The Student Loan Crisis Plaguing America
The Student Loan Crisis
The student loan crisis is a predicament millions of Americans face daily. In the wake of the Russians’ launch of Sputnik, the American government introduced student loans with the aim of increasing enrollment in institutions of higher education and retaining American competitiveness in the space race. Today, however, America has failed to meet this goal as the number of students attending college has dropped eight percent between 2010-2018, in large part due to the recent increase in the cost of college.[1]
Currently, students get federal loans based on a form called FAFSA, or Free Application for Federal Student Aid. Private loans are also available, but federal loans often have options to make them a more approachable choice. Specifically, federal loans usually have lower fixed interest rates, do not require credit or a cosigner, and have delayed repayment. The financial aid students receive is dependent upon the information they provide in their FAFSA. Such aid takes into account a student’s expected family contribution, year in school, enrollment status and the cost of attendance. The cost of attendance for their school is subtracted from their expected family contribution and the difference represents the need-based aid the student is eligible for. To calculate non-need-based aid, the cost of attendance is subtracted from any financial aid that has already been awarded. [2]
Additionally, there are four types of loans students can get: direct subsidized loans, direct unsubsidized loans, direct PLUS loans and direct consolidation loans. Direct subsidized loans are available to undergraduate students and the university determines how much the student can borrow. While students are at least part-time students, they are granted a period of deferment, meaning that their loans are postponed, and they do not have to pay interest on their loan. Direct unsubsidized loans are available to undergraduate and graduate students and are not based on financial need. The university determines how much aid is provided and there is no deferment period. Parents or guardians can apply for Direct PLUS loans. PLUS loans examine credit history and the maximum amount receivable is the cost of attendance minus any other financial aid received. Another key term is loan consolidation wherein students can combine multiple student loans into one with a singular fixed interest rate based on the average. FAFSA takes off some of the pressure surrounding student loans, but there is still a major crisis surrounding student loan debt.[3]
In 2010, former President Obama changed regulations about student loans. Historically, the government partnered with banks to provide low-interest student loans so if the student defaulted, the government took in the cost and not the banks. Obama’s alterations cut out banks and students began borrowing from the government. The Department of Education became the largest bank in America in terms of loans. Despite its newly acquired title of the largest bank in the world, the Department of Education was never designed to handle loan payments. As a result, it has outsourced its loan payment to loan services, who are responsible for collecting money, making sure students pay on time and explaining repayment options.[4]
Navient is a prominent loan servicing company known to represent the flaws in administering student loans. Their inefficient customer service and misinformation has led to students being in debt for longer than necessary. For example, income-based repayment plans allow borrowers with lower incomes to have lower monthly payments. Forbearance, on the other hand, is where people temporarily stop making payments and pay more interest later. Navient will often recommend forbearance over income-based repayment plans because it is easier to explain and requires less paperwork, though it is not always what is in the best interest of the borrower. The Consumer Financial Protection Bureau (CFPD) sued Navient for failing borrowers, but the lawsuit was later dropped when Mick Mulvaney was appointed as the head of the CFPD by former President Trump. Students were being lied to by their student loan servicers and had no control over who their student loan servicer was as it was assigned to them.4
The government has also mismanaged loan forgiveness programs. The Public Service Loan Forgiveness Program, for example, states if a student has a FELL loan, works at a non-profit or government for 10 years, and makes 120 loan payments, then their loans would be forgiven. Unfortunately, the majority of people who applied to this loan forgiveness program never got forgiven.4
The complex bureaucracy behind student loans makes college a big risk for young adults. The government has failed to accomplish its goal of encouraging students to attend college at a net neutral cost and preventing money from being a deciding factor in an American’s future.
UGA Students
Thirty-two percent of UGA undergraduate students are currently using federal loans, not including those who rely on parent PLUS loans. 5 Another 2.3% of UGA students defaulted on their loans.5 These college students within the Athens community are not only limited in their ability to contribute to the community now but will also struggle to make big purchases in the future, further harming the community. The student loan crisis is not some distant problem Georgia can afford to address at a later date. Georgia must take action now for the prosperity of its students and its future.
[1] https://www.usnews.com/education/best-colleges/paying-for-college/articles/see-how-student-loan-borrowing-has-risen-in-10-years
[2] https://studentaid.gov/complete-aid-process/how-calculated
[3] https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized