Student loans differ from conventional loans in a variety of ways. Firstly, their interest rates are at 6 percent, a value which is higher than most categories of home loans. Additionally, students do not negotiate with the lenders. Their repayment begins from 6 to 12 months following the leave from school. In most instances, the repayment is compulsory, whether the student completed studies or not. Some terms require the student to begin payment after the course load has dropped to less than half its duration (Alan 10).
Students are provident with varied alternatives during the repayment exercise. For instance, it has been noted that an extension of the repayment duration reduces the amount of the monthly payment. However, this increases the interest rate, a scenario which worsens the situation for individuals from poor backgrounds. The extension terms include the payment period being offered to the students by the lending institution and the federal government’s loan consolidation (Beck 120). Other extension options include the income sensitive loan repayment arrangements as well as deferment due to hardships. The issues of consolidation and extension will compound to the principle. In most instances, the unpaid penalties and interests are capitalized.
During the research, the signing of the Master Promissory Note has been noted to be a requirement. In its signing borrower promises the lender to repay the amount owed as par the terms and conditions of the lending. The document is a bidding contract that directs the manner in which the students will obtain the loans after being consider eligible, as well as the mode of repayment. Several borrowers have been expressing disgust due to victimization by the loan corporations on the basis of the possibility of default. They argue that most of those who go for loans have no other means of facilitating their college education (Alan 10). In America, there have been several instances when individuals have missed opportunities as a result of huge loan balances. Many critics argue that such a situation bankrupts the students. In regard to this, there have been varied opinions in the press regarding student loans and their effects on bankruptcy. According to an article in a recent New York Times publication, most Americans are endorsing views of bankruptcy protection among the private students (Beck 120). This is especially so due to the effects of the recent economic downturn in the face of increasing tuition fees in graduate institutions.
This study evaluates the effects of unmanageable indebtedness on a person’s life. In particular, it focuses on college graduates and their increasing dependency on tuition loans. It has been noted that grandaunts of four-year courses carry unmanageable debts. The scenario is even worse for those that get in the public service. As such, the debt burden deters dedicated and skilled graduates from remaining in their careers. Most individuals shun courses such as education and social services. Neglecting these areas affects the nation to a great degree as children is not adequately educated a scenario that leaves the country vulnerable to the inadequacy of knowledge.
According to Mary Pilon’s study, The Student Loan Effect, student loans obstructs youths from humble backgrounds from schooling at institutions of higher learning. There have been noted worsening of the situation as a result of the latest effects of economic downturn and unemployment. Many youths fear that attending costly courses may leave them heavily indebted, besides being unemployed. One such case is that of Michelle Bisutti. Bisutti had taken a student loan of about $250,000 with a view that on completion of her medical schooling, she will repay the loan without difficulty. Upon her graduation, she did not manage to repay as fast as she had planned, and as of 2010, the debt had ballooned to over $555,000 (Beck 120). Such issues have prompted the congress to fix an interest rate of 6.8 percent for all students with federal loans.
Cases of outstanding debts are widespread. In fact, as of February 2010, the outstanding student loan in America was more than $ 730 billion. During that time, active repayments were less than 40%. Most of the outstanding balance was in the process of being declared bad debt as a substantial number of students had either defaulted or deferred their repayments. Nonpayment reduces creditworthiness of a person (Beck 120). Most institutions and government agencies are reluctant to provide financial assistance on defaulters. Black listing youths decapitates their goals and endeavors, a situation which results into resentment and social instability.