A Student Loan Crisis

We all know about the Patient Protection and Affordable Care Act or to some known as “Obama care” passed in 2010, but few of us know about the Student Aid and Fiscal Responsibility Act (SAFRA) that was passed at the sometime. SAFRA was replaced by the Federal Family Education Loan Program (FFELP). SAFRA is suppose to redirected all loans through the Department of Education, which is suppose to save money to the borrower.

SAFRA shouldn’t have been signed into law and FFELP should have been repealed. Student loans that are backed by the Federal Government are causing a financial crisis that could happen at any time in the future. Just like it happened in the housing market a few years back.  People where approved for loans that they shouldn’t have been approved for in the first place because their income was too low for the amount of house that was being bought or the subprime loans where the interest rate was high. The government would also make new programs for homeownership to become reality for the lower income class. While the government had good intentions when these programs were made the reality is this would put families in homes which they couldn’t afford and they would eventually get foreclosed. Well, these federally backed student loans are doing the same thing. Since they are backed by the government meaning the government would pay back the loan to the bank if the borrower was in default. This leaves the banks with no risk and a small amount of interest to gain. These loans are fairly easy to get. Students going to 4-year schools, especially a private one could be left with tens of thousands in student loan and aren’t guaranteed a job in the field they studied after they graduate or even worst they might not even graduate, but still are obligated to pay the loan. 

When someone defaults on a student loan this hurts both the individual as well as the over economy. Individual’s wages could be automatically garnished without any judgment and the government also has other means to collect money it is owed. This hurts the economy over all because if a large group of people start defaulting this means the government would have to pay out more money to banks.

While the overall intention of federally back student loans is to help education be accessible to everyone. These federally backed loans in debts students with loans for years to come and some which are outrageous. Someone might owe over a $100,000 in student loans and picked a profession that averages $40,000 a year.