College Debt in the U.S. - Free Essay Example

Introduction

Despite the deep flag and appreciation of cars, the college debt issues have today become America's apple pie. Today the average students borrow up to 34% for education purposes. According to a study released by the Federal Reserve, in 2018 more than 44.5 million borrowers owed the government over $1.5 trillion (Jason & Mueller 715). The scariest part in this issue is that the U.S student loan debt is still growing because most Americans are only average payers when it comes to education. The study has also added that if the issue is not handled there could be a student debt similar to the housing bubble which took place in 2008. Similar to the housing crisis many worries that student debts will grow to the point that paying back will be unreasonable and this will also increase the defaults. Another study added that in 1996 the default rates were 40%, but by 2023, the prices would have doubled (Jason & Mueller 724). The essay will discuss the student debt loan in the U.S and solutions to reduce them.

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How the Student Loan Grew so Big

Even though the media bemoan that the increase in college students has generated to this crisis, the student debt bubble, the enrollment to school has very little to do with the debt increase. This is because since 1989 only a quarter of the aggregate growth in student relied on loans. The surprising factor that makes the college debt to rise is the cost of education because it does not align with the market. For instance, between the years 2016-2017, the consumer price index was 2.7%, but the tuition rates were 135 at private colleges and 9% at the State University. This means that if the cost of education continues to rise, then more students will continue to borrow.

Experts also said that due to the rising college costs, the monumental amount of debt might also lead to the collapse of the housing market. A good example was seen in 2008 when the housing market crashed. The problem was so significant that parents were unable to borrow against the values of their homes and this made them have no option but to make their children (who were students), to take the debt in their names. Estimations did by economist show if there is a $ drop in the home equity loans because of the plummeting house prices, then 40-60 cents is added in the student's loan. These calculations, therefore, enable one to know whether they are in good company. One thing people ought to realize is that the millions of dollars in debts may end up sinking the U.S economy.

How Student Debt Can Be Dealt With

Refinancing is one way that can curb down the student debt crisis. By refinancing, it means that the existing federal and private loans are consolidated into new student loans but this time with lower interest rates. This means that besides worrying about the one payment method, one has to worry about the little amount paid back. Another report released by the Department of Education stated that the interest rate of student loans should be between 3.5 to percent (Baum 20). This means that if the interest standards are put so high not only are they punishing but also makes a person remain longer with the debt. When borrowers pay off the balance around four students on average, then the paperwork will reduce. A report released showed that between 2011 and 2016, the online readers managed to refinance more than $6 billion in student's loans (Baum 34). When loans are consolidated in other words, it means that paying back will be easy.

Refinancing Options

Refinancing has a wide range of option but before using this method it wise to investigate how the student debt crisis grew to avoid the predatory companies to take advantage of someone financial situation. Research conducted showed that due to anxiety over debt, many borrowers had higher chances of falling for a scam. The rise of the student loan debt in the U.S has also led to an increase in bad actors (Jarrod & Roten 35). Estimates have also shown that due to the situation more than 130 companies formed to scum people and this made many students to have lifetime debts. The issue, however, does not mean that one cannot qualify for the refinancing option.

The advantage of refinancing is that one can consolidate their payments into one monthly bill and still qualify for the lower interest rate to allow them to have future savings. Although the government has their process when it comes to consolidating the federal loans, refinancing also needs a private lender. This means that even if the private lender offers another credit with a lower interest rate, the borrower should consolidate both private and federal loans through refinancing (Jarrod & Roten 56). The private lender, in this case, will provide the loan depending on factors such as the payment history, how much someones owes and the credit score. This makes it easier for students because they will manage to pay off their loans at a more affordable rate which when translated it results to thousands of dollars in savings.

Conclusion

Student's loan debt has been a controversial issue in the U.S for a long time. Many students borrow money that they are unable to pay back. Several factors such as the high cost of education are the contributing factors why they are unable to repay. One way of solving this issue is by refinancing the existing loans to new loans that have lower rates. Research has proved that when this method is used, many students will be limited to take the money they are unable to pay. This will also reduce the rate of the student's loan debts in the U.S

Works Cited

Baum, Sandy. "Student Loan Programs and the Realities of Student Debt." Student Debt, vol. 3, no. 11, 2016, pp. 17-42., doi:10.1057/978-1-137-52738-7_2.

Johnston, Jarrod, and Ivan C. Roten. "The Implications of Income-Based Repayment and Public Service Loan Forgiveness on Student Loan Debt." SSRN Electronic Journal, vol. 10, no. 11, 2014, pp. 33-76., doi:10.2139/ssrn.2480446.

Lee, Jason, and John A. Mueller. "Student Loan Debt Literacy: A Comparison of First-Generation and Continuing-Generation College Students." Journal of College Student Development, vol. 55, no. 7, 2014, pp. 714-719., doi:10.1353/csd.2014.0074.