Student Loan Debt Crisis Furthered by New Legislation

By Tyler Nicol on July 30, 2018

Student loans are being used to pay for college more and more, and they can cause financial stress. Many students take on loans and struggle to pay them off after they get out of school. With interest rates rising, you may feel like you will never pay your loans off. An option some try to take advantage of is student loan forgiveness. It is difficult to get student loans forgiven and it isn’t getting any easier with new legislation being passed.

Student loan forgiveness is not granted to just anyone. To receive loan forgiveness from the federal government, borrowers must meet a number of qualifications.

The government’s first requirement for forgiveness on federal loans is that you must be working in a public service field after graduating. This is a way to motivate more people to work in the public service sector. On top of working a full-time service job, you must be able to make consecutive monthly payments for ten years. With that being said, federal loan forgiveness is not immediate and requires years of repayment.

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Why students are seeking loan forgiveness

Students who may not meet the federal loan forgiveness qualifications have another reason to apply for forgiveness – fraud. In recent years, schools that issue student loans but fail to provide a full educational experience to their students have been considered fraudulent.

In most cases, these are online colleges or for-profit “universities” that offer education at more affordable rates than traditional public universities. What potential students of the universities are unaware of is the quality of education that they will be getting. Many fraudulent universities offer specialty courses and seminars but have proven to be careless in regards to properly educating students. As a result, they have faced lawsuits due to false advertisement and misrepresentation.

Like many of the other universities facing fraudulent charges, Donald Trump’s Trump University has endured consequences. In April of this year, the case against Trump resulted in a $25 million settlement after previous students stated that they were misled by the real estate course that did not actually teach them what it was supposed to. Students that were enrolled at the university between 2005 and 2010, its years of operation, finally received money back after years of being forced to repay loans. This seemed to be a step in the right direction for students involved in fraud cases seeking loan forgiveness, but new legislation might say otherwise.

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New legislation

A new standard is being put into place by Secretary of Education Betsy DeVos and the Education Department to determine if colleges misrepresented themselves before allowing students to take on loans. According to a report from TheHill, the new standard requires that “a student must be able to prove ‘reckless disregard’ on behalf of an institution in a debt forgiveness claim before it is considered.”

Although DeVos and the Education Department claim to be protecting students from fraud by implementing penalties on schools, the new standard and its implementations appear to actually make it more difficult for students to prove fraudulent intent. The rule is expected to be finalized by November 1 and it is open to debate until then.

How does this affect the average borrower

If you attend a traditional university and student loan forgiveness is likely not an option, you may be wondering how this affects you. Although you may not be able to get out of paying back your student loan debt, it is important to realize the effect that this has on the economy.

Over the last 30 years, tuition for public four-year universities has increased over 200% even after accounting for inflation rates. Tuition has increased drastically, however, the average income in the U.S. has remained about the same. It is obvious that Americans are taking on more debt and struggling to pay for it. Economists even speculate a recession in the near future similar to the housing bubble that we saw 10 years ago because fewer people are buying homes as a result of student loan debt.

Disregarding fraudulent loan activity is continuing to neglect the negative impact student loans are having on the economy. While it is not the root cause of outrageous tuition prices, we should be doing everything we can to prevent further escalating the current student loan crisis.

photo via unsplash

Minimizing your student loan debt

The best thing to do if you have student loans is to minimize your debt as much as possible. There are a few steps you can make when applying for loans and when paying them back after graduating to limit your financial stress.

When considering federal and private loans, you want to get the lowest interest rates possible. Fixed rates are the least risky option because they will not change over time and you will know what you are getting into. Above all, you want to pay off loans with higher interest rates as soon as you can. Billionaire Mark Cuban advises that paying off your loans is “the best investment anyone can make” because you are preventing yourself from further owing money that you wouldn’t have had to if you paid it off. Paying off your student loan debt should be a priority investment.

As you start to pay on your debt after graduating, you may want to consider consolidating your loans. Student loan consolidation means that you are combining your federal loans into one. It does not mean that you will necessarily be getting smaller interest rates, but you will be making one loan payment rather than several. When it comes to private loans, you can also combine them into one loan and get a new interest rate.  Combining your debt doesn’t relieve you from paying it back, but it definitely makes it easier for you to manage and make timely payments.

Student loan debt can be stressful for anyone and it is continuing to become more of a problem for the economy. Student loan forgiveness through the government is a difficult process. It is even failing to relieve victims of fraudulent education systems. The best thing for students to do is to be cautious when taking on debt and to ensure that their money is being put towards a proper college education. Student loan debt appears inevitable in today’s society but students can try to minimize the stress by staying informed of their financial options. Paying off debt seems like a dreadful task, but it is the best investment to make for your future financial standing.

I am a rising senior at James Madison University majoring in Writing Rhetoric and Technical Communication. I really enjoy music of all kinds, and I like playing basketball and golf with friends.

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