student-loan

Student loans: Challenges in reforming loan structure

The issue of student loans has been flaring up on both sides of the Atlantic quite recently, with some serious implications for higher education if many of the changes were to be implemented in the next few years.

In the US, the efforts of the administration to enact legislation that will ease the financial burden incurred on university students by way of their student loans and the federally subsidized grants has been a major point of friction with Republican opposition. Student loan debt is estimate to close to 1 trillion USD, increasing at a staggering rate of 300% in ten years , whereas the average debt load for the graduates of higher education is approximately $20,000 on average. Given the recovery phase of the US economy and the financial woes that have troubled it since 2008, it becomes obvious that debt restructuring is a key issue.

The importance is twofold. Student loans are proving to be a heavy financial burden, stifling entrepreneurship and forcing many graduates to abandon career aspirations and seek even low-paid employment in order to repay their loans; in the days of the financial crisis aftermath, many find themselves still unemployed and with a negative credit score, painting a rather bleak personal picture of the future. In addition the student loan apparatus involves the federal government, the universities and a series of market players, such as debt relief companies and others, which makes reform not only gruelling but also politically tense.

In the United Kingdom, the government will be conducting research on the issue of student loans, although the department of Business, Innovation and Skills has not confirmed a change in policy. The UK has a relative advantage to the US system since tuition for undergraduate study is capped at £9,000 per year. The system is also more generous, since it allows repayments only if the graduate is employed and earning over a certain amount and the debt itself has a 30 year write off term limit, with outstanding fees written off after that period has elapsed.

The proposed research will be exploring the possibility of making universities partially responsible in underwriting student debt. In theory, this would lead to a closer connection between the graduates and the university, perhaps increasing the investment and effort UK universities will need to put forth in order to ensure high employability rates for the students. It will also mean a shared and thus diminished risk taken on by the Treasury, reducing exposure for the government.

The key issue in the UK remains that if such moves were ever to be implemented, debt to earnings ratios within universities would shrink or even disappear, making universities less able to secure their financial position and thus undertake large and important steps in improving infrastructure, offer scholarships and bursaries to under-represented groups and of course continue to strive for improving educational services without the worry of debt repayment in a flux economic climate. In fact, any alteration to the student loan scheme would have to take under consideration the realities of tertiary education and the job market so as to ensure that the drive for minimal government exposure to debt would affect the teaching quality and outcomes in universities.