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Rise in student loan defaults & delinquencies

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Rise in student loan defaults & delinquencies

Do you feel like a hamster spinning in a wheel like fanatic but in vain?

Opting for student loans can make the young graduates feel this way. The student loan crisis, in today’s time, has become a serious issue which ought not to be ignored. Isn’t it insane when you get to know that around 44 million people in the United States jointly hold over $1.6 trillion as student loan. And these numbers are multiplying. The Indian and American educational debt standards are somewhat alike. Likewise, the Indian economy is on the same boat, indeed facing a much greater concern than America.

The dichotomy of college education becoming significant and its cost becoming exorbitant has put the students in a dilemma – do I omit the advantages of college education or do I take a loan with the risk of not repaying it? This can be termed as “crisis”.

Unlike those born with a silver spoon in their mouth, the ‘Struggle is Real’ for the students who are underprivileged, belonging to low income families. Even if they are filled with utmost zeal to study something they are passionate about, their finances may foil them from doing so. Due to this, the economy might also suffer a setback because if the people are using chunks of their income for repaying their student loan debt, naturally they are spending less on those goods and services needed to fuel the growth of the economy.

EVOLUTION OF STUDENT LOANS
Earlier in the 60s and 70s, the young graduates who opted for student loans actually did summer jobs to meet the expenses of their college. On graduation either they would be debt free or only a minimal amount would be left for them to pay back. Thereafter they could live a normal life. Unfortunately, in today’s time, majority of the student loan takers are all balled up in this “crisis” situation, which has even forced them to postpone the conventional badges of adulthood.

According to a survey done by the CNBC Make It, it was found that, “21% of borrowers have delayed getting married, 26% have pushed back having kids and 36% have put off buying a home.” Only if it was possible to replicate the 60s and 70s, today the young crowds would be in cloud cuckoo land.

The concept of unemployment and education together is not contemporary. Infact, what is new is the student loan availed by the graduates for the purpose of getting that “advanced degree” so that they get hired and consequently repay the loan. As a result of not being able to repay the debt, the more number of unemployed ones have been committing suicide than even the farmers in India.

Every person, in every corner of the country has been affected by the Covid-19 pandemic. As many companies have taken a beating since March of this year, the working population has suffered pay cuts and many have been shown the doors. The most serious predicament that the ongoing pandemic has caused is unemployment, but even before this tragedy, the Indian economy was in a state of crisis. Especially for the students and the graduates, repaying the student loan has become equivalent to moving mountains as companies have refrained from hiring. All thanks to the Pandemic!

WHO CAN BE BLAMED?
With increasing number of cases of student debt crisis, one often wonders as to who is to be blamed here?

Yes, it a difficult question to answer.

“A generation ago, there was a system that helped you not take on the risk yourself to pay for college education, but society took on the risk for you by making tuition cheap and allowing you to benefit from that experience and then pay it back in the form of higher tax revenue. We’ve shifted the risk from society directly to the student,” stated David Deming, an American economist.

Contrary to Deming’s statement, what today’s situation displays is that – You are a young adult, you take an education loan to pursue something that you are passionate about. You are quite optimistic about you future. And boom! Even after 30 years you are still caught up in the web of repaying the loans.

The crux of the matter is, as far as the student loan crisis is concerned, it is the Government and the colleges who are to be blamed for hiking of college/ tuition fees and not paying much heed to such an important issue. Starting from the 70s till today, the costs have increased roughly by 25.30% in private colleges and approximately by 29.80% in public colleges. Such inflated costs are truly a matter of concern. The evolution of technology, especially that of automation, has made it difficult for the common people to continue living without any kind of advanced degree.

As stated by Stewart Stafford, education is something that should be valued and it must be seen as “a way out of the poverty trap.” But unfortunately, the harsh truth is that it itself has become a “poverty trap” and has made those “trying to better themselves incur massive student debt.”

Yes, reading such facts may send chill down your spine. But not everything is as bad as it seems. Eminent public figures have gone for student loans so that they could pursue what they desired. The former President of the United States of America, Barack Obama and his wife, Michelle Obama, the former First Lady of the United States, both opted for student loan in order to pay for their college fees. In one of his speeches he mentioned that he was almost in his 40s when he finished repaying his debts. Quoting the former President, "Michelle and I, we're only where we are today because scholarships and student loans gave us a shot at a great education."

OVERCOMING SUCH DIRE STRAITS
Millions of students across the world are striving to get past this mountain of debt. Repayment of the loan has become the major goal for the young graduates after their college. A debt free future is what one aims for and there are a number of ways available to do so.
Student loan generally has a grace period, say of six months, which means that you are not required to pay your dues during that time. Only after 180 days you start paying the dues (in this case). It is advisable that you should not just neglect such times. Spend some time in researching about the loan and options the available to repay the same.

Some of the options available to fuel loan repayment are – consolidation and refinancing.

Opting for consolidation allows you to combine your multiple student loans into one and the interest to be paid on it is the weighted average of the old loan rates. Consolidation can be done both in case of federal as well as private loans. Mileage provided by consolidation includes minimizing the burden of keeping track of so many bills each month, lower monthly payments and minimal interest. However lowering monthly payments might increase the tenure of the loan, leaving you in a state to pay more interest over the life of the loan.

On the other hand, refinancing is when a loan is taken from private lenders to pay off one or more of the existing student loan. Point to be noted here is, only the private lenders allow student loan refinancing. Potential benefits when opting for refinancing includes – it allows you to cut down on the loan term so that the debt can be paid off sooner, the monthly payments is minimized, the interest to be paid is reduced. You also get a cost saving option of a variable interest loan wherein you get additional benefits when the loan is repaid relatively earlier.

Refinancing is indeed a good way of penny-pinching. As we all are aware of the fact that humanity is dynamic, different people have different financial background, so which one would be the best fit for you will completely be your call. You must thoroughly and very carefully screen the pros and cons of the remedies available before taking a new step.

Every cloud has a silver lining!
“On behalf of the eight generations of my family that have been in this country, we're gonna put a little fuel in your bus," Billionaire, Robert Smith shocks the graduating students with a surprise gift. He came forward to pay off the student loan debt of the students of Morehouse College, Atlanta, in the year 2019 by donating a hefty sum of $34 million.
Student loan, though a serious issue discussed at this juncture, should not be seen as mountain of debt impossible to climb. But it should be seen as something which will help you reach the peak of success by hardwork and dedication. Yes, there is light at the end of the tunnel.