The Issue of Americans Defaulting on Student Loans

Americans are defaulting on student loans at a record high, while no standards for giving loans are currently enacted. Lawmakers are now speaking out against the no standards policy and exploring setting financial regulations and underwriting standards.

Americans are defaulting on student loans at an all-time high, leading to talks about restricting who can borrow money for higher education. For many years there has been no underwriting standards set by the federal government in regards to its student-loan program. Currently, Americans can borrow nearly $57,500 for undergraduate studies and have almost no restrictions for graduate and higher studies (Mitchell, 2015).

These loans are given with little to no regard about the borrower’s ability to repay the loan; additionally, for federal loans given in the same year, everyone will pay the same interest rate (Mitchell, 2015). All of these is, however, not without reason. Supporters of the current system say that it guarantees that every American will have a chance at securing a degree and the typical middle-class life that generally comes with having one.

To impose underwriting standards would be to deny higher education opportunities to the poor.

Those who oppose the current system point to evidence that seems to state that many of those who have defaulted on student loans are poor, not properly prepared for college, and attended schools that did not show much promise of leading to a decent job (Mitchell, 2015).

These same people opposed to the current system find the current system to be throwing good money at a bad situation.

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Suggested changes have included a higher degree of scrutiny that the school accepting this money are doing their best to make sure their students have the best chances of success. Opponents are not, however, suggesting that federal student loans should be given on a credit worthy basis, but rather on high-school grades, test scores, college grades, and the school’s job placement rate (Mitchell, 2015).

I find that this is a tricky area…..no one really wants to take opportunities away from the less fortunate, but at the same time, they would like to see a more efficient system. While the current system has more known tax consequences that stem from delinquent student loans, the new proposed system would have unforeseen tax consequences. Tighter regulations may take away opportunities from talented, but poor students. Taking away this opportunity potentially makes the work force less educated, which has all sorts of economical repercussions. Those talented individuals who can no longer get student loans will find other means to achieving their education goals, including high interest personal loans.

While I do agree that far too many student loans are becoming delinquent and causing an issue, I do not think that creating drastic and far reaching underwriting limits is the best answer. I would rather see an increased investment in the community college system, which may also help curtail the increasing costs of traditional 4 year colleges.

Additionally, I believe the onus should be on the school who accepts federal funds to prove that their students are being set up for success and that their degrees hold weight in the job market. There is no reason (on both the personal and federal level) that someone should be spending 30,000-40,000 dollars at an Everest University type of school. These types of institutions only have one purpose, to make regardless of the outcome for the student. Lawmakers should continue to curtail these types of situations before we start fixing the rest of the system.