Anyone paying attention to developments in higher education can tell you that it is fast becoming a numbers game. Swelling tuition and mandatory fee amounts, shrinking funds for subsidized student loans, and disappearing dollars and other sorts of free aid -- all these factors mean one thing: that a college degree many be soon placed completely out of the reach of many Americans, and with it the sort of career that makes for a comfortable middle-class existence goes, too.
This trend toward greater and greater upfront expense means also that college students are borrowing money like never before. And when federal loans fall short of covering necessary expenses, many students turn to private bank loans. Bank-issued loans of course carry with them several disadvantages. They tend to have higher rates of interest than federal loans, and the interest on them does not defer until after the borrower matriculates, but begins to accrue immediately upon issuance. This puts students in the difficult position of either allowing four years' worth the interest capitalize (become added to the principal) or taking time away from study to work in order to service the debt while still enrolled in school.
And perhaps most worrying to students is that, like mortgage loans, many bank-issued student loans carry variable rates of interest, which tick upward whenever there is an increase in the prime rate.
Banks market their student loan programs aggressively. After all, they're a relatively safe investment. The borrower increases her earning potential by pursuing a degree, and thus her ability to service the debt increases right along with it.
So successful have banks been in marketing their student loans that many higher-educational aspirants aren't even aware that difference at all exists between bank loans and federal loans.
This lack of awareness on borrowers' part has grown to epidemic proportions. Some seek remedy, calling on lawmakers or other authorities to intervene on behalf of bewildered borrowers. "College and university websites should require prospective students to check their eligibility for federal student aid before private loans with ever-changing interest rates are presented as a legitimate option, according to a report from a nonprofit group advocating for greater college access and affordability," reports a July 14, 2011 eCampusNews.com article.
”One-on-one counseling, either in face-to-face meetings or over the phone, is the 'most effective' way to find college loans that won’t cost student thousands of dollars in exorbitant interest charges," the article continues, "while web-based counseling makes it 'too easy [for students] to acknowledge receiving detailed information without actually reading or comprehending it,' said the report, published by The Institute for College Access & Success (TICAS)."
Essentially the call is for a consumer protection agency patterned after the Consumer Financial Protection Bureau (CFPB) currently being assembled in Washington D.C. This entity would offer clear instruction on the relative merits and demerits of various types of loans, whether issued by banks or the federal government.
TICAS singles out private sector colleges and universities as the worst offenders when it comes to offering their students proper loan counseling.
Who's truly to blame is yet to be determined. What is certain is that whether in the field of environmental science or organizational management, higher education is becoming more and more expensive to pursue. The only thing constant is change, however. So you'll just have to stay tuned in order to see what develops next on the financial aid front.