After the recent unfortunate recession, a large number of fresh graduates are not getting a job and thus, not being able to manage to pay off the student loan debt after meeting the daily routine expenses. Therefore, it can be said that student loan debt has become one of the most common financial obligations. Some people attempt to wipe off the debt with nonprofit debt consolidation, but not all can do it because of their unique financial situation. Therefore, student loan debt is spreading all over the nation.
However, according to many economists, improvement of education is responsible for one-fourth to one-half of the growth in our nation’s economy for the last couple of years. President Lyndon Johnson had commented that there should be no gap between the number of the available jobs and the number of people capable to perform the job. To bridge the gap, Johnson assured an amount that now seems insignificant, $1.9m, sent from the federal government to states that could influence it ten-to-one to support student loans of up to $1,000 for 25,000 people. This act might help many fresh graduates enter business, trade, and technical schools, which play a vital role in imparting knowledge and skills to our young citizens of the state.
About a half-century later this act has affected the federally guaranteed student-loan industry. On October 25, Obama added the list of debt ridden students to banks, car companies, homeowners and others that have been benefited from a federal handout.
Johnson’s lending program was also altered. Providing education through business, trade and technical schools was also expanded to include the full, imaginative panoply of American education, regardless of economic utility. Aside from this, interest rates, terms and conditions associated with student loans have also been adjusted. Thus, as a result, the task of students became larger. They must choose between wide ranges of products, such as Stafford loans, Plus loans, Perkins and private loan options. Moreover, there are choices between consolidation and restructuring payments to pay off the debts.
However, two primary facts are, the size of student loan debt is vast and loads of borrowers are struggling hard to pay off the debt. According to the College Board, nearly 10m students took out loans for the latest academic year. Almost one-third of students are graduating from college and 69 percent of them are defaulting on it.
The total amount of debt is soaring high through out the country. The New York Federal Reserve Bank indicates that the total amount of debt is nearly $550 billion, but includes a footnote in the technical notes section suggesting that this can be an underestimate.
In this context, critics comment that the size of the loan has become so high that students are paying ever higher fees to schools. That was sustainable when there were plenty of jobs, but harder when there are a very few options. In September 2009, the Department of Education reported that the default rate reached 8.8 percent and delinquency rate exceeded 10 percent, which is 10 times to that of credit cards and car loans.
However, troubled borrowers can avoid such traumatic situation by using government grants to consolidate their loans and make minimum payments. For many years government backed loans were given through private banks and financial institutions, but now days, the business is entirely operated by the federal government.
Author- Barbara Delinsky
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