student loans Post

The Biggest Issues with Current Educational Financing

Anna Klawitter June 1, 2020

If you're looking into going to college, you may get a serious sticker shock when you realize what the tuition will cost you. When you add in books, housing, and other living expenses, many college students find the cost of college far out of reach. College tuition prices have risen steadily since the 1980s. 


According to CNBC, college tuition was far more affordable for older generations. "The cost of private schools has risen by 129% since the 1980s. The cost of public schools by an even more staggering 213%." 


Many people claim that the ultimate driver of cost is the number of people looking for education funding. Higher enrollment has brought a need to increase budgets for faculty pay and on-campus student services, as well as a decline in financial aid from state governments. 


Student loan debt has topped $1.5 trillion in recent years, making it the largest type of consumer debt outstanding other than mortgages. The average student loan borrower graduates with nearly $30,000 in debt.  By 2023, it's expected that the debt load of the average bachelor's degree holder will exceed his or her annual income. The student debt problem has slowed down student's life plans, making it harder for graduates to buy houses, invest, or get married.


But those aren't the only problems student loans present.


Student loans force risk onto the student, who has to make payments even if they don't end up with a great paying job after graduation. Failing to repay will result in your credit score taking a beating. With federal loans, after 9 months, the federal government can begin to take money out of the student's paycheck.  


Another negative side effect of student loans, is they reduce the amount of time available to find a job which leads to compromises during job searches. A 2016 study found that more than half of recent graduates report changing their job search because of student debt. This is leading to less satisfying career outcomes that can be unrelated to the loan holder's field of study which causes individuals to be substantially less happy with their career outcomes.


Young people aren't the only ones paying off debt. More than three million Americans over the age of 60 owe more than $85 billion in unpaid student loans. Think that fact is startling? The Wall Street Journal reported in 2018, over 101 people owe more than $1 million each in student debt, an increase from only 14 people in 2013.  


"Mike Meru, an orthodontist who owed $1,060,945 in student loans as of May 2018  is expected to face a $2 million loan balance in the next two decades", The Journal stated.


Even when filing for bankruptcy, student loan debt is incredibly hard to get rid of.  Of people who use a bankruptcy-assistance service to file for Chapter 7 bankruptcy protection, 32% carry student-loan debt. Chapter 7 bankruptcy protection is used to liquidate the assets of people with limited incomes who can't pay back all or a portion of their debt. The goal is to discharge the debt. Student loan debt, however, is generally non-dischargeable in bankruptcy.


It isn't just loan-holders who are worried about the growing amount of student debt, experts believe that student loan defaults have the potential to adversely impact the US economy, which could trigger another recession. The rate at which student-loan borrowers can't pay their debt looks a lot like the rate at which people could not pay their mortgages during the 2008 financial crisis. 


So how do we solve the student loan crisis? How can we prevent millions from going into suffocating debt and help them lead the lives they want to lead?


Well, Income share agreements (ISA)  are becoming an increasingly popular solution to the student debt crisis.  


ISAs keep students from having to take out student loans to pay for school. Instead of borrowing a large sum of money at a certain interest rate, the student simply promises to share a percentage of his future earnings for a period of time to cover the cost of his higher education.  


Income Share Agreements also come with protections that pause the payments when the student doesn't have a job or is making less than a certain amount of money. They keep payments affordable by linking repayment to employment outcomes. They also hold the school accountable to invest in the student because if the student doesn't have a well-paying job, the school isn't getting paid. If the student wins, the school wins.


Here at Meratas, we believe ISAs are a more reasonable option to pay for higher education than a lifetime of debt.


Want to learn more about ISAs and how they could benefit you? Check out our blog and our Student's page to learn about ISAs and the best programs offering them today! 

Topics: student loans


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