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Make student loans work for students

The main beneficiaries of the US government’s current program are colleges and universities

September 07, 2023 / 17:24 IST
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Students
Doing nothing will have significant consequences not only for current students, but also for anyone considering college in the future. (Representational image)

Amid the debate over student loans — President Joe Biden’s administration tried and failed to forgive some of the debt, which starts accruing interest
this month after a three-year pause — a crucial question has often been overlooked: Who benefits the most from student loans? It’s not necessarily the students.

The main beneficiaries are colleges and other accredited post-secondary educational institutions, which receive the loans as transfers from the federal government via student borrowers. There are few strings attached. Colleges do not pay the loans back, nor do they pay interest to the government. Students do that.

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Yes, students benefit from going to college, but not always. A Federal Reserve survey found that about half of the respondents who went to college said the lifetime financial benefits of their education were about the same as or less than the lifetime financial costs. Those with outstanding student loans were even more pessimistic.

The financial costs of college have risen substantially in recent decades. Overall consumer prices have quadrupled since 1980, but tuition and fees are 16 times higher, with the fastest growth since the early 2000s. The rise in tuition has been matched by a rise in student loan debt, currently at $1.6 trillion.