Tips on Federal Student Loans

Reviewed: August 28, 2015
By FinanceWeb

The future direction of college education funding is uncertain, but it has certainly been a major focus of one major political party. The rate of college cost increases has moderated slightly in the past four years. The average totals remain staggeringly high for a four-year degree, about $45,000 at an average state school, and approximately $120,000 at a top-rated private school. Federal student loans have been the lifeblood of college funding and particularly for the middle class and students with demonstrated need. According to the Project on Student Debt, the average total of debt for a four-year degree can easily exceed $30,000. Ten percent will have more than $40,000, and one percent will have more than $100,000. When adding graduate and professional education, a large percentage will have debt totals of more than $100,000.

Other Nations and Other Approaches

Some nations offer no-cost education for qualified students. Brazil, Germany, Finland, Slovenia, and France are among the leading examples. It is a method for developing talented workforce and spurring achievement and innovation. Others offer subsidies and stipends to attract top students to critical fields like education and teaching. Finland is an example of funding higher education degrees for teachers. In countries like Finland, outstanding students can get a no-cost education in critical fields such as completing a Master’s degree in teaching. These situations stand in contrast to the US system that forces every student to pay or arrange for the expenses of a college education. Financed college debt in the US has reached the other-worldly total of $1.3 trillion.

Proposals for Free or No Cost Education

No cost college has been on the agenda of the Democratic Party over the past eight years and continuing into the 2016 election. President Obama proposed cost-free junior college education. Former Senator and Secretary of State Hillary Clinton proposed a plan for a cost-free four-year college education. Part of the impetus for cost-free education is in the failure of the US college system to compete with the excellence of other national systems. The other part comes from the enormous debt burden imposed on students when coping with the costs of education on an individual basis. There is a natural base of support for providing higher education at low or no cost.

Repayment Can Overwhelm Graduates

Graduation can signal the beginning of an exciting career. But for three of four students it is the start of repayment of student loans. Usually set to a ten-year repayment program, many student experience payment obligations of more than $800.00 per month. Lenders can offer more flexible terms under current rules, and this has been a source of relief. Students with demonstrated need can get preferred terms for repayment that revolve around a reasonable percentage of their disposable incomes.

Student Loan Forgiveness

Forgiveness programs offer substantial debt relief to those who can qualify by performing public service work in particular fields and geographic zones for qualified employers. The spin-off benefit of forgiveness has been an influx of highly trained people into charitable work. For example, NGO’s and community-based organizations in New York City have attracted graduates from leading universities, colleges, and schools to come work with homeless veterans and other needy groups. These graduates earn debt forgiveness for a minimum of ten years of combined public service with a qualified employer such as a section 501(c) (3) organization.

The Future of College Finance

Direct Student Loans will likely continue as a primary source of financing for students of nearly every type of higher education, and that includes professional and technical occupations in short or critical supply. Student debt will continue to rise as a function of higher costs of education. The net result will be a measurable drag on the US economy as generations of graduates deal with high monthly repayment terms that restrict disposable income and spending such as on durable goods and big-ticket items like new cars. The economic impact of so much bank controlled debt is a factor driving radical reform ideas like free college tuition.