Non-pay Student Loans Could be a Double Edged Sword

10 May, 2014

Funding higher education is getting harder

As we read this article, it is quite possible that quite a few parents are find it extremely difficult to repay federal loans that they have taken for their children’s education. This is as per the latest information available from various data and statistics. As per the plans floated by the federal government, there is a provision to take loans to fund education expenses, as far as the uncovered part is concerned. The ratio of ability of the borrower to repay to his or her income levels is not taken into consideration while disbursing such loans. This is more of a social commitment to the poor and needy from the federal government. However, there is a legal binding on the part of the parents to repay this loan. As the higher education is becoming increasingly expensive, many parents find this program to be extremely useful, when it comes to funding their children’s higher education.

Rising list of Defaulters

Though the education department does not have the exact figures for such defaults, they have some benchmark figures, which is a cause for concern. Though in terms of absolute percentile terms, it still continues to be well under control, the default rates have gone up by more than 300%, over the past few years. In absolute dollar terms, the amount is a staggering 63 billion, which is around 13% of the total loans which have been disbursed under this scheme. When the total outstanding payment is divided amongst the defaulters, it averages to around $20,000 dollar per borrower. This is a worrisome figure because given the difficult economic situation repaying $20,000 is indeed going to be challenging.

If things continue the way they are, the government may be forced to have re-think on the way this program is being run. It may have to bypass the social obligation and leave the parents to fend for themselves, as far as their children’s education is concerned

Apart from causing loss to the exchequer, the unpaid loans continue to be a big burden on the taxpayer because the government of the day has to find out ways and means to recover the dues, through fresh bouts of taxation. The situation is even grimmer for single parents, who have to essentially depend on one source on income for their child’s education. Hence, both the government and the benefactors should sit and think out new ways and means. While doing away with this program may not be the answer, some bit of moderation might be required.

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