a dining plan, and textbooks, you’re down thousands of dollars every year for four years. Many people choose to apply for student loans due to mounting costs.
Student loans are a hot topic in the United States, especially because a new election year is approaching. Several of the 2020 presidential candidates have promised to completely forgive student loan debt if they were to become elected as president.
However, is that really a realistic idea due to what it would take? In some instances, student loan debt forgiveness can be achieved. It takes a long time, but many people have been able to get the government to erase their student loan debt through the Public Service Loan Forgiveness program, for instance. To learn more about student loan debt and how it can be forgiven, keep reading right here.
1. College Tuition in the US
College tuition is the cost of higher education that is collected by colleges and universities in the United States. This excludes fees that are paid via taxes or other government funds like demand-side or supply-side subsidies. As the quality and value of a college education have increased over the years, the costs of attending a higher education institution also have as a result.
After World War II, costs for attending universities went up because attendance increased dramatically. The introduction of the GI bill allowed more students to go to college after they returned from fighting in the war. Additionally, higher education began receiving better federal funding from the government.
It was believed that a significant role in determining the outcome of World War II was research done at universities in the United States. It was therefore vital in the country’s success during the Cold War. After the Soviet Union launched sputnik, those in the United States believed that we were falling behind in the fields of science and technology.
They believed that because higher education was funded by private wealth, not enough students were able to attend college. It wasn’t until the introduction of student loans that more young people from middle-class families were able to get their college degrees. For instance, the government offers grants, loans, research contracts, and tax subsidies to college students.
One of the most expensive education systems in the world is the one in the United States. On the other hand, it gives students the most success in getting an earnings boost from their advanced degree. The average college tuition costs in the US are between $10,000 and $35,000 per year.
Most public schools raise their tuition rates about 3 percent each year due to inflation. This is most likely due to a reduced number of state and federal appropriations to state universities. When this happens, the additional costs are recouped from student tuition. Since the early 1990s, state support for public schools has fallen more than 25 percent, putting the burden on students as a result.
In 2011, public colleges and universities received more funding from student tuition than state support for the first time. That led many experts to believe that a lot of public colleges and universities are making the change to become private due to this dynamic. Currently, roughly 80 percent of college students in the United States attend a public school.
In terms of investing, putting money into a college or university is a poor investment. This practice will give investors severe tax disadvantages, leading them to put their money elsewhere. Because of inadequate subsidies and oppressive taxation, colleges are being underinvested in and winding up with an educated labor shortage.
One of the main reasons for a hike in college tuition is student loans. Congress will raise the loan limits on student loans from time to time. This gives students more time to take out deeper loans and therefore get higher education. When this happens, colleges and universities get the message that students can afford more schooling, leading them to raise tuition costs.
These schools become confident that they can raise their rates because federal loan subsidies will cover the difference. They don’t take into account additional fees that accumulate like orientation fees, freshman fees, and senior & commencement fees. Since 2000, tuition rates at public colleges and universities have climbed nearly 35 percent.
Many experts believe that higher education is a bubble. They claim that investing in higher education excessively will negatively impact the United States economy. Fiscal conservatives say that as college tuition rates rise, the number of graduates exceeds the number of jobs in their designated fields.
This could lead to student loan defaults on banking institutions and taxpayers because of high rates of unemployment after graduating from college. Additionally, employers are changing the requirements of job listings and adding extra academic needs to occupations. Because of this, the government has justified tax cuts, public higher education spending cuts, and shifting spending to the Department of Defense.
A recent change to federal laws has removed standard consumer protections. That includes statutes of limits, truth in lending, bankruptcy proceedings, and Fair & Debt Collection practices. It effectively takes away a student’s right to declare bankruptcy.
This lets colleges and loan lenders know that students are responsible for any amount of money they borrow. That includes interest and late fees. Because of this, lenders have even less incentive to give students a reasonable loan that they can pay back in an acceptable period. Many students may not know that they are unable to include their student loans in a bankruptcy filing.
Several other things have led to college tuition hikes. One is the cost of hiring instructors. One-quarter of tuition increases at public colleges and one-third of the gains at private colleges are due to teacher salaries.
Tuition discounting is a practice that involves a college giving out financial aid awards from its own funds. That ends up requiring other students to pay more tuition each year. Another reason for tuition increases is the higher number of regulations colleges are required to follow. From the time that the government became less involved in higher education, tuition and fees at public universities have risen by 90 percent.
Since the 1970s, the cost of higher education has been two or three times higher than the cost of living and medical costs. Medical expenses tend to be twice the rate of the cost of living, but college tuition costs are more than four times the rate of the cost of living. College tuition and fees are three times as high today as they were in the late 1970s.
Each year, the mean increase in a four-year college’s tuition costs is just over 4 percent. The average 4-year public college costs roughly $7,000 annually. Four years earlier, it cost only $5,000 per year. The differences between tuition for in-state and out-of-state students is staggering. In-state students pay about $6,500 per year, while out-of-state students pay just over $17,000 each year.
Many economists believe that the costs of attending a college or university are worth it for the educational benefits students receive. There are many benefits to getting a college education, but because of high taxation on educated labor as well as inadequate subsidies, they see why some people would rather forego going to college to avoid raking up student loans.
The cost of living is another economic factor when it comes to college. Not only do students have to worry about paying for a class, but they also have a lot of extra fees to take into account. There are housing costs, food costs, and money for textbooks and school supplies. If they live off-campus, they’ll have to pay for rent and utilities.
Higher tuition costs can end up causing social issues for students. Those that take out student loans may end up never finishing their degree. Studies show that students from lower-income families are most likely to drop out of college to avoid getting into debt.
Middle-class students have a higher risk of getting into student loan debt because there aren’t enough job opportunities in their field or community. Research indicates that more than 75 percent of college students are stressed about their tuition fees and student loans. Student loans have been the cause of an increase in anxiety and depression levels among college students.
Experts have outlined several solutions for helping students solve their high tuition issues. One idea is to increase the amount of public funding to colleges and universities to keep them affordable. Another would be to have state and federal governments provide additional contracts, grants, and appropriations to colleges.
Additionally, state and federal governments may want to consider reducing regulations on colleges and universities. They can also make investing in higher education less risky. Schools can look for ways to cut costs without lowering the quality of their services. Of course, the best idea would be to practice student loan forgiveness at a significant level.
When a student is unable to cover the full cost of their college tuition through grants, scholarships, or personal resources, they can turn to student loans. The amount a student borrows plus the interest they accrue accounts for their student debt, minus the payments they’ve already made.
Many countries offer student loans, but lending in the United States has led to crisis levels of student debt. As of 2018, the total amount of student debt in the United States is $152 trillion. Over 44 million people owe money on their student loans. On average, a student’s debt is nearly $40,000.
Financial aid programs for STEM, teaching, and foreign language students were implemented in 1958 through the National Defense Education Act. By 1965, the Federal Family Educational Loan Program was founded to include all students who demonstrated the need for financial assistance. In the early 1990s, the government started to directly fund student loans for those who weren’t getting enough from the subsidized loan program.
Subsidized loans began fading out in the mid-2000s when the turmoil of the Great Recessions impacted private lenders. As of 2010, according to the Health Care and Education Reconciliation Act, all federal loans are required to be direct loans. There is the option to qualify for a loan under a private lender, but those tend to be more expensive.
There is a series of overlapping periods that most heavily led to the trillions of dollars in student debt. The first is the years between 1958 and 1972 when Sallie Mae was founded and the first federal loans were issued to students. The next period was the mid-1960s through 1978. During this time, most loans had an extremely high rate of default.
That time also saw the impossibility of discharging student loans through bankruptcy. The third period responsible for the student loan mess in the United States is the mid-1990s to the present time when incredibly crushing debt became a reality for so many people. Finally, the period from 2012 until now when bad economic damage occurred.
There are several student loan servicers in the United States. These companies act as a mediator between a student and his or her lender. When a lender gives you money for school, it’s your responsibility to pay back your lender through a student loan servicer.
A student loan servicer tracks payments, helps you customize loan payments, and assists lenders with loan deferment. When the U.S. Department of Education first pays your loan, you are assigned a student loan servicer. The most common servicers in the United States are Navient, FedLoan Servicing, CornerStone, GSMR, and Great Lakes Educational Loan Services.
In the United States, college students borrow from two different types of loans: Private and Federal loans. Federal loans are assigned a fixed by Congress, and it’s typically lower than a private loan’s interest rate. A direct subsidized loan has an interest rate of 4.45 percent on a maximum loan amount of $5,500.
Direct plus loans can be up to $20.500 and have an interest rate of 7 percent. On private loans, the average interest rate is nearly 10 percent. Interest rates are the top reason for student debt numbers. Rising college costs are another cause of mounting amounts of debt in the United States. Inflation causes annual college tuition fees to increase steadily every year.
As we mentioned before, student debt is a significant talking point in politics. Several 2020 presidential candidates are working to eradicate student loan debt. Other politicians are trying to find ways to cover college costs so students won’t have to go into debt in the first place.
In 2012, students banded together to create the Occupy Colleges and Occupy Student Debt movements. These groups use social media to advocate for eliminating student debt as well as share stories of paying off student loans. Their efforts successfully enabled the creation of the Pay As You Earn initiative by President Barack Obama.
The most active student loan resistant groups are Student Loan Justice, the Debt Collective, and Strike Debt. These organizations form committees, get petitions signed, and directly work with lawmakers to get bills passed. They channel their energy into getting the word out about the harshness of crippling student loan debt.
Some resistance groups champion a complete bailout while others are happy with getting assistance, making payments on their student loans. Student loan resistance doesn’t just happen in the United States. People in the United Kingdom, Chile, and Canada, among other countries, have come out against mounting student loans and debt.
Under the Federal Family Education Loan Program, you can find EdFund. EdFund is the United States’ second-largest student loan guarantees services provider. This corporation is a non-profit public-benefit organization. Through EdFund, college students and their families are given information on how to pursue higher education, how to be able to pay for it, as well as how to manage their debt.
EdFund began as a part of the California Student Aid Commission. Each year, this corporation processes nearly $10 billion in student loans. They currently have an outstanding loan portfolio of almost $30 billion. EdFund’s headquarters is in Rancho Cordova, California, and they have offices throughout the United States.
EdFund has been around since 1997. It originally was established as a public benefit corporation to assist in the federal student loan program. This company is responsible for handling all administrative and operational duties of the California Student Aid Commission.
EdFund is one of the leading providers of student financial aid services. It’s governed by a board of directors that meet every quarter. Some people have criticized EdFund for their practices, saying that they cause students even more debt. In some cases, they have taken a loan for around $37,000 and driven up the cost of repayment to over $100,000.
In the United States, student loans are extremely common. Most college students acquire them to help pay for their higher education tuition and other fees. Since 2006 the amount of student loan debt has rapidly climbed and is approaching $1.6 trillion, which is 7.5 percent of the gross domestic product (GDP).
Student loans that are issued must eventually be repaid, unlike scholarships and most grants. Studies have shown that the high rate of student loans has led to an increase in college and university tuition prices. The Federal Student Aid’s portfolio accounts for almost 10 percent of the United States’ debt.
The average student loan borrower owes nearly $40,000 by the time they walk across the stage at their graduation. About 15 years ago, they just about half of that amount of money. According to statistics, Americans owe $552 billion more on their student loans than on their credit card debt.
Another issue with student loan debt is that it affects different races and social classes. Members from different communities will find it easier to get loans that do not have high-interest rates and can be paid off promptly. Only 30 percent of college students in the United States will not go into debt because of their college degree.
There is an existing racial wealth disparity in the United States. Some races make less money than others. This difference in incomes has combined with high tuition costs has led to racial wealth disparities across generations. It has been proven that individual races are given more onerous student loans to pay off, contributing to a constant cycle of debt.
A New York Times article found that black college graduates owe an average of $7,400 more than their white peers do on their student loans. Several years after they graduate, these students may owe as much as double the amount of money on their student loans as their white peers do.
The first student loans that were backed by the United States government were issued in 1958. These loans came to be under the National Defense Education act and were only given to a specific category of students. Those who studied education, science, or engineering were eligible for these student loans.
This was to ensure that the United States would have an adequate selection of people who could compete with the Soviet Union’s flourishing space and technological programs. In the 1960s, the government decided to expand the student loan program, so they were available to students studying in all subjects. This was a way to provide the opportunity of education to everyone as well as give the United States better social mobility.
Before the year 2010, federal loans accounted for both guaranteed and direct loans. The Student Aid and Fiscal Responsibility Act eliminated guaranteed loans and replaced them with direct loans. That was because they believed that guaranteed loans benefited private student loan companies more than students and taxpayers.
Direct student loans are given to college and university students as funds that are paid directly to their school. These funds can be used along with personal resources, grants, scholarships, and work-study earnings. Depending on financial need, student loans may end up being subsidized by the US government. Students may only use their student loan money for tuition, room and board, books, school supplies, and other things related to their studies.
Occasionally, a student may ask their parents to try and qualify for a loan. Parents can get a student loan through the Parent Loan for Undergraduate Students (PLUS) program. Through this loan program, parents can typically borrow much more than their child can.
By getting a PLUS loan, students will most likely be able to cover the rest of the expenses that are not paid for with student financial aid. On a PLUS loan, interest accrues for the entire time a student is going to school. On these loans, parents are not required to make any payments on them until their child is no longer in school.
Loans that are issued to students by a bank or a finance company, as well as investments that are not guaranteed by the government, are known as private loans. If you get a private loan, you will probably pay more than with a federal loan. These types of loans are usually the last resort for college or university students who have borrowed the maximum amount from federal loans.
You cannot qualify for an Income-Based Repayment plan under a private student loan. Your payment terms will be very rigid and come with more penalties and higher fees. The best thing about a private student loan is that you can probably get more funding than with a federal loan.
A Federal Perkins Loan is offered to college and university students as a way to pay for their tuition. It’s a need-based student loan that is given out by the United States Department of Education. During a 10-year repayment period, a Federal Perkins Loan carries a five percent fixed interest rate.
There is a nine-month grace period on this type of loan, so you don’t have to start repaying it until ten months after you graduate or withdraw from college. Because this is a loan issued by the government, students do not begin accruing interest until they start making payments. For undergraduate, the Federal Perkins Loan limit is $5,500 a year with a maximum lifetime limit of $27,500.
Eligible college and university students can qualify for the Stafford Loan. This loan is also offered by the United States government and is guaranteed entirely by it. With a Stafford Loan, students will receive a lower interest rate than they would get with a private student loan.
Stafford Loans come with strict borrowing limits and eligibility requirements. These loans require a student to fill out a FAFSA form, and they must be issued by the United States Department of Education through their Federal Direct Student Loan Program. Students must be enrolled in school at least half-time to defer payments until after they graduate.
The William D. Ford Federal Direct Loan Program, or FDSLP, is another loan program offered by the United States government to college and university students. It was initially signed into law in 1992 by President George H.W. Bush. As of 2010, after the Health Care and Education Reconciliation Act was passed, the Federal Direct Student Loan Program is the only government-backed loan program in the United States.
In 2008, the funding for the Federal Direct Student Loan Program increased to $17.8 billion. It was just $12.6 billion three years prior. This type of loan is most common in the United States, but it has been used in other countries as well. New Zealand now offers zero percent interest loans for students who have lived in the country for at least 183 consecutive days and can repay their loans upon graduating.
College and university students who have multiple loans can consolidate them into one single debt. You can combine your PLUS Loan, Federal Perkins Loan, and Stafford Loan into one loan that’s easier to manage. This type of consolidation loan will give you a fixed interest rate for the entirety of the loan.
Students can choose a term that’s between 10 and 30 years. Your monthly repayments will end up being lower, but be advised that in the overall duration of the loan, you will end up paying more than you would for the other loans. Lenders will calculate your fixed interest rate based on the weighted average of the investments that are being consolidated.
Federal Direct Student Loans get their funding from public capital from the United States Treasury. These loans originate from the US Treasury Department and pass through the United States Department of Education on their way to a college or university, then to a student. Over 6,000 technical schools, colleges, and universities are a part of the Federal Family Education Loan Program (FFELP).
The FFELP program serves about 80 percent of all schools in the United States. The FFELP represents more than 75 percent of the federal student loan volume. The Federal Education Loan Appropriations section of the FFELP was terminated in June 2010, so now all government-backed student loans come from the Direct Loans program.
As federal policies change, the amount a student can borrow on their student loans will change. Loan limits currently tend to be below the cost of the majority of four-year private universities as well as most public flagship universities. Many financial experts advocate for raising federal debt limits in order to reduce the interest charges of student debtors.
Experts believe that a student loan debt payment should not be more than 8 percent of a student’s monthly income after they graduate. Unfortunately, that doesn’t happen for most college graduates. Student loan debt is over $1 trillion in the United States with more than 7 million debtors currently in default on their loans.
College and university students are given an option when it comes to repaying their student loans. They can get a one, three, five, or seven-year default rates. Every school that receives Title IV funding from the government is required to list the three-year student loan repayment rate on the United States Department of Education’s College Scorecard.
On average, 10 percent of student loan borrowers default after three years and 16 percent default after five years. Because the US Department of Education only lists three-year default rates, it can be hard to know the statistics for sure. Students who don’t complete their degree tend to have default rates that are three times as high as those who graduated.
Interest rates on federal student loans are set and fixed by the United States Congress. Private student loans tend to come with much higher interest rates, and they will fluctuate along with the financial markets. Many private lenders will disguise the actual costs of their loans with special fees while offering lower interest rates.
Many private loans are linked with one or two financial indexes. This includes the British Bankers’ Association London Inter-Bank Offered Rate and the Wall Street Journal Prime rate. The overhead charges on these types of loans will vary based on a student’s credit history.
If a college or university student finds that they are drowning in debt due to student loans, they may be considering filing for bankruptcy. Federal student loans in the United States and occasionally some private student loans can be discharged through a bankruptcy. The bankruptcy courts will only allow it in cases of undue hardship.
Unlike credit card debt, most student loan debt will not be absolved during a bankruptcy. If you find that you’d like to file for bankruptcy on a student loan, you will have to file a separate lawsuit. Through that lawsuit, you must show that you have an undue hardship and should have your student loan debt wiped away.
The United States government created a program under the College Cost Reduction and Access Act of 2007 to help with student loans. The Public Service Loan Forgiveness Program (PSFL) was designed to give college and university graduates a way out of their federal loan student debt after they join the workforce. In this program, debtors pay off their balance by working in public service full-time.
Direct Loan borrowers make 120 monthly payments through the program while they work full-time for a qualifying employer to have the rest of their debt be forgiven. Borrowers have been able to apply for forgiveness since October 2017. As of March 2019, nearly 900 borrowers have had their student loans forgiven under the Public Service Loan Forgiveness Program.
The types of loans that qualify for the Public Service Loan Forgiveness program include Federal Direct Consolidation Loans, Subsidized and Unsubsidized Stafford Loans, and PLUS Loans. You can also combine an FFEL loan or a Federal Perkins loan into a Direct Consolidation. Private student loans are ineligible for consolidation as well as the PSFL.
Non-profit organizations, government agencies, and 501(c)(3) companies as defined by the IRS that provide public services are eligible for student loan forgiveness through the PSFL program. The individual duties of the job a person has do not influence whether or not they are granted student loan forgiveness. An acceptable employer must directly employ employees. Most contract employees, especially government contractors, are not eligible.
You must make 120 monthly payments on time under a qualifying repayment plan to be eligible for the Public Service Loan Forgiveness program. Additionally, you have to be working full-time with an employer that is qualified through this program. You can choose from several payment plans, including an income-contingent repayment, pay as you earn option, and income-based reimbursement.
After making the 120 monthly payments over a period of ten years, the remaining balance on your loans is forgiven. If you make it 10 years and have been forgiven of your student loans, you will not incur any tax implications. As of this time, there are no limits to the amount of student loan forgiveness you can wipe away through the PSLF program.