Article, Fintech

At what point does it become a scam? Student Loans

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Student Loans

Welcome back to; At what point does it become a scam?

In the first part of this article series, we discussed the predatory practices of pyramid schemes and multi-level marketing companies and in the previous part, the topic was about the national lottery; its abysmal odds and questionable practices regarding their advertising and marketing strategies. Now, in this third part, we will discuss the issue of student loans and student loan debt around the world and primarily, in the USA.

Before we continue, I’d like to just quickly mention that even though the term “University” and “College” technically mean and is/are two different institutions, in this article, we will be using both terms interchangeably. So, just in case there is any confusion amongst the two, just know that I am essentially talking about the same thing.

So, although the student loan debt issue is a problem in many countries, in this article we’ll be focusing a little more so on the United States of America.

Reason being is the “problem” of student loans seems to be a lot more prominent within the USA. When googling student loan problems, I had to do a wee bit more work in order to find articles and coverage on student loan debt issues outside of the USA.

For example, even if I googled; “Student Loans problems Europe,” or “Student Loan Debts UK,” I found that more than half of the search results pages would still link to articles that discussed the problems within the USA. And if you only type into the search bar: “student loan debt,” then just about every link on the first page of results are all USA related. You can click here and see for yourself what comes up!

The cost of higher-level education

Right off the bat, something that might be an obvious problem is the pricing and costs of a full 4-year term of university or college level education within the USA. The following costs are pulled from collegeraptor.com. According to College Raptor, their list of the average cost for a four-year term of college, (which includes tuition, fees, and room & board) is as follows:

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For those that are wondering what the in-state and out-of-state differences are, if you are a resident of another state in the USA, and go to study at a college that is not your state of residence, then you typically have to pay more for the tuition. Or rather, you don’t get the local-state residence discount.

I sourced what the main reason for this, from collegeexpress.com; “out-of-state students pay more because state schools are funded in part by the tax dollars of residents of that state—so students from outside of the state aren’t entitled to the same low tuition rates that state residents enjoy.”

Now, I want you to keep in mind, that the prices above are the average annual costs. Meaning that students are paying on average; 46,950 USD per year for 4 years for attending a private college. Another thing to keep in mind, this average cost does not include textbook and other school supplies, nor does it include a student’s personal expenses.

In order to get an idea of how much money that is, let’s compare these costs to the average minimum wage within the USA. According to statista.com, as of January 1st, 2018, the USA minimum wages vary from 5.15 USD per hour up to 12.5 USD per hour, depending on the state you’re in. However, the mode of the chart presented by Statista is 7.25 USD, so let’s go with that.

Full-time employment is typically 40 hours a week, so now that we that all these numbers, let’s begin doing some maths.

Assuming you’re working a full-time job, doing 40 hours a week at 7.25 USD, you’ll be earning somewhere in the ballpark of 14,000 USD. So, that means full-time employment for 14k USD, whilst trying to pay for your tuition that’s in somewhere in the range of 20k USD and up. It’s not looking good, is it?

I’m not a citizen of the US, nor do I have any personal experience with paying for tuition in the USA. But from an outsider’s view, it seems pretty impossible for a young adult with no money, to try and pay the tuition completely by themselves unless they have a good job. But then when would they find the time to study a full-time, 4-year course?

Let’s do a quick comparison to the prices in some other parts of the world. Keep in mind that different programmes will have different costs, such as Medicine, where it is typically much more expensive no matter where you study.


And since non-residents usually pay more than residents, the average costs below will be based on what residents of the country/state would be paying.

United Kingdom: The average cost of a four-year tuition in the UK for 2018 will lie in the ballpark of £9,250 ($13,050) per year. This price is considered the “cheaper” of the different rates, as it applies only to UK and EU citizens.
Foreigners and/or international undergrads that want to study within the will more than likely end up paying a decent amount more. These rates were sourced from topuniversities.com.

Germany: If you plan to study for your degree in Germany, well the good news for you is that universities within Germany are pretty much free of charge. While there are a few administration fees or such, here and there, you’re looking at not much more than a few hundred euros per semester.

However, I think it’s also worth mentioning that Germany is, in fact, looking to reduce some of the debt within the country and as of late 2017, has reintroduced a tuition fee for non-EU students that wish to study within the country. Though, the average fee is something along the lines of 1,500 EUR (Roughly 1,700 USD) per semester.

Singapore: Singapore has quite a large price difference between their public and private universities, with the average tuition fee of the more affordable schools being in the ballpark of $9,000 SGD (6,650 USD) per year.

Though it’s worth mentioning that even with the “affordable” schools, the Medicine programme averages $29,000 SGD (21,400 USD) per year, which is a good example that the different university/college programmes can vary greatly.

Australia: As well as Singapore, Australia ranks one of the pricier countries in this list section of this article, as their average annual tuition prices are roughly along the lines of $30,000 AUD (21,400 USD).

Thailand: Like anywhere else, in Thailand, we have both public universities and private universities and both can have varying prices for tuition.

The more reputable public universities in the major cities average around 20,000 BHT (640 USD) per semester or 40,000 BHT (1,280 USD) a year. Private institutes can be significantly higher but typically average somewhere in the range of 150,000 BHT (4,800 USD) per year. Note that these rates are for residents, and non-resident rates are typically a little higher.

So, as you can see, while the USA isn’t the only country that suffers from “more than you can afford” tuition prices, it definitely is an issue.

 

Lack of help from the Government?

One of the first things that came to my mind is the amount of government help that students have access to in the USA, and to my knowledge, I don’t think there’s all that many. I did a little bit of digging around on the internet to see what kind of aid that students could look to for assistance.

Student Loans, both federal and private and all of their different subtypes.

The Work Study program is typically a Federal program that allows students to get jobs on the university campus. This form of financial aid is designed specifically around the student, as the job locations are either already on campus or near it, and their shifts are set to accommodate the student’s studies.

Grants are a kind of aid that can come from one of multiple places. If not the American federal government, then it can come from the state government, the school itself or even an organization. Unlike student loans, grants are a financial aid that does not need to be repaid and while they are similar, grants are different from scholarships, which is explained below.

Scholarships are different from grants in the sense that scholarships are often much more merit-based. Meaning it is more based on the individuals’ abilities and talents rather than just their needs. It seems that if you meet all the criteria for a scholarship, then it is easier to obtain it over than just applying for a grant.

The above mentioned are the four main types of assistance that Students can obtain, with some of them having a few subcategories and subtypes that come with different conditions and have different requirements.

If not already free, a lot of European countries try to make it easy for students to get through their tuition by providing more and/or different types of assistance than the ones listed above. Such as Denmark, where students are paid a monthly grant similar to a wage just to attend their studies.

The lack of options and aid presented, only feeds the student loan debt problem as more and more students feel pressured to take out a loan if they don’t meet the criteria for a scholarship or a grant.

At what point does it become a scam?

So, you can’t earn enough money to pay for your university tuition and get yourself through four years of study. Or your family just simply doesn’t have that amount of money to help you with the tuition. Or for whatever reason, you’re not eligible for any of the scholarships or grants you’ve applied for. Even the work-study program wouldn’t be enough to help you pay for your education.

What can you do? You can go get a student loan!

It’s not as difficult as people might think. In fact, it may be too easy. There are student loan companies and programs that will check your credit background and history before giving you a loan. After looking through a number of student loan sites, the required credit score seems to be 640 points.

Which according to Experian.com, 640 is sitting in the “fair” range. With only around 18% of people having less than a “fair” credit score, it seems like just about anyone can apply for a student loan.

Sure, there could be conditions that apply that may or may not make acquiring the loan more difficult, but let’s be realistic. The USA alone in 2017 has a student debt amount of around 1.5 trillion dollars. If obtaining a student loan was difficult, then the chances of the debt being sky high as 1.5 trillion would be much lower.  TRILLION…that’s twelve zeros!

I think the problem stems from an early age in a student’s life. Study hard so you can get good grades and then you can get accepted into a good college. Get good grades and do well in college and then you can get a good job and thus leads to a good life.

I believe this is something a lot of the world is told by their parents or older family members, friends and acquaintances. And because this idea of a college education is planted at an early age and repeatedly told throughout their life, when the time comes there is a large amount of pressure for the young adults to pursue a university education. Even if that means taking out a loan that would take them years or even decades to pay off.

In 2018, the student loan interest rates increased by a significant amount. If you take a quick read of this Forbes article, you’ll see that there has been an average of around 10% increase on the interest rates. It certainly isn’t getting any easier.

And unfortunately, Jobs and employment are not always guaranteed right out of school, and the number of university graduates employed in jobs where they don’t need to apply what they’ve learned in college is staggeringly high.

Despite this, because of society beliefs regarding higher education, people will always be ready to take out student loans. Is it wrong for loan companies to take advantage of this fact?

This is a topic that has long been and will continue being controversial and debatable. But at what point is higher level education no longer worth the cost to go through it. With the amount of student loan debt that exists in the world, at what point does the loans and interest rates provided by companies become a scam?

What do you think? Share your thoughts with us on our Facebook page or on our Twitter!

 

 

 

 

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A lover and advocate of all things Tech, Loy has had an exciting time learning about Blockchain and the possibilities it brings for the future.