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For a significant number of students graduating from high school, it is nearly impossible to think about joining university without reflecting on student loans. These loans are provided by the federal government or private financiers. Loans from the federal government have more flexible repayment option, and the interest rate to the borrower is usually small. However, a majority of these beneficiaries (approximately 70%) leave university with student loan debts.
Student loans help college students in paying for study materials, course fee as well as living expenses. However, for the graduates, the eagerness of graduation comes with concern, the reason of which is the pending loan repayment. After graduation, students are supposed to take a long breath but they have to worry about what is impending- paying down a considerable loan bill. Thus, it is crucial for the students to have a clear understanding of every aspect of these loans.
Importance of student loans
The primary idea of student loans makes a great deal of logic when high school students reflect on the money they require for college. In fact, only a few brand new secondary school graduates are likely to have the standard $ 24,000 that is needed to pay out for one year of university by them. In addition, many families find it difficult to save for college as they pay for other expenses like cars, food, medical bills and housing, particularly with the American economy doing so poorly over the years. This is the main reason why student loans are significant. According to Cho et al. (2015), supporting students with loans helps in providing the much needed financial assistance to the deserving students to enable them to pursue high professionals like management, engineering and medicine. In return, higher education enables students to get high paying jobs. It also helps students and families pursue pathways such as financial aid and scholarship assistance that reduces a further burden of this significant investment.
Economic impact of student loans
Student loans have both positive and adverse effects on the economy. The positive macroeconomic impact of these loans is via the boost to output and productivity from a more learned workforce. For many Americans, student loan is a tool that increases admission to college education and the resulting higher education brings along a windfall of advantage for the economy. The downside of student loans is that they certainly drag back borrowers who would be busy saving to buy a home (Berman, 2016). Definitely, home-ownership is linked with the mortgage market. Since student loans delay home buying, it means that there are few people taking mortgages in the economy. Mortgages are significant revenue sources for investment firms and banks. Similarly, student loans limit business engines and expenditures that power the economy of the United Sates. This has extensive severe impacts that are tied to slow productivity and economic growth.
Effects of student loans on the individual
For students who graduate with excessive educational debts, student loans have a lasting impact. As Berman (2016) states, student loan debts have profound implications on the spending habits and daily lives of young Americans, no matter the level of credential they earned or the kind of institution they attended. These debts cause an adversity on the personal budget when summed together with other household spending. Student loan debts cause holdups in fundamental life events like buying houses, marriage, and bearing children. As Rothstein et al. (2011) report, extreme debts also manipulate employment strategies for graduates, as they are likely to take jobs that are outside their profession, work harder than they would. In addition, in the United Sates, when one pays for services or products, it keeps the economy in operating and growing. Therefore, for such a consumer driven, less expenditure by graduates (since they are repaying student loan debts) implies flat revenues and profits, which consecutively slows financial growth.
The burdens and risks that come from coercing college graduates to take out student loans and pay it back much afterwards is difficult from tassel to them. This is because the impact goes far much than whether the individual beneficiary can sustain their student loan payments. There are consequences for the short term personal financial choices for the borrower as well as long-term financial security, which ultimately broadly impacts on the consumer-based economy of the U.S. To establish an improved arrangement of higher education, there has to be alternative means to the existing debt-financed model. However, just like the issue of student loan debts affect everyone in the economy, finding a solution to student debt challenge requires the contribution from all fields of life.
- Berman, J. (2016). America’s growing student-loan-debt crisis. MarketWatch.
- Cho, S. H., Xu, Y., & Kiss, D. E. (2015). Understanding student loan decisions: A literature review. Family and Consumer Sciences Research Journal, 43(3), 229-243.
- Rothstein, J., & Rouse, C. E. (2011). Constrained after college: Student loans and early-career occupational choices. Journal of Public Economics, 95(1), 149-163.