College Students in the U.S. Graduate with Long Lasting Debts because They Borrow Too Much Money from Financial Systems

free essayMoney that one spends on his or her education can be considered the best investment. It is the investment into one’s future. However, good education nowadays requires a high level of investment. Not all students are able to afford this kind of financial investment. The Government of the U.S. is ready to help students with such kind of situation and give the loan for educational purposes. Student loans are considered being one of the forms of the financial assistance for students in terms of paying for their education. Thus, this could lead to long-term debts for students and their parents.

Student loans play a vital role in the entire economy of the United States. It is crucial to underline that almost twenty million students attend college each year. Another data shows that there are almost 60% of these students, who need financial help to cover the expenses for education. It is more than twelve million students each year (Lieber).

It is important to underline that this kind of the financial support should be returned by students in a certain period of time. There are some more abilities for students to pay for their education. For example, in this connection, it is essential to mention grants and scholarship. This kind of the financial aid should not be returned to the government or organizations that provide it only for the best students with excellent results not only in study, but in the social activity and sports.

The educational system of the United States differs from the systems of the most part of the world. However, in most of developed countries, there are a number of special governmental tools that serve to help people to get higher education with low expenses. This could be possible with the help of governmental subsidized activity and by funding from the income taxes.

Unfortunately, the present situation with the educational resources puts all the expenses on students and their families. This is a substantial part of the whole income of the family, and sometimes, people are not able to pay for the college for their children. Here, a problem arises that can possibly have a negative and long lasting effect on the future educational level of the whole country.

One needs to understand that in fact, the absence of the education leads to the absence of career opportunity in future. This is the aspect that may lead to the low economic development of society, negligence of the moral norms and traditions. Moreover, in future, such people will not be able to start new families, or at least they will not be able to give their children education. This circle may be endless.

There is no doubt that education can be considered the best investment for both: the government and an individual. By the increase of the educational level of separate individuals, the level of the education in the government also increases. That means that there are more specialists that can compete on the labor market, and this influences the quality of the services these specialists provide.

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However, it is essential to point out that student’s loans for education are split into federal and private ones.

Students get federal loans directly from the government. However, students do not need to make any payments, at least for the certain period of time. There are specific limits of such loans provided by the government. Moreover, there is a range of conditions for students to get such a loan. It is not considered to be a grant, thus, the student should return the loan. That is why the conditions are not so severe, and it is rather easy to get the loan for studying. The Direct Loan program has various statements that regulate the conditions for certain categories of students. For example, there are special conditions for disabled people, thus, they are able to have the possibility of 100% loan discharge in case they meet the requirements set by this program. It is crucial to underline that there were certain changes set by the Higher Education Opportunity Act of 2008, namely the conditions became milder, and it became possible to get such a loan after July 1, 2010 (Melear).

However, there are even certain provisions that can be applicable to the teachers of specific subjects or teachers that work in special schools. For such teachers, there are special provisions that include loans totaling to more than seventy thousand dollars. Federal loans can be paid not only to students directly but to their parents as well. In this case, it is possible to speak about higher limits of the loan. However, the payments should start immediately in case of a loan given to parents. In such a situation, the government gives loans due to the income the family got.

Another type of such loans is private student’s loans that can be given to students or their parents. Here, the conditions regarding loan limits are milder, and there no payments should be made until the graduation of a student. Moreover, such loans can be given for purposes connected with education. For example, such loans can be given for books, computers, tuition. There is an opportunity for students to take private loans in case they have no ability to cover the full cost of education after getting the federal loan or grants, etc.

The governmental programs that provided loans to students started in 1950 under the National Defense Education Act. These loans were available not to all students, but only to those, who chose a specific field of education. Such fields needed to be strategically significant to the U.S. government. That was the program that provided a financial assistance only to students studying engineering or science.

Such loans were given directly to the college and university students with the help of funds that support personal and family finances for the educational purposes. However, such loans can be subsidized or not. That depends on a concrete situation. At that period of time, a special comparing booklet appeared. It was printed by the government to show the difference between federal and private loans. The same booklet gave the explanation of purposes that may cover the loan. It was said about the direct use of the loan at the educational institution that awarded the loan. Moreover, educational expenses also were covered by the loan. Those expenses included books, computers, classroom expenses, transport, and tuition.

The U.S. government guarantees both types of the loans: subsidized and unsubsidized. Such guarantees are available directly or with the assistance of special loan agencies that act at the territory of the government. Almost all students are able to receive such federal students’ loans. There are differences in the conditions and limits to all the students in terms of the place where they are going to study and financial aspects.

That is an interesting fact regarding the grace period for both types of federal loans. In fact, there are six months after the graduation of a student that comprise a period that does not require monthly payments. However, there are some basic limits that are common for the students under specific conditions.

Loan limits for a year:

  • Freshmen undergraduate students-5 500$;
  • Sophomore undergraduate students- 6 500$;
  • Junior and senior undergraduate students – 7 500$;

There are slightly different limits for the independent undergraduates:

  • Freshmen undergraduate students- 9 500$;
  • Sophomore undergraduate students- 10 500$;
  • Junior and senior undergraduate students- 12 500$. (Martin)

There are certain conditions that are used for students that are going to get a subsidized federal student loan. Such loans are given only to students with a strong financial need. Such need can be determined differently in various educational institutions. Moreover, the government takes the interest on the given unsubsidized loan. Thus, the student needs to return not only the money awarded as an educational loan, but a certain amount of percents of the loan. Students may pay this extra money during their studying, but just some of them do so.

There are different programs that give the opportunity for students to get federal loans for the educational purposes. Federal Perkins Loan, Stafford loan, Federal Direct Student Loans, and the Federal student loan consolidation are among them and they have different loan limits and conditions of return.

Another type of the educational loans received by students is private student loans. These loans are not guaranteed by the government. However, one of the advantages of this type of loan lays in the higher limit that depends on the financial situation of the person that is going to take the loan. However, the interest rate on such loans is higher, the payment terms are less flexible, and there are more severe penalties.

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Such loans are not given by the government. These are the loans that come from banks or different financial institutions. Such private loans considered to be the mixture of governmental loans in the provided conditions. The limits are much higher. Another advantage is connected to the grace period that is used by students due to this kind of loans. It can be more than twelve month after the graduation. That means that there is no need in the monthly payment during this period. Sometimes, it can be less, but usually, it is nearly one year. However, private loans cannot be said to be a rational alternative to the federal loans. This happens because of high fees and severe terms. Therefore, this kind of loans is usually used as an additional financial source in case of lack of money to cover the education after the federal loans are already taken.

While collecting the data, it is possible to notice that education in the U.S. needs a high level of the investment. This is not the problem of a separate student, but the problem of generation and the entire country. In the U.S., the most commonly taken loans are connected with the educational process. In fact, in June 2010, the total amount of students’ loans exceeded the amount of credit card debt held by the Americans. However, the total amount of money that was taken by students for educational purposes is more than $830 billion. The part of the federal loans is about 80% from the total amount. However, in October 2011, the total amount of money of the student loan debt was said to be more than $1 trillion. (Greiner 13-16)

One can notice that after the graduation, students and their parents face new amount of financial problems concerning the return of loan and fees. That is not an easy thing to return the loan, when the student does not start earning money on his or her own education. There are some opportunities that can be used to minimize the amount of the loan. A grant is one of such opportunities. However, to appeal for it, the student needs to show his or her perfect knowledge and additional skills. That means that now, all students have the same conditions, when deciding on the source of the financial help for their education (Field).

Not all students are able to afford this kind of the financial investment into their own future. The government of the U.S. is ready to help students with such kind of situations and give the loan for educational purposes. Students’ loans are considered being one of the forms of the financial assistance for students in terms of paying for their education. However, this kind of the financial support should be returned by students in a certain period of time. How many years will the student spend to return the loan to the government, banks or other financial institution? This question matters a lot for all the undergraduates. Moreover, these long lasting loans can become the matter of concern not only for students, but for their parents as well. In a strong economic need, it becomes more difficult to return the loans, and it takes much more time.

The main problem of such long lasting debts lays in the absence of control of the financial resources. It means that students try to take money that would totally cover all the expenses, including books, tutors, computers, special courses. These expenses can be objectively less if to count and cover only the most necessary expenses.

A recent study held by NERA Economic Consulting showed that almost 40% of college graduates with federal loans have certain difficulties with returning money to the government. These students understood their financial possibilities in college. However, their understanding was changed after the graduation. Most of the college graduates are sure that their future salary would totally cover the loans they took for education. However, there is not only the amount they actually borrowed, but also the fees for the usage of the loan. One needs to think a lot before taking the loan, whereas there will be certain problems while returning money to the government.