Along with scholarships, fellowships, and grants, student loans are an important method of financing post-secondary education. With tuition costs rising, more students are borrowing to pay for college education today. However, not all students realize the burden of paying back their student loans. Many are defaulting.
Moreover, individual borrowers are not the only ones who face the consequences of the loan default. The federal government recovers around 80% of the total defaulted amount of student loans, losing billions of dollars each year. The latest data from the U.S. Department of Education indicates that student loan default rates have been rising. Official 2011 default rate is 10%. ("Comparison of FY 2011 2-Year Official Cohort Default Rates to Prior Two Official Calculations"). The New York Federal Reserve reported that as of March 31, 2013 outstanding student debt surpassed credit card debt and was approaching the $1 trillion mark (Quarterly Report on Household Debt and Credit). If student loan default rates stay unchanged, the federal government will lose $200,000,000,000 of taxpayers’ money over the next few decades because of student loan defaults. Below is the chart representing the outstanding credit card and student loan debt over the last ten years (Quarterly Report on Household Debt and Credit).
Recent studies show that the number of individuals who default on their student loans has been steadily increasing as well. Statistics from the Institute for Higher Education Policy (IHEP) show that between 2004 and 2009 only 37% of federal student loan borrowers were able to make uninterrupted payments; it is an annual average of 7.4% (Cunningham, and Kienzl). According to IHEP, for every one borrower ...
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...ents for the first time will be allowed one semester probation period, during which they will still receive the loan; if after probation period student still don’t have 2.5 minimum G.P.A., he/she will be disqualified from receiving federal student loans.
I further recommend submitting the described policy for nine months public comment process to access public opinion and provide information for possible modifications of the policy.
The problem of student loan default is a serious one and requires tough decisions. I understand that the policy option described above will be a tough choice and will face opposition from prospective and current students, but in the light of the faced default problem, it is necessary to change the attitude of all individuals regarding the student loans to protect them from financial and other struggles that student loan default causes.
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