A Peek Into the Student Loan System in America

Studying abroad is an incredible feat to achieve that requires hard work, perseverance and passion. If you get the opportunity to study abroad, do not give it up. However, amidst your preparations, one thing to consider is how you will fund your education. In some cases, a scholarship or some form of aid may be available to you. But, in most cases, especially in the United States, you may draw on a student loan. The loan amount, collateral and interest may vary from one bank to another. The fact remains that the student loan system in America has grown to be very fragile. With mounting debt and struggles to repay it, students are facing a tough time. So, there are two questions- 1. What is the student loan system in America? 2. How can an international student navigate it?

Here we will cover the basics of student loan, and what can potentially burst the deb bubble. Perhaps, the repercussions of a crash may devastate the economy.

What is the Student Loan system in the USA?
In America, the student loan is the second-largest debt behind mortgages. Loans for education keep increasing because every year, there are millions of students going ahead to pursue higher studies. The government allows nearly limitless borrowing for student loans and future earnings serve as collateral. Since 2008, unemployment in the USA has been falling, and the median salary has been rising, yet the income cannot keep up with inflation. In this scenario, a student applying for a loan is, in a sense, an investor. You invest money into your education in the hopes that you will reap returns when you get a job.

The concern stems from the increasing cost of education and loan repayment plans that make it difficult to pay the principal amount. The collateral in the form of future earnings cannot meet rising inflation and the principal amount so, financial strain is created. Many people may find it tough to repay their loan for years.

What may be the outcome?
There may be speculation over whether the student loan crisis will be like a bubble popping or a slowly unfolding burden that will hurt the economy for a long time. Either way, the trouble exists. Increasing default rates may affect the private sector in more ways than one. With an inability to repay loans, the Millennials are also reflecting falling consumer demand. The housing industry, among others, is blaming them for their demise. This generation doesn’t have the purchasing power that their parents did.

If this trend continues, education may become unaffordable, thereby creating a segmented society. Only the rich will be able to access higher education. If loan defaults keep rising, tuition-dependent colleges will be in trouble. Federal laws will become strict for such loans so, people will be unable to replace loans with other funding, overnight. In short, higher education and the economy as a whole will face challenges.

How can one navigate this situation?
There are a few ways to plan your finances without accumulating massive debt:
1. Ideally, fund your education with a scholarship or aid. You can cover your tuition, living expenses and other facets of your study abroad course.
2. If the first is not possible, plan for your finances in a way that your future income can meet your repayment obligations. In this, you must thoroughly research job prospects, employment opportunities and scope to progress.
3. If you are currently employed, check if your company can fund your education. Many companies pay for their employees to study in the hopes of creating a valuable asset.

There are several other ways to plan, and budget, better. Do your research and find the means that suit your needs best. In these times, it is best to complete your degree. So, go back to school; you will graduate in time to enter a recovering job market. Put your best foot forward and fulfil your study abroad dreams!

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