US Student Loans: Help or Trap Research paper, business and finance homework help

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An original 8-10-page research paper (NOT including title page, abstract and references).

The research paper must contain the following:

  1. A significant problem, question or issue bearing on U.S. financial markets and institutions,
  2. Research that demonstrates the validity and applicability of the problem, question or issue in the field,
  3. A solution to the problem, question or issue or, if no solution is available, a discussion of alternatives that may be utilized and
  4. At least ten relevant sources from primary-source documents or reports, peer-reviewed journals or equivalent materials with substantive academic value, cited in the text and identified as references.

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Hey. Attached is the final document. Please assess and inform me if there are any amendments you want done. Thanks

Running head: STUDENT LOAN TRAP OR HELP

Student Loan: Trap or Help
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STUDENT LOAN: TRAP OR HELP

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STUDENT LOAN: TRAP OR HELP
1. Multigenerational students’ loan debts
The problem of oversized students’ loans in the US is a looming threat to not only the
borrowers but also to the economy. Many former students who have these huge college debts are
usually faced with the problem of repaying them but usually end up defaulting. Defaulting on
students’ loans is not as serious as defaulting on mortgages but the impact it has or the
individual’s credit worthiness is detrimental. Furthermore, the various approaches used by
financial institutions in collecting these debts also contribute to the overall problem that gives the
US an astonishing figure of $1.2 trillion in student debts. Poor loan recovery techniques and
incomprehensible management of financial information regarding repayment options are the
major problems facing recovery efforts
Current policy discussions on these techniques, especially by the government, have
however missed key aspects of the issue further contributing to the debt mess. A common
technique that is used to make the reports on students loans only represent the averages of due
loan amounts which in real sense differ a great deal from one student to another (Baum and
O'Mall 2003). Using such solutions as debt collection websites and structured college scorecards
do not really resolve the issue. Uses of generalized averages, therefore, do not have a strong
impact on students’ choices.
1.1 Problems faced by students
Some of the most problematic loans in the US are the students are loans owed by students
who dropped out of college before graduating. Dropping out of college can be due to many
different reasons some of which the students themselves have no control over like inability to
raise fees, health issues amongst other factors affecting them at the time. By the time such a

STUDENT LOAN: TRAP OR HELP

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student drops out of college he or she has already used up a lot of the money allocated to them
thereby amassing a huge debt, yet they will fail to secure any certification.
Security on students’ loans is usually based on the promise of a well-paying job after
college. When a student drops out, however, this hope of a good job and the potential to repay
the loan diminishes or is completely shuttered. This brings us to another issue affecting student
loans where the cost of education does not necessarily imply the quality of education. Some
students pay a lot and only receive a trifling proportion back in terms of the quality of education.
At the moment there is no defined way of measuring the quality of education apart from the
highly flawed accreditation technique.
1.2 Government contribution to the problem
The government, for example, evaluates colleges based on data collected on earning
levels of former students of the particular college. This method is highly skewed towards
favoring successful students who get highly paying jobs which might not be the case for other
students. (Greiner, 1996) This approach assumes that an overwhelming majority of the students
will get a high paying job as soon as they are out of college. The question, therefore, arises as to
what happens to the drop-outs and the unlucky few who end up low paying public jobs. It does
not mean that these students’ education was a waste since such low paying jobs such as those in
the public sector, in fact, are very beneficial to the society but their pay may not reflect the cost
of the education undergone by the student.
Many students today often find jobs in a completely different field from their field of
study. We are also aware that students in any field do not stand equal opportunities of getting the
same jobs. Students from well-off families, for example, might have better connections and thus
have higher chances of landing better-paying jobs. (Greiner, 1996) It is also true that some

STUDENT LOAN: TRAP OR HELP

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colleges offer certification with little value, therefore, the problem of student’s indebtedness does
not rely on their earning threshold.
Additionally, the fact that private lenders are the ones that mainly dominated the
students’ loans provision sector, especially during the generation X (born mid-1960 to early
1980’s) college days, is another problem. Unlike government back lenders, private lenders are
often more concerned about profits and often fail to put other considerations into the picture. The
lenders at that time tailored everything to their advantage so students that had a low credit
worthiness, for example, were consequently hit with high front-end charges, high fines for
defaults as well as tight debt collection technique. At the time of awarding the loan, the
assumption in the market was that the job opportunities in the market would continue to expand
and earnings would continue to rise. This, however, did not happen and instead employment
opportunities reduced forcing many students to go back to school to secure better-paying jobs.
1.3 So what happened?
At the time the Federal government assumed the role of disbursing students’ loans,
therefore, pushing out the middle private lenders on both the back and front end government
loans. A similar approach was adopted in the mortgage market and the much anticipated
proverbial outburst from both markets never happened. Lenders kept their hopes alive that the
student's loans market would eventually crumble but until now that event is however still yet to
happen (O'Mall, 2003). Unlike the private sector which gives loans based on credit worthiness,
the government instead gives these loans to students who actually have low credit worthiness.
Government reasoning for awarding loans to these students is however justified since the loans
are given to enable them to secure a better college education. This ensures that all students get
equal access to student loans without discrimination based on their credit worthiness level.

STUDENT LOAN: TRAP OR HELP
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