student receive an education loan

The Economic Impact Of Student Loans

The number of students attending colleges and universities have increased, due to funding through loans provided by These loan programs have grown in attempts to fit the increasing demand and needs from students. These students are not required to pay off their loans while still in college. However once they graduate, the loan will need to be paid back with interest once the allotted grace period is over. Loan amounts have been rising because colleges often raise their prices and push the costs onto their students. In turn, students are forced to take out more loans.

paying-off-student-loans-1The shift from public funding of education to individuals financing their college education has put students at risk. It has created negative social and economic effects, which spread beyond the student’s college life. The loans, while intended to increase college access to a larger number of the population, have associated risks which have made low income and middle-class income students to forfeit their college education.

The logic behind college loans is that it can lead to a higher future income. The downside is if the borrower does not acquire employment after college, then repayment is delayed. Student loans cannot be compared to those taken by individuals, who may use it to finance an investment that can increase productivity, wealth or well being. These loans given to students are anti-insurance, they concentrate on the student who has to pay that debt personally. The loans are also not dischargeable in bankruptcy.

college-loan-refinanceThe employment prospects of these graduates becomes less stable every year, thus translating into fewer social and economic benefits. Household debt has now become a major factor when paying for services like education and healthcare. Individuals with no loan debt improve the economy more than individuals with student loan debt, due to the purchase of assets like cars and homes. This implies that high private loan levels will impact economic growth. A healthy economy is established when individuals pay their debt so they can reduce the amount of income used to service the loan and thus begin investing and consuming.

Student debt is distributed among the upper class, middle class and lower class. As they try to pay off their loans, household spending is affected which in turn affects the economy. There is also a fall in household formation as graduates struggle to pay off their loans. This student debt is one of the reasons that graduates prolong living with their parents and fail to make contributions to any retirement accounts. Student loans have brought about a shortage of primary-care specialists, as the highly indebted graduates specialize in sectors that are considered high end sectors such as radiology, dermatology and entrepreneurship.