Student Loan Debt: Truth, Lies, and Lessons


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As a not-so-recent college grad who is still paying off student loans, I’ve heard these popular arguments over and over. But is there any truth to them, or are they merely good dinner conversation?

1. They’ll give anyone a student loan.

The truth: It’s true that the U.S. government extends billions of dollars in loans to American college students each year, with specialized funds for students from all different circumstances.
The lie: Federal aid is not a given. Just as with other avenues for borrowing, applicants must demonstrate need or prove other eligibility—and agree to repayment terms—through the Free Application for Federal Student Aid (FAFSA).
The lesson: With student loans so abundant and relatively easy to procure, the real question should be whether our system is doing a good enough job of educating borrowers on the seriousness of student loan debt. Many would argue that it does not.

2. Student loans are “good” debt.

The truth: Student loans are good, in the sense that they represent an investment in your future—unlike credit cards, auto loans, and other forms of borrowing.
The lie: On the flip side, since student loans are only tied to theoretical future success, they are very difficult to dispatch. Even drastic bailout measures, such as bankruptcy, often do not apply to student loans.
The lesson: Too many borrowers make the mistake of assuming they’ll be financially successful after college, and they take the full amount of aid offered, as opposed to taking only what they can reasonably expect to repay within 10 years of graduation, given starting salaries for their major of choice.

3. Loan forgiveness would stimulate the failing economy.

The truth: In theory, if the government forgave some—or, better yet, my entire—student loan debt, I’d be free to spend that money elsewhere, thereby supporting the economy.
The lie: The biggest assumption here is that borrowers are repaying their debt and itching to put that money toward something else. But according to a report by the Consumer Financial Protection Bureau, only about 40 percent of the $1 trillion in outstanding student loan debt is being actively repaid. This movement loses further steam once you also consider that government doesn’t actually lose money on defaulted student loans—and isn’t likely in a hurry to eat billions of dollars worth of debt.
The lesson: Free, universal education is a noble ideal, but if you want your loans repaid, your best option these days might be to consider established loan forgiveness programs that reduce debt in exchange for work performed in underserved communities—because a widespread bailout, sadly, doesn’t appear to be in the cards soon.


ABOUT THE AUTHOR

This article was written by Hannah Purnell

Hannah Purnell is a staff writer for CollegeView.com. Hannah writes extensively on the topic of undergraduate studies and the college search process.

2 Comments

  1. steve

    1. Yes they will give a student loan to anyone with a pulse. why not, it cant be defaulted on ever, in bankruptcy or until death. there is no reason not to. thats part of the massive problem and huge debt bubble this is creating on our kids and our county. a local bank would never give a mortgage loan to anyone now who cant pay it back , same principle applies here
    2. it is only good debt if its reasonable, such as medical school investmetn to make enought to pay it back and live well on. borrowing 200k for a ba degree in a liberal arts major is just plain not a good investment and really quite stupid.go to a lower cost school , do not borrow such large amounts that can never be paid back or get a return on
    3 dont need free college, just affordable to the middle class as it used to be for most of our lifetimes and century before, not since this giant bubble was created in past 25 years. its directly related to increase loans from the fedgovt to kids to the colleges, ever driving up the cost of tuition…

  2. mar

    Read this and weep negligent parents. If you can’t afford to write the check to educate your child, don’t have said child. There should be no tax payer funded grants loans or anything else. Foot the tuition bill for your own child.

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