Student loans: An even bigger problem

I wrote about this awhile back and described the magnitude of this problem. Now we have learned that the problem is even bigger that we thought. This Globe article says that the federal student loan program has been maxed out at $15 billion, forcing the Federal government to change the rules to meet the demand of student loan applications this summer.

Without that change, 500,000 students requiring $300 million worth of loans would have been denied that opportunity. Clearly, in these recessionary times, more people are returning to school.

The burden on taxpayers is not insignificant. As the article points out, the cost includes “provisions for interest relief for unemployed graduates and a default of more than one dollar in eight. According to a 2008 report, the program’s net cost to government was $697-million in 2006-07, rising by 2.3 per cent a year.”

Higher tuition fees, fewer part-time jobs, and less money from parents to finance their children’s education means that more and more students are graduating with huge debt, with little or no means to pay it back.

What’s the solution? A group of BC-based MBA students are working on a new approach which begins with debt education. It makes sense that anyone receiving a loan needs to learn about how to manage debt and how to put together a plan to get out of debt. The financial literacy resource called The City is ideal for teaching students about credit and debt. At a minimum, students need to take this course, put together a repayment plan, before receiving their loan.

The proposed BC plan is to include debt education, risk management and repayment tools to help students avoid the terrible downward cycle of debt. Let’s hope this program gets up and running fast.