Student Loans Barriers to Higher Education

With few exceptions, one generation is usually better off than their parents’ generation. Most of the time, new technology allows us to live longer, have more stuff, and spend less time working (or work easier). However, there is reason to be worried that our generation will not be better off. A bachelor’s degree is as important now as a high school diploma was a generation ago. To earn those degrees, an increasing number of young people are taking out increasingly larger student loans with increasingly higher interest rates. This puts the economic health and well-being of our generation at risk.

College tuition continues to rise faster than the inflation rate. Adjusted for inflation, tuition at public universities has risen about 35 percent across the country in the past five years. While public university tuition was frozen in Maryland this past year, it has increased 40 percent in the previous three years. Unfortunately, funding to student grant programs has not risen in tandem with tuition increases. The maximum Pell Grant amount has been flat at $4,050 for five years. Pell Grants cover an increasingly small proportion of tuition, from 77 percent 25 years ago to 40 percent today.

To cover the gap, more have turned to student loans. Paying off student loans is not always an easy task, however. More students are going deeper in debt and it is taking them longer and costing them more to pay it off, as recent legislation has increased student loan interest rates on government loans. Many are having extreme difficulties paying loans off and find that their student debt is having severe effects on their post-collegiate life.

What are the effects? Surveys have shown that significant numbers of young people have chosen to put off buying a home, marrying, and having children due to high levels of student debt. Student debt has a snowball effect; it doesn’t just hinder our economic health in the years following college, but by preventing young people from pursuing graduate degrees and from saving for retirement, it can impact us for our entire lives.

One of the worst effects of increased student loans is that many students cannot afford to go into the public sector. Future teachers and social workers are being driven away from those professions because the salary would be too low to pay off student loans. There is a high demand for those who work in the public interest, but we will not be able to meet that demand if the current trend continues towards higher and higher levels of student debt.

There are a variety of measures we can take to help alleviate this problem. However, we cannot just throw money at this problem; we need to correct the inefficiencies too. One such inefficiency is Sallie Mae and the guaranteed loan program. Instead of directly administering all loans themselves, the federal government guarantees some loans administered through Sallie Mae, a private corporation. The federal government pays interest while the students are in school and pays Sallie Mae the entire balance plus accumulated interest if the student goes into default.

Usually, interest rates are contingent upon the level of risk a lender incurs in giving out a loan. That is why, for example, APRs on credit cards are high if you have a low credit rating. However, despite not incurring any risk on their federally guaranteed loans, Sallie Mae’s interest rates are not low, reaching double digits in some cases.

Not only does Sallie Mae make money through risk-free loans, they make money through the collection agencies they own. If Sallie Mae collects the money from a student in default, they can keep up to 25 percent. For every dollar owed, Sallie Mae can make up to $1.25 if the loan goes into default. Whether you pay your loan or not, Sallie Mae is going to make money.

Needless to say, this arrangement has made Sallie Mae an incredibly profitable company. Their stock price has gone up 2000 percent in the last decade and their CEO is worth a quarter of a billion dollars.

Sallie Mae provides financial incentives to schools that drive their students towards the guaranteed loan program instead of the direct loan program administered by the government. This is unfortunate, because the direct loan program is far more efficient. Studies have shown that the direct loan program costs taxpayers five times less per loan than the guaranteed loan program. However, Sallie Mae’s contributions to politicians have helped keep this inefficient policy afloat.

If more loans were through the direct loan program, then the money saved could help students in a variety of ways. We could raise the cap on grants, we could lower interest rates on federal loans, and we could provide more loan forgiveness for those who choose lower paying jobs in the public sector. Students in debt would also be helped by graduated payment programs. Students pay the same amount on the first and last payment of their loan. Why not allow students to make smaller payments when they are just starting out with a low paying job and gradually make larger payments as they progress through their career?

These are some possible solutions, but there has been little clamor for change. In the past, when Congress has cut student aid, they have hardly done so at their own peril. Despite the importance of this issue to our generation, it rarely registers in discussions of the important issues of the day. Too much debt can hold down our passion, our talent, our dedication and our ingenuity, but it is not too late to demand change.

By Ryan Walden

College Study Tips

You may have gotten by in high school by frantically reviewing your notes at 7:15 a.m. on the morning of an exam, but don’t expect to get away with that in college. So says Sherrie Nist, coauthor of College Rules! How to Study, Survive, and Succeed in College (Ten Speed Press, 2002).

As a college educator at the University of Georgia who helps students with their high school to college transitions, Nist should know. After all, she’s seen A+ high schoolers turn into 2.0 undergrads time and time again. But that won’t be you, right?

Of course not! Especially not when you’ve got Nist’s scoop on successful student strategies.

Take action (with texts and lecture notes)
While you may have depended on rereading chapters and rewriting your notes as your main study plan before, things will be different at the college level. “You may have to read 250 pages a week. You can’t reread that three or four times,” says Nist.

Instead, adjust the way you read and take notes. “Since college is a passive activity (you sit there, listen to lectures, take some notes), anything you can do to make it more active is a benefit.” For example, jot notes in a textbook’s margin to highlight key points, reflect on your reading, and review class notes. “Your high school history teacher may have given you a study guide before a test, and all you had to do was memorize it,” says Nist. “Professors in college assume that you know the content; they expect you to synthesize and analyze issues.”

Time is on your side … or is it?
Think about this: You’re going from 7 to 8 hours a day, 5 days a week, of class in high school, to 15 hours per week in college. So why is it that college students are always saying they don’t have time to get things done? As Nist states, “students may have more time on their hands, but they don’t know how to manage it.”

In other words, just because your entire day isn’t bogged down by class after class, this doesn’t mean your schoolwork day is over. “I encourage students to have a 40-hour mindset. Those are the minimum hours you’ll work per week for a full-time job, so you should be a student for 40 hours a week, as well,” she says. Don’t worry–that includes class time, too!
Article provided by The CollegeBound Network