Monday, March 4, 2013

The scoop about the costs and benefits of student loans

Student loan debt has already surpassed credit card debt and tipped the scales at more than $1 trillion, according to Consumer Finance Protection Bureau reports.

Because of this, many people have become upset about why their tax money is being used by the federal government for student loans in the first place.

This brings up an important thing to consider, namely, what are the real costs of federal student loan lending, and what are the tangible benefits?

Cost: In 2012, the federal student loan default rate was calculated to be 13.4 percent. But despite this substantial default rate, about 80 percent of defaulted federal student loan debt gets recovered successfully, according to the U.S. Department of Education.

Once you factor in the 80 percent recovery rate for defaulted federal loans (including collection costs), less than 3 percent of all original money lent out to borrowers is ever lost, according to the U.S. Department of Education.

However, 3 percent of $1 trillion is still a considerable cost — especially when you add in the amount of student loans that will be written off once the IBR program reaches 25 years. This amount is especially poignant, since it’s coming out of taxpayer’s pockets. Does this cost outweigh the benefits?
The benefits: If the federal government was not investing in student loan lending, this might prevent more than half of all students in the U.S. from having the financial means to attend college.

The requirements for receiving federal student loans target the students who would not be able to afford advanced schooling otherwise. These students likely would not qualify to receive a typical bank loan.

In addition to the students themselves, everyone in society benefits from government’s spending in higher education — especially in the form of financial return. Over their working lives, people ages 25 to 34 with bachelor’s degrees earned 114 percent more than those without a high school diploma.

Plus, those with advanced degrees earned two to three times as much as high school graduates, according to the U.S. Census Bureau. The higher earnings of educated workers are also generating higher tax payments at the local, state and federal levels.

Even if you didn’t benefit from federal aid yourself, chances are that many of the people you work with and rely upon wouldn’t be where they are without it.

Federal student loan lending practices may not be perfect, but they’re a positive step in the direction of fostering a better social and national quality of life. Deseret News

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