Student loan history and financing higher education in America

¶ … College Students Loans

College students\' loans are the form of financial assistance or financial aid that students must repay, which are a contrast to scholarships that are never repaid. In the United States, the student loans play an important role in financing higher education, and nearly 20 million Americans use loans to cover costs of higher education. While governments in Europe support college students through funding, however, students and families in the United States fund their college costs through loans.

The objective of this paper is to explore the concept students\' loans higher education and methods students use the loans to pay to finance their education.

Analysis of History of the College Student Loans

In the United States, many Americans did not pursue a college degree in the 20th century because higher education was not considered important as it was today. However, the history of student loan is traced as back as 1840. The first student loans were offered to Harvard University students in 1840. To manage the standard of higher education, the government formed the Department of Education in 1867, however, it did not offer a student loan program. The GI Bill was passed in 1944 to allow the veterans of the Second World War to attend college cheaply.

After the Second World War, there was an increase in the number of people seeking for college degree leading to a gradual increase in the college tuition costs. It was after the 1950s that a significant increase in the college tuitions was recorded. The issue made the federal government start guaranteeing student loans delivered by banks and other financial institutions.

In 1958, the federal government granted the first students loans through National Defense Education Act following a recommendation of Milton Friedman. In 1965, the budget rules mandated that a direct loan should show up in the budget. The Higher Education Act provided loan program or loan subsidies to students in critical needs. In 1972, the Educational Opportunity Grant as developed to help college students to complete their studies. In 1990, the federal government guarantees a subsidy for every loan program including the student loan. In 1993, the government passed the Omnibus Reconciliation Act to offer direct loan to college students. (Kelly, 2015). In the same year, the federal government offered the unsubsidized Stafford loans to college students. In 1993, the government started a Direct Lending Program where they provided loans directly to borrowers. In 2005, the government allows graduate students to receive PLUS Loans. (Woo, 2011). By 2012, the total amount of student loans was more than $1 Trillion.

2. Analysis how College Students debt for College) has changed over Time

An increase in the number of students\' enrollment in college and universities has led to a rise in the costs of education in the United States making the student loans to play a critical role in higher education financing. As being revealed in Fig 1, the student loans continue to increase across the age group between 2004 and 2012. In 2004, 900,000 college students graduated with load debt. However, the number of students who graduated with the student loans increased to 1.1 million in 2008. In 2012, 71% of students who graduated from colleges had student loan debts that represented 1.3 million students who graduated from colleges. In 2012, 75% of students in non-profit private college had student loans while 66% of students in public colleges has student loans. Moreover, 88% of students in for-profit private colleges had student loans.

Fig 1: Student Loans Balance between 2004 and 2012

Comparative analysis of the student loans with other household loans reveals that the student loan is the second largest household debt after mortgage debt. As being revealed in Fig 2, the student loan is the only household loan that continues to rise since 2004. Between 2004 and 2012, the student debts were triple reaching $966 billion in 2012 because of the yearly increase in the number of the borrower.

\"Annual federal student loans increased from $105 billion in 2010 to $129 billion in 2012 (an increase of 23%) and are expected to grow to $161 billion in 2016 (an increase of 53% over 2010). The number of students aided increased from 13.8 million in 2010 to 16 million in 2012 and is expected to grow to 18.7 million in 2016 (an increase of 36% over 2010).\"(Razaki, Koprowski, & Lindberg, 2014 p101).

Fig 2: Student Loans Compared to other Household Loans between 2004 and 2012

In the last few decades, there has been an increase in the number of borrowers reaching more than 70% increase in 2014. Major factors that lead to student debts\' increase is that a large number of people attend colleges. Moreover, many parents take loans to sponsor their children. The lower repayments rates also make an increasing number of students to take loans. However, trends have shown that the student loans will increase in the near future.

3. Possible Solutions and Ramifications for Higher Education

The best solution to address the student\'s loan increase is that the federal government should reduce the amount of loans offered to college students, and use the net funds to increase the number of higher educational institutions across the United States to reduce the tuition costs offered by colleges. It is essential to realize that an easy access to government loans make many colleges raise tuitions costs at the expense of students. The Bennett Hypothesis shows that many colleges increase the tuition costs for undergraduate and graduate students without raising the quality of education. Thus, if the government increases the number of colleges that offer online undergraduate and graduate programs across the United States at affordable costs, many colleges will be forced to slash down their tuition costs.

4. Analysis of the Impact on Higher Education Today and towards the Future.

Analysis of market forces of higher education has shown that there is a gradual increase in the demand for a college education which is more than the supply. The major reason is that colleges and universities have become a major societal hub to acquire knowledge. Typically, higher education provides a significant contribution in a recent advanced in science and technology. While higher education has provided the immense contribution to an advance in technological development, however, the internet has offered the opportunity for a large number of people to acquire knowledge. Typically, the transmission of knowledge will no longer be offered in the traditional college campus with increasing number of online courses springing up at every corner of the United States. In the future, the cloud computing will offer a quality education similar to the traditional education.

\"By 2020, higher education will be quite different from the way it is today. There will be mass adoption of teleconferencing and distance learning to leverage expert resources. Significant numbers of learning activities will move to individualized, just-in-time learning approaches. There will be a transition to \"hybrid\" classes that combine online learning components with less-frequent on-campus, in-person class meetings.\" (Anderson, Boyles, & Rainie, 2012 p 3).