Students Debt Crisis in America - Assignment Example

Unit Solutions to the Debt Crisis in America Debt crisis in America has grown because of an increasing desire for students to enroll in the American colleges and universities. Many students do not meet the rising college costs and end up borrowing loans. The loans borrowed by the students are private; thus, cannot be refinanced by the federal government. The financing of higher education in America has become dependent on debts. Data collected from America student debt indicate that the borrowing rate by the federal students is ever growing. The federal government lends more every year; this leaves the federal students with about one trillion dollars to repay. Of the outstanding debts, only 60% have plans of repaying while the rest either ask for loan forgiveness or default indicating that the students are in financial distress. The debt crisis in America calls for long term solutions. This will suggest solutions to the ever-increasing student debt crisis in America Table 1 illustrates the varying debt ratio earnings of the students based on their categories. Solutions to the student debt crisis lie with the federal government policies that address student loans and its associated problems. Several people proposed policies that are helpful in handling debt crisis among the American students. The proposed Responsible Student Loan Act should be implemented to help in dealing with the problem of debt crisis among the federal students. This Act was reset to include the percentage determined by the education secretary that covers administration and borrowers benefits. This plan focused on the interest rates that are related to the needs of the borrowers. It also sought to cap the federal subsidized loan by 6.8% while the unsubsidized loans and the parent loans capped at 8.25%. This Act also proposed that the education secretary in America should reissue the PLUS loans and the federal Stanford (Federal Reserve Bank of New York 102). The US government should reform the bankruptcy code that is currently offering financial distress to the loan borrowers both at individual and business level. The code must reformation in order to allow the students and the business people to expunge their debts and restart their projects. The fresh start of their lives is difficult for the students with loan debts because the congress enacted legislation that prohibits discharging the federal students from their loans in the cases of bankruptcy. The 2005 act extended the undue hardship of the borrowers thus making students suffer highly from the financial debt crisis especially from the private loans. Furthermore, the bankruptcy codes prohibiting erasing of private loans from the students also need reforms. Lawmakers and congressional representatives should work together towards establishing a realistic bankruptcy code that would ease the students’ load crisis in America (Martin 30). Loan forgiveness is another solution to the student’s debt crisis. Some students qualify for loan forgiveness because of their needs and financial backgrounds. For example, students who borrow and enter an income based loan repayment are eligible for loan forgiveness after 20 years because their monthly income reduces thus subjecting them to financial difficulties. Students who enter public service professions qualify for loan repayment after working for ten years. The proposed Student Loan Forgiveness Act would help reduce the federal student loan repayment to ten years and five years after full time working in the public service sector. According to this Act, the borrowers who are slow in their payments because of financial problems will become eligible for loan forgiveness. The current loan forgiveness strategies are restrictive and thus need review. There is a need to give students second chance of loan repayment by allowing them to convert their private loans into federal loans (Hutchinson 60). Solution to student debt crisis will be attained if the Pell grants are increased. Federal Pell grants are the major sources of financial aids for low-income families. These grants are not increased in relation to the inflation levels experienced in the United States. The grants have not increased despite the rise in tuition fee in colleges. This makes life difficult for the students from low-income families who resort to borrowing private loans. The federal government should increase the financial aids and grants to the colleges that keep their tuition fees at realistic levels while reducing the financial support to the organizations that increase their fees and charges. This proposal would help maintain the college costs at affordable prices thus reduce the private loan borrowing among the students. The state should reduce the cutbacks in the universities because cutbacks are the major causes of the increase in tuition fees among the American institutions of higher learning (Collinge 40). Education of borrowers will reduce student debt crisis in America. Student loan repayment is usually paid after a grace period of six months when the borrower has finished school and gets employment. The postponement makes students fail to understand the consequences of debt. Many ignore their repayment only to be surprised when they learn about how their interest has accrued. Additionally, many students cannot differentiate between financial grants and loans because of the absence of mandatory disclosure rules in the financial aid award reports. Disclosure would help parents and students understand their financial obligations and prepare to repay back the loans. Students and parents need education that will help them differentiate between grants and loans so that they do not get surprised when they learn that they have huge debt burden. Education on the results of signing financial letters and the interest rates will help parents and students prepare for their future thus reducing their financial turmoil in the future. Communication and business education helps students understand the serious impacts of loan defaults, forbearance, and delinquencies. Research showed that Americans are illiterate when it comes to finance issues (Villani 25). A strong solution to student debt crisis in America is the development of programs that will keep the loan interest rates low among the students. For example, the Perkin loans remain fixed at 5% while the subsidized Stanford student loans remain at 3.4%. The loans should aim at helping students meet their college business needs other than making profits from the borrowers. The student debt crisis is solved only if the federal government put restrictions on loan repayment procedures and rates especially on the student private loan. This solution lies on the reforms implemented at the borrower level. Other than, the solutions mentioned, students and parents should be encourage to finance their education needs instead of relying on loans. The borrowers should also identify the alternative loan payment in order to reduce debt issues during repayment. Conclusively, debt crisis in America requires a lasting solution that will help stabilize the American economy. There is no single solution to the debt crisis but a combination of solutions is effective. The combination of factors like education and policies are promising in finding solutions to the student problems related to the debt crisis in America. Works cited Collinge, Alan. The Student Loan Scam: The Most Oppressive Debt in US History, and How We Can Fight Back. Boston, MA: Beacon Press, 2009. Print. Federal Reserve Bank of New York. Quarterly Report on Household Debt and Credit. May 2012. Print. Hutchinson, M. The student loan bubble is the next subprime. Wall Street Examiner. April 12, 2012RetrievedApril11, 2014 2012, fromhttp://wallstreetexaminer.com/2012/04/05/the-student-loan-bubble-is-the-next-subprime/. Web. Martin, A.W. & Lehren, A.W. A Generation Hobbled by the Soaring Cost of College. The New York Times. April 13 2012. Retrieved April 11, 2014from http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?_r=2. Web. Villani, K. Are student loans the next subprime debacle? Bank Think, American Banker.Retrieved11, April11, 2014, fromhttp://www.americanbanker.com/bankthink/are-student-loans-the-next-subprime-lending-debacle-1048075-1.html. Web Read More