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Student Loan Debt Crisis - Research Paper Example

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America is currently in the midst of a tremendous economic crisis, with inflation reaching unprecedented and unanticipated levels.(Wikipedia, the free encyclopedia, 2010) This has resulted in a tremendous rise in the cost of living which has made living a challenge to the general public and to the student population in particular as they have limited resources at their disposal…
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Student Loan Debt Crisis
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Download file to see previous pages In such a situation the rise in cost of essential items such as gasoline, electricity negatively impacts the quality of their studies.
For the greater majority of students, borrowing money from banks has become a necessity to fund for their college and university education. On average, students now graduate with at least $21,000 in debt and in fact in some extreme circumstances students graduate with $100,000 in debt or more. Tuition fees at private colleges and universities have gone up tremendously - far ahead of inflation.
Parents are losing jobs or their salaries are reduced as a result of the economic crisis. Thus the amount that parents can contribute towards their children's education is decreasing. This means that a greater number of students are dependent on loans for their college and university education. Every student who is currently attending or applying to college currently is horrified by what is going on in the financial markets. Things such as bonds for student loans are affected as a result.
The economic crisis that has affected USA and the rest of the world has left many the going tough for many. Whether people have lost homes, investments, or confidence in the government the crisis has had an effect on everyone, including students. (Daly, 2010) The various literature highlighting the impact of the rising cost of living and on factors such as the obtainment of student loans and gasoline prices in particular provide a strong enticement for the need to study the effects of these things on the college and university students.
There will be a direct impact on student borrowings that will most likely be affected by the current financial crisis. Private student loans are likely to be the most affected as the economic crisis will most likely have an impact on loans that are not guaranteed and subsidized. Private nonguaranteed lending may drop by half or more as previously available sources of capital will dry up and disappear. This drop-off will have a tremendous impact on students in higher-priced private institutions and for-profit trade schools, were in recent times a large number of parents and students have come to depend on private loans to make up for the discrepancy in federal loan limits and higher prices charged at these institutions. The average fee per year at private nonprofit institutions is about $25,000 per year. The total cost of attendance inclusive of charges for accommodation and meals come to about $35,000.As a result of the economic crisis most firms are cutting back on full-time employees and interns to save money. So a job is hard to come by after completing their education. As a result repayment of the loan is difficult.
The student loan system is governed by a process called securitization. For example if a certain bank loans money to thousand students, the lender takes these thousand loans, puts them together in a trust, and sells shares of that trust to investors. The investment is encouraged by the promise of income received when the students repay their loans. The investors are pretty certain that this income will be steady and the lender is benefitted because it gets back the principle balance on the student loans ...Download file to see next pagesRead More
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