Will You Be Able to Afford a Student Loan?

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Tue, Mar 3 - 4:31 pm EDT | 5 years ago by
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Student loan financing gets tougherOne of the bummer things about President Barack Obama’s proposed budget changes is the effect on student loan financing. In order to increase the amount of money available for grants, without increasing the federal deficit by very much, Obama is proposing changes to the way lenders are subsidized for making low interest student loans. This is one of the few items of disagreement I have with Obama’s economic policies.

The end to low interest student loans?

Right now, in order to encourage lenders to offer rock-bottom interest rates on student loans, the government hands out subsidies. Now, though, without these subsidies, lenders won’t be very likely to give out low interest student loans that make it possible for many middle class students to attend university. While increasing the amount of money available for grants is laudable, it only makes things worse for those families — like mine — who make too much to qualify for grants, but who don’t make enough to actually afford college without help.

Additionally, without federal subsidy protection, I foresee issues with getting approved for student loans. The credit and income requirements are likely to be strengthened as well. Unless Obama finds a way to provide grants for those who don’t qualify right now, we could see fewer middle class students able to afford college.

What do you think? Should the government continue to provide subsidies for low interest student loans?

image source: sxc.hu

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  • SP

    Aren’t they stopping that so borrowers can borrow directly from the federal gov’t, who still will be backing subsidized stafford loans? Removing the middle man? I’m not sure you have all the facts right, but I don’t know the details myself either.

  • http://toughmoneylove.com Mr. ToughMoneyLove

    Isn’t this the more appropriate question: Will you be able to afford the educational path you have chosen? The problem with the student loan racket is that students are terrible consumers and colleges are just as bad as banks that pushed sub-prime junk mortgages on buyers. Most students seem to choose an educational program then borrow whatever is needed to close the gap between what is required and what they can afford. It’s stupid.

  • http://www.oblivousinvestor.com ObliviousInvestor

    I know this sounds terrible, but I think it’s actually a good thing that less people will be able to qualify for low-interest loans.

    I agree with ToughMoneyLove. Often, students are extremely risky borrowers, but the subsidy that has been provided makes banks lend to them anyway. And that’s yet another piece contributing to the mess we’re in right now.

    We need to learn not to spend more than we can afford, including on things that are truly important–like education.

    On the upside–and I have no idea how likely this is–it seems possible that students having to actually foot the bill now for a greater portion of their educational expenses might lead to downward price pressure on educational institutions.

  • Miranda Marquit

    @SP: Yes, the government plans to make these loans, but they are likely to be made at higher rates. I do agree that the whole student loan thing is a bit of a racket, but at the same time, I’m not sure that having the government run it will make for an easier application and approval process.

    I think that both Mr. and Oblivious make a good point: In some cases, students are approved for too much, and the ease of the loans mean that universities can keep increasing their tuition prices. I did my undergrad at a modestly priced state school in Utah, and I didn’t actually need student loans (even though I did the stupid thing and got them — undergrads aren’t especially known for their financial acumen). Perhaps I didn’t need to go to school at Syracuse for my graduate degree, but it was a program that fit my needs at the time, and I haven’t had too much trouble with the grad student loans.

    At any rate, I agree that the easy credit plague has extended to student loans, and maybe that needs to stop.

  • Jim

    Almost everything President Obummer has done or proposed is ass-backwards. Not only are we actively engaged in capital destruction, but in education destruction as well. Even the Chicoms have more on the ball than us right now.