I do think that the government should bail out student loan interest rate and fee payments for assuming the student loan at minimum. I think the new interest rate reduction laws on Stafford loans are a start but unfortunately they do not encompass existing student loans. By bailing out existing student loans and then enforcing banks to give zero interest on all student loans or ensure that there is set a one time flat interest rate on the principal balance of the loan payments would be low and manageable. Interest would not accrue in all forbearance circumstances, creating a less defeating situation for a family or individual. As payments were made the balance would recede accordingly. A feeling of accomplishment, ownership, and perseverance for graduates would be a great possibility. These feelings would have a constructive impact in the overall productivity of society with a greater sense of personal responsibility.
Students are told from a young age that going to college and being responsible is important to be successful with their career goals. Most kids are told by either their teachers or parents, “Study hard and you may be able to get a scholarship to help pay for college”. The financial advisors say there are student grants to research, federal student aid to apply for, and then if needed private student loans are available too. With all of the options and information to sift through it is easy to not take the responsible route and read the small print in the multiple loan docs sent for the student to sign. .
I missed the part about how student loan interest accrual worked and really did not feel there was a point to digging in. I would have panicked and still signed or I would have had to forgo my college education by not accepting the terms lay before me. Two years into repayment of my loans I feel defeated. The balances have gone down an estimated $2000 paying $470-$500 a month. I have a car loan that has a higher balance and a lower interest rate by only 0.65% that is already halfway paid for. I decided to call the bank with hopes of an interest rate reduction and financial advice. The beginning of the conversation gave me that hope; the bank representative listened to my tale, looked the account over and shared my bewilderment. He explained that he had to get some one to look at this with him to see what they could do.
Once he returned on the line he apologized explaining he had to have someone clarify the payment break down to him as it did not make sense to him either. I received my fine print information and realized that interest rates on student loans are charged similar to credit cards. Daily interest is charged on the existing principal balance. Similar to a credit card simply paying the minimum or a few dollars more then the minimum will keep the interest portion of the payment high. Thus the balance of a student loan will drag out.
Companies are bailed out for the greater good of the economy, why shouldn’t the government bailout/help out outstanding student loans. Ultimately it may lead to two victories in the United States;
1- It would encourage higher education in the US, a long time urgent need
and
2- It would free up more consumer funds to spend in the economy which in turn would create/secure jobs, another urgent need.
Resources:
www.ed.gov
http://studentaid.ed.gov