Stopping Student Loan Debt at the Source
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UPDATED: Oct 23, 2012
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While lenders have certainly proven to be abusive with usurious interest rates at times, they are not the source of student loan debt. Rather, students are the source of student loan debt. Students, be they financially savvy or financially inept, are the young adults that borrow money in the form of students loans to fund their education. Informing these students about the risks and benefits of such high-priced debt is perhaps the wisest move that some colleges and universities have begun undertaking.
Media coverage and news stories about student loans have been filled with personal accounts of the damage that student loan debt has caused. However, those information sources have yet to adequately delve into the solution that some colleges and universities have begun administering.
Syracuse University is leading the charge. Under its current Money Awareness Program, the university identifies students who are borrowing too much money from private lenders and instead offers them direct grants ranging from $5,000 to $7,000 a year. In exchange for these grants, students must attend money-management courses once a semester until they graduate.
The university hopes that it will prevent students from falling too heavily into debt.
One of these students is Alicia Aiello. She borrowed $18,000 without understanding the terms which required her to owe $6,000 in interest.
“I was really confused, and when I found out someone would give me $18,000 without a co-signer, I was really excited—until later down the line, when I found out how much I was going to owe. That was probably the biggest mistake I ever made,” said Aiello in an interview with the Huffington Post.
Aiello, and no doubt many other students, attest that their mistakes are a result of being uninformed.
“A lot of us don’t have parents who went to college or who understand anything about this process. I have a lot of friends who just signed those loans without any idea what was going on. There are a lot of oblivious students,” said Aiello.
At another university, Alvernia University, 86 percent of undergraduates have student loans. Perhaps in a reaction to this, the Pennsylvania-based university requires all incoming students to take an hour-long financial management seminar.
Louisiana, realizing that simply giving money to students removes the need for student loans, launched the Opening Doors program in 2003 which awards scholarships based on performance. These awards are given to part-time or full-time students that maintain at least a 2.0 GPA.
California, Illinois, and a few other states, are testing an experimental program called Aid Like a Paycheck. This program gives out limited scholarship and grant money once or twice a semester in small portions, and it may expand to include student loans.
Despite taking out student loans to fund their educations, students seem to remain blissfully unaware of the debt they have agreed to.
“A lot of my roommates and friends have no idea about how much debt they’re in,” said James Beck, an engineering student at Syracuse.
Hopefully, if the educational programs of these innovative universities and colleges succeed, more students like James’ friends will better understand college debt.