The
need for creditworthy co-signers is relatively commonplace; this
shared-borrowing model is critical to reducing lender risk for many loans,
including those for cars, homes and even college. But, for private education
loans, when does the balance tip excessively in favor of providing security to
the lender?
Education
debt nearly is a practical puzzle. For many students, this lending proves
crucial and extends enormous utility. Stickiness usually surfaces only after a
student graduates and his or her loans enter repayment. While debt dollars or
repayment problems may differ across academic majors and college settings,
students should be reasonably able to defer their education loans, regardless
of lender, while enrolled in school.
When
borrowing for education, students often draw first on federal student aid
programs, which provide benefits typically missing from private lender
agreements. Federal student loans generally charge lower interest rates, rarely
require a co-signer and delay repayment while borrowers are enrolled in school.
Students usually turn to private loans when government aid is exhausted or
their program of study is ineligible for federal aid.
While the
financial obligations of these loans are regularly debated and stressed,
challenges loom when students pursue additional degree programs, delaying their
income-generating careers even as loan repayment is enforced. As an example,
the plight of medical students, who face remarkably lengthy training and
especially high education costs, lucidly demonstrates why policies on private
education lending need improvement.
The average age at medical school matriculation has been
consistently increasing; a 2014 survey of first-year students by the
Association of American Medical Colleges found that 58% had graduated from
college more than a year ago. Each student has his or her own reasons for
delaying entry, such as pursuing professional experiences, graduate programs or
premedical courses.
This trend
has important implications for repayment terms. In seeking more schooling, for
example, students may increase their need for private education loans. Private
loans usually need co-signers and co-signers are usually parents. At the same
time, repayment schedules for these nonfederal loans remain unaffected by
future academic enrollment status.
The
inability to defer private education loans adds tremendous pressure to these
students and their families. If a student is in school when repayment must
begin, there is an unavoidable shift of responsibility to the co-signer. Is
this always fair?
As a
student ages, so do parents. If the gap between degree programs is greater, a
parent might retire or become a fixed-income budgeter by the time his or her
offspring matriculates. This, by no means, precludes a co-signers obligation.
But should parents face that burden even before the student has had the chance
to enter his or her profession and attempt to take responsibility for repayment?
Debt
discussions could seemingly deepen by arguing the borrower's risk awareness,
advantages and disadvantages of free market loans, or unyielding college costs.
However, hard-lined loan terms, from the very beginning, disregard a student's
predisposition to start repayment once he or she is no longer enrolled in
school. Without reasonable reform, many students will be limited in manageable
options to fund their advanced training and co-signers will increasingly face
inadvertent financial hardship.
Student
debt is a complex issue and remains a well for wrangling. For federal loans,
there has been a rise in more reasonable repayment plans, public service loan
forgiveness programs and interest rate limits.
There
should be similar changes in private education loans. Stipulations as to course
load or program eligibility can be debated. The handling of interest accruals
during these periods also demands consideration. By unlinking enrollment status
and repayment ability, however, private education loans create premature
pressure points without significant chance for relief. Defaults unarguably
rise, stressing the student loan system and harming the student's financial
future. This occurs in all fields of study, not just medicine.
Why is
this even necessary? Higher interest rates, limited deferment options and
creditworthy co-signers already provide ample compensation and security for
this lending. Private
education loans, thus, seemingly wield redundant rigidity. For the sake of
students and their families, however, something has to give and, this time, it
shouldn't be from them.
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