Student Moment: Unemployed, and Indebted

The cost of college has increased disproportionately compared to wages over the last several decades and as a result, student debt became more prominent. To gauge the impact of college completion on student loan repayments, the researchers examined two cohorts of undergraduate students: those who completed college and those who did not.

Studies found that over the four-year period, students who did not finish their degrees owed $918 million (6%) more than they borrowed initially, largely the result of accumulating interest. But the story was different for college completers. As a group, they were able to begin to pay down their debt and owed $3.2 billion (6%) less than the amount they borrowed four years earlier.

How does financial stress impose on academic performance? 

Almost more than half of the Indian population is suffering from poverty. People who go and study abroad belong either to the humble background or elite classes. 

People who belong to the elite classes,usually do not have any loans on themselves, rather they spend more on themselves and their day-to-day activities and expenses go as high as eighty thousand to one lakh per month. Whereas, people who are from the middle class background get thirty five thousand to fifty thousand per month.

This gap results in stress and anxiety and as a result students are unable to focus on their academic performances and GPA’s, as this thought of repaying the debt is of huge concern to them.

Not only this, since they have gone abroad to study, they cannot come back. Students are scared of their families – they don’t want them to feel burdened because of them.

At public and private, nonprofit institutions, there were large differences in outcomes between finisher and non-finisher groups. Students completing college at public institutions owed $2.6 billion (8%) less than the amount they initially borrowed four years prior, a decline from $31.5 billion to $28.9 billion. However, non-finishers owed $519 million (5%) more four years later, increasing from an aggregate debt of $9.9 billion to $10.4 billion. 

With student loan debt standing at about $1.7 trillion, as per the Education Data Initiative, these new statistics demonstrate once again the importance of degree completion and quality. While access to college is essential, earning a credential with solid economic returns remains key to students’ ability to make loan repayments that are large enough to keep up with their accumulating interest.

Why do students take on debt?

Most U.S. students have an incentive to borrow because higher education is typically required for the highest-paying jobs. A worker with a bachelor’s degree earns 1.8 times the amount a person with a high school diploma does, while those with doctorates or professional degrees earn more than double, according to the U.S. Bureau of Labor Statistics.

Why does the government lend to the students?

The Government invests in higher education for its people through need-based tuition grants, student loan programs, veterans’ benefits, and research grants, because an educated and highly skilled workforce promotes national prosperity. Highly educated workers provide greater tax revenues, are generally more productive and civically engaged, and are less reliant on social programs.

The cost of college has tripled over the past fifty years

Let’s take the example of the US Government. 

The U.S. government used to guarantee or subsidize private loans through the Federal Family Education Loan (FFEL). In response to the COVID-19 pandemic, the Donald Trump administration provided tens of millions of student borrowers with temporary relief from making payments on their loans.

Why is it so important that colleges play a large role in the personal finance education of its students? 

When pharmacists graduate, there is a paucity of holistic advice available to students because many (not all) financial advisers are interested in obtaining clients who are in a good position to invest their money. Many advisers require a minimum balance (e.g. $100,000) to engage in the adviser-advisee relationship. Since most students have a negative net worth upon graduation with very little, if any, money to invest, new graduates often are left to manage their finances on their own.

Credit score damage

The major credit bureaus treat student loans like any other type of installment loan. Failing to make timely payments can negatively affect your FICO score. A lower credit score places them in a higher risk category. This makes lenders less likely to extend their credit like an auto loan or a mortgage.

Why are Indians going abroad for their studies?

> Internationally recognized degree.

> Ability to return and demand a higher pay and position. 

> Better attuned to the need for professionalism and punctuality.

Cons of studying abroad

> Bank loan.

> Quality of education.

> Job market rivalry.

Online learning platforms are coming up with their courses for higher education

The top universities such as Harvard University, Stanford University, University of Pennsylvania, the IITs and the IIMs offer many online programs which are called distance learning programs. Many people go for these as well irrespective of whether they study abroad or in India.

As researchers say, “college completion remains of utmost importance — to the individual student and to the taxpayers who subsidize their educational endeavors. Exiting college without a credential leaves students in a precarious situation while also causing the nation’s loan debt to keep piling up, second by second, minute by minute.”

To sum up, the choice between studying in India and overseas is influenced by a person’s interests, financial situation, desired career path, and other factors.