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Case Study: The Trap Of Student Loans

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The Trap of Student Loans Student loan debt is becoming an increasingly startling problem. Rising costs of college and lack of financial aid is driving students to take out loans that offer only high-interest rates and inflexible repayment options which can trap students in a vicious cycle of debt and default. The best solution to this problem is to have federal funds donated to all public colleges’ endowments yearly to use the money to offer more financial aid, require all public colleges to provide a minimum amount of financial aid based on expected income of the student and family, and to require that all student loans be subsidized with interest rates not exceeding 0.5%. The costs of going to college have risen tremendously and are continuing …show more content…

As the price tag on college is shooting up and the amount of federal funds are minuscule in comparison, students are relying on private loans to cover their education (McGuire). Increasing federal funds would drive the need for private student loans down substantially, eliminating one of the biggest problems in the student loan crisis. A lack of private loans would mean a lack of sky-high interest rates that cause many borrowers to default on their payments. Student loans aren’t tightly regulated in terms of protections around interest rates and default which allows lenders to “[treat student loans] more like credit cards, with variable interest rates as high as 18% and terms set by the lenders” (McGuire). These unbelievably high-interest rates are what cause a big problem when repaying student loans. Due to the high-interest rates, when a borrower is repaying their student loans, the monthly payments may only cover the amount of interest accrued, if even that (McGuire). Private loan interest rates should be limited to 0.5% to help prevent those who must take out student loans from being unable to repay their loans on time because of inflated interest rates. With our current system of allowing lenders free reign of interest rates, by the time most people have paid off their student loans, they have paid far more in interest than they could have planned, if they were even able to keep up with the monthly bills. Interest rates for private loans should be much more tightly regulated to prevent lenders from overcharging people who were simply trying to seek out an

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