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Student loan

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A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy. This article highlights the differences of the student loan system in several major countries.

Australia

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Main article: Tertiary education fees in Australia

Tertiary student places in Australia are usually funded through the HECS-HELP scheme. This funding is in the form of loans that are not normal debts. They are repaid over time via a supplementary tax, using a sliding scale based on taxable income. As a consequence, loan repayments are only made when the former student has income to support the repayments. Discounts are available for early repayment. The scheme is available to citizens and permanent humanitarian visa holders. Means-tested scholarships for living expenses are also available. Special assistance is available to indigenous students.[1]

There has been criticism that the HECS-HELP scheme creates an incentive for people to leave the country after graduation, because those who do not file an Australian tax return do not make any repayments.[2]

Canada

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Main article: Student financial aid in Canada

The province of British Columbia allows the Insurance Corporation of British Columbia to withhold issuance or renewal of driver's license to those with delinquent student loan repayments or child support payments or unpaid court fines.[3] Students need to meet the qualification with an individual's direct educational costs and living expense to get the certificate to obtain a loan and this policy is directly controlled by the government.[4]

France

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Main article: Student loans in France

Germany

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Main article: Student financial aid in Germany

New Zealand

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Main article: Student loans in New Zealand

New Zealand provides student loans and allowances to tertiary students who satisfy the funding criteria. Full-time students can claim loans for both fees and living costs while part-time students can only claim training institution fees. While the borrower is a resident of New Zealand, no interest is charged on the loan. Loans are repaid when the borrower starts working and has income above the minimum threshold, once this occurs employers will deduct the student loan repayments from the salary at a fixed 12c in the dollar rate and these are collected by the New Zealand tax authority.

Thailand

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The public sector is one of the most important sections in Thailand's higher education system. In addition, many public educational organizations usually receive profits from the students' tuition fees and the governments. Specifically, There are six various sections in the public sector's organization: colleges with the limited enrollment，universities which is opening to public, universities which is national autonomous, Rajabhat colleges, Ajamangala Universities of Technology, and polytechnic colleges.[5]

India

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The Indian government has launched a portal, Vidya Lakshmi, for students seeking educational loans and five banks including SBI, IDBI Bank and Bank of India have integrated their system with the portal. Vidya Lakshmi was launched on the occasion of Independence Day i.e. 15 August 2015 for the benefit of students seeking educational loans.[6] Vidya Lakshmi was developed under three departments of India i.e. Department of Financial Services, Department of Higher Education and Indian Banks Association (IBA).[7] Vidya Lakshmi Portal has been developed under the Pradhan Mantri Vidya Lakshmi Karyakram and announced by the finance minister Shri Arun Jaitley in the budget speech of FY 2015–16. As of August 15, 2020, 37 banks were registered on the Vidya Lakshmi Portal and offered 137 loan schemes [8]

To bridge the constraint of increasing institutional fees, NSDL e-Governance in India launched the Vidyasaarathi portal to help students seeking scholarship for studies in India or overseas.[9][10]

The education loan is expected to grow at a rate of 32.3 percent in 2009-10, 39.8 percent each in 2010-11and 2011-12, and 44.8 percent during the period 2012–13 to 2014–15.

South Korea

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Main article: Student loans in South Korea

South Korea's student loans are managed by the Korea Student Aid Foundation (KOSAF) which was established in May 2009. According to the governmental philosophy that Korea's future depends on talent development and no student should quit studying due to financial reasons, they help students grow into talents that serve the nation and society as members of Korea.[11] Normally, in South Korea, the default rate of redemption is related to each student's academic personalities. For instance, comparing with other majors, students in fine arts and physics are supposed to possessing a higher default rate. Therefore, students in such majors would be inclined to a higher rate of unemployment and a higher risk of default in redemption. Also, people will tend to have an inferior quality of human capital if the period of unemployment is too long.[12]

United Kingdom

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Main article: Student loans and grants in the United Kingdom

Student loans in the United Kingdom are primarily provided by the state-owned Student Loans Company. Interest begins to accumulate on each loan payment as soon as the student receives it, but repayment is not required until the start of the next tax year after the student completes (or abandons) their education.[13]

Since 1998, repayments have been collected by HMRC via the tax system, and are calculated based on the borrower's current level of income. If the borrower's income is below a certain threshold (£15,000 per tax year for 2011/2012, £21,000 per tax year for 2012/2013), no repayments are required, though interest continues to accumulate.

Loans are canceled if the borrower dies or becomes permanently unable to work. Depending on when the loan was taken out and which part of the UK the borrower is from, they may also be canceled after a certain period of time usually after 30 years, or when the borrower reaches a certain age.

Student loans taken out between 1990 and 1998, in the introductory phase of the UK government's phasing in of student loans, were not subsequently collected through the tax system in the following years. The onus was (and still is) on the loan holder to prove their income falls below an annually calculated threshold set by the government if they wish to defer payment of their loan. A portfolio of early student loans from the 1990s was sold, by The Department for Business, Innovation and Skills in 2013. Erudio, a company financially backed by CarVal and Arrow Global was established to process applications for deferment and to manage accounts, following its successful purchasing bid of the loan portfolio in 2013.

There are complaints that graduates who have fully repaid their loans are still having £300 a month taken from their accounts and cannot get this stopped.[14]

United States

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Main article: Student loans in the United States
For broader coverage of this topic, see Student financial aid in the United States.

In the United States, there are two types of student loans: federal loans sponsored by the federal government and private student loans, which broadly includes state-affiliated nonprofits and institutional loans provided by schools.[15] The overwhelming majority of student loans are federal loans. Federal loans can be "subsidized" or "unsubsidized." Interest does not accrue on subsidized loans while the students are in school. Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities. Whereas interest for most business investments is tax deductible, Student loan interest is generally not deductible. Critics contend that tax disadvantages to investments in education contribute to a shortage of educated labor, inefficiency, and slower economic growth.[who?][citation needed]

Prior to 2010, federal loans were also divided into direct loans (which are originated and funded by the federal government) and guaranteed loans, originated and held by private lenders but guaranteed by the government. The guaranteed lending program was eliminated in 2010 because of a widespread perception that the government guarantees boosted student lending companies' profits but did not benefit students by reducing student loan costs.[16]

Federal student loans are less expensive than private student loans. The federal government offers direct consolidation loans through the Federal Direct Loan Program. The new interest rate is the weighted average of the previous loans. Private loans don't qualify for this program.[citation needed] The interest rate of borrowers with federal student loans is nearly equal to the weighted average rate on the former loans while the new interest rate of private loans depends on the one-month London interbank offered rate. Therefore, these two student loans are different in both application and definition.[17] Losses on student loans are extremely low, even when students default, in part because these loans cannot be discharged in bankruptcy unless repaying the loan would create an "undue hardship" for the student borrower and dependents of the borrower.[18] In 2005, the bankruptcy laws were changed so that private educational loans also could not be readily discharged. Supporters of this change claimed that it would reduce student loan interest rates; critics said it would increase the lenders' profit.

Students can apply for loans to Stafford Loans with no risks; and there are around 1000 banks engaged in the student loan project.[citation needed] Students can also apply for student loans with the Department of Education which enables any school to take part in its Direct Loan project.[19]

Rising student debt

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Federal aid policies expanded loan eligibility and shifted from grants to loans[20] starting the rising student debt. The Federal Pell Grant, a form of federal aid for higher education students that does not need to be re-paid, only provides a maximum annual grant of $6,195 per student for the 2019-2020 award year.[21] With the average annual tuition cost for a four year in-state public university averaging $26,590 for the 2019–2020 academic year,[22] many students are forced to take out student loans to bridge the gap between grants and their annual tuition costs. More students over the years have been actively enrolled in universities, with enrollment in for-profit universities growing by over 5 million in the past 10 years. For-profit universities enroll only 10% of the nations active college enrollment, yet hold nearly 20% of all federal student loan.[20] States have also deprived public support and shifted the financial burden onto students by increasing the cost of tuition.[23] With the median family income on a steady decline each year since 2007 up until 2012, it saw increasing difficulty for students to pay back college tuition out of savings and labor income.[24] Between 2002 and 2012, public spending on education dropped 30%, while total enrollment at public colleges and universities jumped 34%.[25] Ninety-two percent of student debt is loaned directly by the federal government.[26] In 2020, the amount of student loan debt had reached $1.6 trillion.[26]

Income-based repayment

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The Income-based repayment (IBR) plan is an alternative to paying back federal student loans, which allows the borrowers to pay back loans based on how much they make, and not based how much money is actually owed.[27] Income-based repayment is a federal program and is not available for private loans.[28]

IBR plans generally cap loan payments at 10 percent of the student borrower's income. Deferred interest accrues, and the balance owed grows. However, after a certain number of years, the balance of the loan is forgiven. This period is 10 years if the student borrower works in the public sector (government or a nonprofit) and 25 years if the student works at a for-profit. Debt forgiveness may be treated as taxable income, but can be excluded as taxable under certain circumstances, like bankruptcy and insolvency.[29][30] Loans forgiven through the Public Service Loan Forgiveness program are not considered taxable income.[31]

Qualification

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Most college students in the United States qualify for federal student loans.[32] Students can borrow the same amount of money, at the same price, regardless of their own income or their parents' incomes, regardless of their expected future income, and regardless of their credit history. Only students who have defaulted on federal student loans or have been convicted of drug offenses, and have not completed a rehabilitation program, are excluded. Borrowers from families with low income with separation are more likely to default than those from higher-income families. Also, borrowers entering repayment after their sophomore year are more likely to default.[33]

 
This is the image of the Percentage of Federal Student Loans in Default within age groups, Fiscal Year 2013. This chart shows that in 2013, around 17 percent of parent plus loans were in default from ages 65 to 74, and 30 percent of their own education loans were in default.

The amount students can borrow each year depends on their education level (undergraduate or graduate), and their status as dependent or independent. Undergraduates are eligible for subsidized loans, with no interest while the student is in school. Graduate students can borrow more per year.[16]

Private lenders use different underwriting criteria, including credit rating, income level, parents' income level, and other financial considerations. Students only borrow from private lenders when they exhaust the maximum borrowing limits under federal loans. Several scholars have advocated eliminating the borrowing limit on federal loans and enabling students to borrow according to their needs (tuition plus living expenses) and thereby eliminating high-cost private loans.[16]

Repayment

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Federal student loan interest rates are established by Congress and listed in § 20 U.S.C. § 1087E(b). Because the interest rates are established by Congress, interest rates are a political decision. In 2010, the federal student loan program ran a multibillion-dollar "negative subsidy", or profit, for the federal government. Loans to graduate and professional students are especially profitable because of high-interest rates and low default rates.[34] Usually, the net flow of the default rate on student loans are strongly related to the nontraditional issuer and the flowing price of the tangible assets, unlike buildings or land.[clarification needed] However, in contrast to the positive correlation with the borrower, a change in the price normally leads to a negative influence on the default rate. These two aspects have been used to explain the Great Recession of student loan default, which had grown to nearly thirty percent.[35]

Some experts[specify] believe that the education of workers would bring societal benefits such as reducing stress on public services, reducing medical expenses, increasing incomes, and promoting employment rates. These people propose that federal student loan rates should be adjusted with specific courses, relative to the rate of risk and societal returns from various studies.[36][37]

Traditionally, repayment starts six months after graduation or leaving school.[citation needed]

It is important to note[according to whom?] that financial relief can provide a safety net for those under intense pressure to repay, leading many towards gaining income and avoiding defaulting.[38]

With federal student loans, the student may have multiple options for extending the repayment period. An extension of the loan term will reduce the monthly payment and increase the amount of total interest paid on the principal balance during the life of the loan (the unpaid interest and any penalties become capitalized, i.e. added to the loan balance). Extension options include extended payment periods offered by the original lender and federal loan consolidation. There are also other extension options including income-based repayment plans and hardship deferments.[citation needed]

The Master Promissory Note is an agreement between the lender and the borrower that promises to repay the loan. It is a binding legal contract.

Criticism

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Occupy Boston activist Nelson Terry at the Occupy Wall Street event in New York City protesting student loan debt, September 19, 2011

In coverage through established media outlets, many borrowers have expressed feelings of victimization by the student loan corporations.[39][40][41] There is a comparison between these accounts and the college credit card trend in America during the 2000s, though the amounts owed by students on their student loans are almost always higher than the amount owed on credit cards.[42] Student loans cannot be discharged in a bankruptcy proceeding unless the debtor can demonstrate "undue hardship."[43] After the passage of the bankruptcy reform bill of 2005, even private student loans are not discharged during bankruptcy. This provided a credit risk free loan for the lender, averaging 7 percent a year.[44]

In 2007, Andrew Cuomo, then Attorney General of New York State, led an investigation into lending practices and anti-competitive relationships between student lenders and universities. Specifically, many universities steered student borrowers to "preferred lenders" which resulted in those borrowers incurring higher interest rates. Some of these "preferred lenders" allegedly rewarded university financial aid staff with "kickbacks".[citation needed] This has led to changes in lending policy at many major American universities. Many universities have also rebated millions of dollars in fees back to affected borrowers.[45][46]

In 2007, a false claims lawsuit was filed on behalf of the federal government by former Department of Education researcher Jon Oberg against Sallie Mae, Nelnet, and other lenders. Oberg argued that the lenders overcharged the U.S. government and defrauded taxpayers of millions and millions of dollars.[citation needed] In August 2010, Nelnet settled the lawsuit and paid $55 million.[47]

Since 2005, Bankruptcy reform lead debtors have to take the responsibility of private student loan debt in bankruptcy which can decline debtors’ intention of reducing costly defaults to declare bankruptcy.[48]

As of 2013, many economists are predicting a new economic crisis will emerge as a result of an estimated $1 trillion of student loan debt currently impacting two thirds of graduating college students in America.[49] However, most economists and investors believe that there is no student loan bubble.[50]

In his 2020 presidential campaign, Joe Biden promised student loan forgiveness.[51] 64% of Americans back student loan forgiveness of $10,000 for individuals earning up to $150,000 annually.[52]

Hong Kong

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The loan scheme for Hong Kong students was introduced in 1969. This scheme aimed to help full-time students at two universities: the Chinese University of Hong Kong and Hong Kong University. The program was extended in 1976 to cover full-time students in the Hong Kong Polytechnic, and further extended in 1982 to cover post-advanced level students in the Hong Kong Baptist College. In 1984 loans were expanded to include students in the new city Polytechnic. The scheme is controlled by the secretary of the university and Polytechnic Grants Committee, which is advised by the Joint Committee On Student Finance. The applicant of the loan scheme must have resided or been domiciled in Hong Kong for three years immediately prior to application.[53] In 1990, a new government office, the Student Financial Assistance Agency, was also established to coordinate the administration of the student loan scheme.[54]

See also

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References

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  1. ^ "Paying for your studies (HELP loans)". Goingtouni.gov.au. Archived from the original on 2010-10-22. Retrieved 2010-09-07.
  2. ^ Free Uni for Artful Dodgers Incentives for Australians to leave the country after graduation (Retrieved 2014-08-22)
  3. ^ Kines, Lindsay (March 12, 2015). "Pay debts or put your driver's licence at risk; ICBC asked to collect on student loans, court fines". Times - Colonist. Victoria, British Columbia. p. S5.
  4. ^ Finnie, Ross (November 2001). "Measuring the load, easing the burden: Canada's student loan programs and the revitalization of Canadian postsecondary education". Commentary – C.D. Howe Institute (154–156). ISSN 0824-8001. ProQuest 216599241.
  5. ^ Somkiat, Tangkitvanich; Manasboonphempool, Areeya (2010). "Evaluating the Student Loan Fund of Thailand". Economics of Education Review. 29 (5): 710–721. doi:10.1016/j.econedurev.2010.04.007.
  6. ^ "Govt launches education loan portal for students". timesofindia.indiatimes.com.
  7. ^ "This is a one-stop portal for all your education loan queries". India Today. Retrieved 2018-11-22.
  8. ^ "Vidyalakshmi". www.vidyalakshmi.co.in. Retrieved 2020-09-08.
  9. ^ "Education Loans And Scholarship For Students".
  10. ^ "NSDL e-Governance invites students to apply for Scholarship through Vidyasaarathi portal". The Hans India. 2017-05-15. Retrieved 2018-11-22.
  11. ^ "50 Euro Lenen met een Minilening". 50 Euro Lenen. Archived from the original on 10 January 2019. Retrieved 15 May 2017.
  12. ^ Jun, Sang Gyung; Han, Byung Suk; Kang, Hyoung Goo (August 2015). "Student Loan and Credit Risk in Korea". Economics Letters. 135: 121–125. doi:10.1016/j.econlet.2015.08.018.
  13. ^ "Klein bedrag lenen - Vergelijk minilening aanbieders! - Minilening, Mini lening". Klein bedrag lenen.
  14. ^ Student loans: graduates still face cash grabs of £300 a month The Guardian
  15. ^ Consumer Financial Protection Bureau. (2012) Private Student Loans. See also: Report Details Woes of Student Loan Debt. NYT.
  16. ^ a b c Jonathan Glater, The Other Big Test: Why Congress Should Allow College Students to Borrow More Through Federal Aid Programs, 14 N.Y.U. J. LEGIS. & PUB. POL’Y 11, 37 (2011)
  17. ^ Andriotis Anna, Maria (Jun 2014). "WEEKEND INVESTOR --- College Debt: Easing the Burden --- Despite moves to expand a major student-loan relief program, many borrowers still won't qualify; Here are the best options for graduates with federal or private student loans". The Wall Street Journal. ProQuest 1535344338.
  18. ^ John A. E. Pottow, The Nondischargeability of Student Loans in Personal Bankruptcy Proceedings: The Search for a Theory, 44 CAN. BUS. L.J. 245, 249-250 (2006)
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  21. ^ [studentaid.gov "Types of Financial Aid"]. studentaid.gov. {{cite web}}: Check |url= value (help)
  22. ^ "Trends in College Pricing". research.collegeboard.org. {{cite web}}: Missing or empty |url= (help)
  23. ^ Conner, Thaddieus W.; Rabovsky, Thomas M. (2011-03-08). "Accountability, Affordability, Access: A Review of the Recent Trends in Higher Education Policy Research". Policy Studies Journal. 39: 93–112. doi:10.1111/j.1541-0072.2010.00389_7.x. ISSN 0190-292X.
  24. ^ Goldfield, Edwin D. (1958), "Decennial Census and Current Population Survey Data on Income" (PDF), An Appraisal of the 1950 Census Income Data, vol. 23, Princeton University Press, pp. 39–64, doi:10.1515/9781400875412-003, ISBN 9781400875412
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  26. ^ a b "Student Debt Continues to Rise". www.pgpf.org. Retrieved 2018-10-28.
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  28. ^ "Loans | Repayment Plans | Income-Based Repayment". FinAid. Retrieved 2012-04-24.
  29. ^ Philip G. Schrag & Charles W. Pruett, Coordinating Loan Repayment Assistance Programs with New Federal Legislation, 60 J. LEGAL EDUC. 583, 590-597 (2010)
  30. ^ "6 Must-Know Facts About Income-Based Repayment". 29 September 2016.
  31. ^ "Public Service Loan Forgiveness FAQ". Studentaid.ed.gov. Retrieved 2022-04-20. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF aren't considered income for tax purposes.
  32. ^ "StudentLoans.gov". Retrieved 3 January 2014.
  33. ^ L. Diane, Ryan (1993). Student Loan Defaults. Los Angeles: University of California. p. 23.
  34. ^ "Brian Leiter's Law School Reports". leiterlawschool.typepad.com. Retrieved 2015-11-15.
  35. ^ Mueller, Holger M.; Yannelis, Constantine (January 2019). "The Rise in Student Loan Defaults". Journal of Financial Economics. 131 (1): 1–19. doi:10.1016/j.jfineco.2018.07.013. S2CID 158638708.
  36. ^ OECD, Education at a Glance (2011)
  37. ^ DEBORAH KALCEVIC & JUSTIN HUMPHREY, CONGRESSIONAL BUDGET OFFICE, CBO MARCH 2012 BASELINE PROJECTIONS FOR THE STUDENT LOAN AND PELL GRANT PROGRAMS, Tables 2, 3
  38. ^ Di, Wenhua; Edmiston, Kelly D. (2017). "Student Loan Relief Programs: Implications for Borrowers and the Federal Government" (PDF). The Annals of the American Academy of Political and Social Science. 671: 224–248. doi:10.1177/0002716217704410. S2CID 157077243.
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  40. ^ "Anderson Cooper 360: Blog Archive - Student Loan Nightmare: Help Wanted « - CNN.com Blogs". Ac360.blogs.cnn.com. 2009-03-30. Archived from the original on July 1, 2012. Retrieved 2010-09-07.
  41. ^ Fetterman, Mindy (2006-11-22). "Young people struggle to deal with kiss of debt". Usatoday.Com. Retrieved 2010-09-07.
  42. ^ Kurt SollerFebruary 17, 2009 (2009-02-17). "Credit Card Issuers Still Target College Students". Newsweek. Retrieved 2010-09-07.{{cite web}}: CS1 maint: numeric names: authors list (link)
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  44. ^ Collinge, Alan (2009). The Student Loan Scam: The Most Oppressive Debt in U.S. History, and how We Can Fight Back. Boston, MA: Beacon Press. ISBN 9780807042298.
  45. ^ "Cuomo: School loan corruption widespread". U.S.A. Today. April 10, 2007. Retrieved 2008-04-08.
  46. ^ Lederman, Doug (May 15, 2007). "The First Casualty". Inside Higher Education. Retrieved 2008-04-08.
  47. ^ Field, Kelly (August 15, 2010). "Nelnet to Pay $55 Million to Resolve Whistle-Blower Lawsuit". The Chronicle of Higher Education. Retrieved 2011-07-14.
  48. ^ Rajeev, Darolia; Ritter, Dubravka (Sep 2015). "Do student loan borrowers opportunistically default? Evidence from bankruptcy reform". Working Papers. 15 (17). Federal Reserve Bank of Philadelphia – via IDEAS.
  49. ^ Denhart, Chris. "How The $1.2 Trillion College Debt Crisis Is Crippling Students, Parents And The Economy". Forbes.
  50. ^ Bidwell, Allie (2014). "Why Student Debt Won't Cause the Economy to Collapse" – via U.S. News.
  51. ^ Denhart, Chris. "Biden pledged to forgive $10,000 in student loan debt. Here's what he's done so far". NPR.
  52. ^ "Cato Institute 2022 Student Debt Cancellation National Survey" (PDF). August 17, 2022.
  53. ^ Bray, Mark (1986). "Student loans for higher education". Higher Education. 15 (3–4): 343–354. doi:10.1007/bf00129222. ISSN 0018-1560. S2CID 153935971.
  54. ^ Preview of The other Hong Kong report. [WorldCat.org]. OCLC 657900910.

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