This newly updated article in Economist talked about the Student loans in US.
It begins with talking about President Lyndon Johnson's act in late 1965, which sent $1.9m from the federal government to states which could then leverage it ten-to-one to back student loans of up to $1,000 for 25,000 people. As he promised, that act “will help young people enter business, trade, and technical schools—institutions which play a vital role in providing the skills our citizens must have to compete and contribute in our society.”
Come back to today, on October 25th the Obama administration added indebted students to the list of banks, car companies, homeowners, solar manufacturers and others that have benefited from a federal handout. Compared to the act 50 years ago, the result of education loans has a shifting, difficult landscape . For students, the task is much harder. Many students are overwhelmed, which is reflected by two things: First, the size of student debt is vast and lots of borrowers are struggling. Second, the total amount of debt is staggering.
As we read from the former news, that there were some changes announced this week, which are designed to ease the pressure on struggling graduates. Borrowers who qualify will get some payment relief. How will this relieve act going is still hard to tell.
Clearly there are a lot of problems and inefficiencies surrounding the student loan industry. For example, I'm frustrated by the fact that the costs of going to college increase when the availability of loans do. Then there's the collection agents whose pay is based on how much money they bring in, which is almost always bad for someone and in this case that's the graduates. Clearly the system needs reform. I just wonder if the new reform will do the job.
ReplyDeleteFrom the graph provided in the article, it is clear the recent financial crisis has only worsened the situation. It seems that before the crisis, the amount of private loans provided every year was growing, but that number greatly shrunk from 2009 on. From the graph it appears the federal government gave out more loans to make up for this. With an ever increasing number of student loans being given by the government, it is clear that something needs to be done to stop the situation from getting even worse.
ReplyDeleteThis is an interesting scenario. Students are important in that they are crucial in building the human capital of the nation in the long run. This as we have already talked about, is important as it keeps the TFP growing. But on the other hand, the US is in a situation where giving out these loans are essentially going to create an education bubble, and as unemployment is a major concern, the borrowers will find it difficult to pay back loans. It will be interesting where this will lead us in the future.
ReplyDeleteThe expansion of the federal loan program seems to be its downfall. Johnson envisioned a program that would pay for students to learn practical skills that would be directly associated with improving the economy. Now, students can get federal loans for many different types of schooling, some of which are less helpful at directly enhancing the economy. The system needs to be retracted to fit the vision of President Johnson.
ReplyDeleteThere are more than a couple of ways to overcome extensive student loan debt, besides hard work and budgeting. For example, you can volunteer for service to the country and receive relief. Additionally, there is a program in the field of education, which absolves student loans for teachers who commit to teach in certain areas for a specified period of time.
ReplyDeleteGraduates are not being realistic in choosing their options. No one is entitled to a job after graduating. Collectively, we must stop offering hand outs to people and businesses in America. It sets a dangerous precedent. Where will it end?