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Student Loans and the Resulting Debt Trap

Student Loans and the Resulting Debt Trap

Student over-indebtedness refers to the situation where students, mainly in Anglo-Saxon countries like the United States and the United Kingdom, find themselves with high levels of debt due to borrowing money to finance their studies. This situation is linked to the way in which the higher education system is financed in these countries, as well as socio-economic factors:

 

  • Cost of higher education

In the United States and the United Kingdom in particular, the cost of higher education has increased significantly in recent decades. Tuition fees, ancillary fees and living expenses can be prohibitive for many students, forcing them to take out loans to cover these costs.

  • Student loan

In the United States, for example, the loan system is complex and can be difficult to navigate for students and their families. These loans can be issued by the federal government or by private lenders, with a variety of interest rates and repayment terms.

  • Accumulation of interest

The student’s debt can accrue interest during the period of study, as well as during the grace periods or postponement. That means that students find themselves often with much higher amounts to repay than what they had initially borrowed.

  • Limited reimbursement options

Loan repayment options available to students are limited, which can make it difficult for graduates to juggle their debt, especially if they have difficulty finding a well-paid job after obtaining their diploma.

  • Impact on future financial stability

Student over-indebtedness can have a significant impact on the future financial stability of graduates. That can delay important milestones in their lives, such as the purchasing of a house or the founding of a family, and limit career choices, because graduates can be forced to look for better paid jobs better to repay their debt.

As students born in better off families can avoid taking on debt, the debt trap to which poorer students are condemned results in the widening of social inequalities. It is therefore a major subject in the political debate during an election year on both side sides of the Atlantic. The current system appears broken and in need of major reforms. Debt rescheduling and forgiveness although welcome is not a not a long-term solution. Unfortunately, the record government deficits the United States and the United Kingdom have reached in 2024 are very much constraining the economic choices. So, candidates on both sides of the political spectrum are reluctant to make promises they know they cannot deliver. And if they do make promises to the young voters affected by the debt trap, few truly believe them. It is therefore to be feared that barring a revolution, student over-indebtedness will sadly remain a key factor of social inequality in the Anglo-Saxon world.

Online learning allows students to study at their own rhythm while remaining employed. Today it is the best option available to students wanting to further their careers while avoiding the debt trap. An MBA or an MSc from a very reputable UK university can be completed in two years or even slightly less and allow young professionals to bypass the pitfalls of taking a student loan.

 

Written by Philippe Riewer,

GROUP CFO, Stafford Global

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