Why Student Loans Need to Be Reformed - Assignment Example

Why Loans need to be reformed T chart outline In their current loans are unnecessarily harsh on school leavers, and there is urgent need to reform the entire student loan system to give these students a better start to life and to unburden them. Loans are contracts and they must be honored irrespective the condition of the lonee. Loans are very expensive amounting to hundreds of thousands, which may be out or reach for many. Unpaid loans tend to ruin the loanees credit Loans have very high and punitive interest rates The loans must be paid even if one does not graduate. Loans make education appear to be a material as opposed to intellectual of or socially beneficial pursuit. Higher education is without doubt a critical factor in promoting the educational achievement as well as making the United States more competitive in the international and local labour market not to mention one of the tools for fighting rampant unemployment. However, despite its obvious necessity, it is out of reach for numerous American high school leavers, consequently many college students are forced to take up student loans to fund their education. The corollary is that when they leave college many are heavily in debt which is made worse by the fact that they will not all get well-paying jobs or even get jobs at all (Vidal). Therefore, instead of starting life after college with the optimism of having a clean slate, thousands of American graduates get their start burdened with students loans that threaten to bankrupt them before they start to make an actual living. Despite helping them get through college most of the students who take these loans do not fully understand what they are getting into and often end up struggling to make payments with high interest rates as well as being penalized when they fail to honour the terms. In their current state, student loans and unnecessarily harsh on school leavers and there is urgent need to reform the entire system so as to give them a better start to life and unburden them. One of the factors that make student loans disadvantageous to school leaves is that they are very expensive, depending on where one goes to school, they can leave with as much as hundreds of thousands dollars in debt. Given that many reputable colleges chard as much as 40,000 a year, excluding the cost of books lab equipment and accommodation, students risk leaving college with both their degree and a massive debt burden (Shen, and Adrian 316). Since they do not get to negotiate the terms of the loans as they are mostly only interested in getting money to take them through college, the find that after they receive and spend the cash the deal may have been more complicated than they anticipated. In addition, the repayment periods can be extremely long and there are people who are still paying these loans as many as 20 years after they graduate, this makes it difficult to build emergency savings of investment accounts since majority of them will hardly make enough to survive on let alone service expensive loans (Vidal). In addition, even if one is having financial hardships, it is almost impossible to get rid of these loans and they follow one even in case they get medical emergencies or lose their jobs. For many who do not earn a lot of money, they will be forced to spend their savings in paying off their educational debts and this eats into their retirement funds. Defaulting on payments for these loans irrespective of the reason can cause one to have bad credit with makes it both difficult to borrow money or obtain employment in some professions. Defaults on student loans are not removed from ones credit history and even after 7 years, they will not be wiped away nor are they discharged during bank proceedings. If they are not paid as agreed, they can result in wage garnishments and a simple four year loan can result in bad credit as well as debt repayments. In addition, it does not matter if one graduates or not, they must pay back the loans, it is very unfortunate that there are thousands of people paying loans even though they were unable to clear college for any number of factors and they do not even have a degree in the first place. Many in such situations end up making low level incomes since their income levels do not match with the loan repayments making these deductions a serious hardship for them. To some extent the process of recovering these loans can be injurious and retrogressive but only for the recipients since the loan institutions must get their money back whatever the case. However their demands and inflexible rules sometimes make it even more difficult to pay back these loans; for example since one gets bad credit for not paying them they will not manage to get a loan for maybe a startup. Taking away their opportunity to make money for themselves makes it more difficult for them to earn enough to make the necessary payments. Several reforms have been considered proposed in the interest of protecting the loanee from having their life and career debilitated by the loans. For example students enrolling after 2014 will have the option of choosing the income based repayment which will be at less than 10% their income which will be reduced from the present 15%. Under the new plan over 1 million borrowers will be eligible to reduce their monthly payments so that people earning less than $ 30,000 a year, will not have to pay more than $110 per month. Another proposed reform targets the forgiving of all remaining debt after 20 years and 10 for people working in the public service in addition, borrowers who are responsible for their payments will be eligible for forgiveness after 20 rather than 25 years (Vidal). Those working in the military, or other public servants such as teachers or nurse will have their debt forgive after 10 years; this is in recognition of the fact that they have used their education to serve the public in jobs that do not necessarily earn a lot of money. Despite the calls for reforms, there are those that claim the loans do not need reform since making them lenient will only encourage more people to default on the repayments and at the end of the day, the lenders will suffer. This is based on the supposition that a student loan just like a bank loan is taken by adults who should understand and be ready to honor the terms of their contract. While this argument makes economic sense, from a social and moral perspective it flies in the face of logic, insisting that loans are followed up and repaid irrespective of how long it takes (Shen, and Adrian 316). For one it makes education an extremely materialist endeavor whose primary goal is to enable its beneficiaries to make as much as possible in future. This begs the question, what of valuable professional that require a college education but are not particularly well paying? Many people who work as nurses and teachers are qualified to pursue highly paying careers with perpetual harassment to repay student loans undermine their sacrifice. Without reforms they may as well decide that the opportunity cost is too high and there would be a shortage of such professionals. In addition, it locks out those who want to get a college education for its own sake rather than as a means to earn a living. At the end of the day, educational loans needs must be reformed, so that students do not end up spending their professional lives trying to come up with ways through which to repay their loans rather than pursuing their dreams. A non-skilled laborer working in a construction site may not earn as much as a nurse with a degree but they may end up taking home more or even affording a better retirement package than the profession burdened by student debt. While is true education is a path towards financial independence and prosperity, it does not necessarily have to be the only purpose it serves and as long as college leavers end up servicing loans for decades after they graduate education will end up being to some extent more trouble than its worth. Works Cited Shen, Hua, and Adrian Ziderman. "Student loans repayment and recovery: international comparisons." Higher education 57.3 (2009): 315-333. Vidal, Dennis. Obama signs student loan reform, ties interest rates to Treasury note. The Daily Californian. Web. 15 July 2013 Read More