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Is student loan debt as bad as believed?

Katie Schenk - September 26, 2016

Business development

If you’ve been in the United States in the past couple of years, you would have found it impossible to miss headlines proclaiming the sorry state of student loan debt in the country.

And, the news will force you to take a deep breath before submitting to applications for any level of education.

By 2013, U.S. News & World Report claimed that American student loan debt had reached over US $1 trillion. Simultaneously, more than seven million borrowers were in default. By 2016, Bloomberg reported outstanding loans amounting to $1.3 trillion.

That is a great deal of money – even when you take into account that these figures represent over 280 million people in the world’s wealthiest economy.

Now, it’s true that every American doesn’t pursue higher education, let alone graduate-level graduation. There are plenty of reasons for that, including the fact that university isn’t every child’s dream. But, the main reason is likely to be the rising cost of education in the United States.

Wait! Don’t scrap that application essay yet!

Students continue to borrow because…

If the cost of college is a burden, how does the collegiate system sustain itself? Surely the cost of education would cause American universities to more or less implode, right?

No, there are still takers on higher education because people need jobs and money. In 2012, Americans with bachelor’s degrees earned a whopping 60 percent more than those without. Sure, there’s that pesky question of how to pay for college in the first place, but over time 60 percent can make a gigantic difference in the quality of life.

The United States isn’t the only country with student loan debt either – even if they have one of the highest costs of higher education. It’s arguable that fees are higher for many students in the United Kingdom and the student loan debt is on the rise as well.

However, loans issued in the UK by the central loan scheme are automatically deducted from that student's salary once they reach a certain threshold, much as you’ll find in the Australian system. The result is reflected in repayment rates – a whopping 89 percent (something the American system could find value in).

But, it’s not just the cost of tuition that backs students into taking loans. In Sweden, college tuition is free (or very close to it), but university students are considered adults and receiving money from their parents is simply not done. Rather than taking loans for tuition, they borrow for the sake of living while studying.

The situation in the rest of the world

In Japan, student loans are now tied to academic performance. If you don’t get the grades, you don’t get the money. That’s a recent decision by the government as a result of increasing outstanding debt. That’s tough luck when you’re in the middle of your studies.

But what happens when you can’t repay your loan because you can’t get a job? In India, student loans are often taken by a family unit. And that’s not all. Most loans require collateral to be put up against educational loans. Not only are students’ parents involved; their homes are on the line too.

Ouch.

And, it seems as though completing a degree in India isn’t enough to guarantee a job. Too many Indian parents are on the line for their children’s education and when or if those grads will be able to contribute to loan repayments.

That’s an extreme case, of course. Looking back at the American example, it’s easy to see that student loans can pay off. Ninety-seven percent of Americans with an advanced university degree (masters or doctoral level) are employed. Compare that to 91 percent of those with a high school diploma. And consider too that those with a bachelor’s degree earn 60 percent more. The salaries are even higher after graduate level education.

It’s not just salaries; jobs are being closed off to those without a degree. It’s happening in the States, and it’s apparently happening in India (though even a domestic degree doesn’t appear to guarantee a job).

So what’s the truth behind student loan debt? At the moment, it appears to be necessary if the goal is to have a career, make a decent salary, and increase the prospects of moving up through the ranks.

More than anything, the state of student loan debt and higher education as a whole should be considered carefully. You can’t accept the first loan you see, just as you shouldn’t necessarily apply to a college just because it’s the easiest option for you. Every single loan must be weighed for return on investment.

The bigger question really should be why every student doesn’t have access to the financing they need.

It’s almost amazing just how difficult it is for some students to find educational loans – even when they’ve been accepted into top international programmes. Indeed, over 80 percent of Prodigy-funded students have no alternative means of paying for their study.

When you're ready to weigh the return on investment of your education, you may just want to take a look at the programmes that accept Prodigy loans from qualified international students.


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