Student Debt Crisis

Topics: Debt, Loan, Inflation Pages: 5 (1372 words) Published: April 13, 2013
1.0 Introduction

A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy.

There are two types of student loan that can be applied which are federal student loan and private student loan. Basically, students are more prefer to make a loan in federal student loan because the fixed interest rate wouldn’t affect the payment that they have to pay even the interest rate rise. In addition, government also provide free insurance in federal student debt. So that, if the borrower was disabled or killed, the loan automatically will be cancelled.

2.0 Issue

In the past three decades, the cost of attaining a college degree has increased more than 1,000 percent. Two-thirds of students who earn four-year bachelor’s degrees are graduating with an average student loan debt of more than $25,000, and 1 in 10 borrowers now owe more than $54,000 in loans. Especially for African America and Latino student that they are burdened with student debt which are 81 percent of African American students and 67 percent of Latino students who earned bachelor’s degrees leaving school with debt. Other than that, 64 percent of white students also graduate with debt. With $864 billion in federal student loan and $150 billion in private student loan, now the total student debt is more than $1 trillion.

3.0 Factors
4.1 Increase in education cost

The cost of a college degree in the United States has increased "12 fold" over the past 30 years, far outpacing the price inflation of consumer goods, medical expenses and food. According to Bloomberg, college tuition and fees have increased 1,120 percent since records began in 1978. Because of the increasing in the education cost, the loan that has been provided by the government was insufficient to fulfil their expenses. When they have not enough money to pay for their expenses, they start to make a private student loan which is higher interest rate and their debt also will be increase.

4.2 Rising prices of household goods

Price of household goods will affect the amount that students consume for their expenses. If the prices increase, student will spend more their money to the goods. They have no choice because they need to buy the necessity goods to survive. U.S. soybean prices jumped 40 percent over the summer, while wheat shot up about 50 percent. Prices have eased a bit since then, but the increases are expected to filter down to consumers. Rises in the prices of corn and soybeans and other field crops as a result of drought this year in the U.S. Economist are expected to feed through into food prices late this year and in early 2013.

4.3 Economic recession

College and graduate enrolment in the U.S. has risen dramatically over the past couple of years, from 19 million in 2008 to 22 million in 2010. So that, more students have to take a loan in order to paying their education. Student debt has risen faster than inflation. While the rate of inflation rose 115 percent from 1985-2011, the college education inflate rate rose 498 percent in the same period. Since many students and parents can no longer cover the cost of college, they turn to the private companies that offer with higher interest rate.

4.4 Low level of employment

The economists was expected that the pace of job creation would slow, leaving the unemployment rate higher than where it is now. If jobs were added at February’s pace for the rest of 2013, the unemployment rate would crack the closely watched 7 percent level by the end of the year. Instead, according to Ms. Meyer, she is predicted that unemployment would remain near 7.5 percent. With higher level of unemployment,...
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