Student loans are an alternative way of financing studies for those who do not have enough cash to pay them widely used in countries around us. Recently the education minister Wert has opened the debate on student loans versus the current scholarship system. As usual, that has generated debate.
The problem with these types of measures is that the debate is usually raised with few good arguments both on one side and the other. To say that they want to give us “mortgages instead of scholarships” or to say that the university pays you that I don’t have to do it (both ends) is probably staying on the surface. Let’s see how the university loan system works in our environment.
How do student loans work? Oregon vs. Georgia
We think it is better to start with the operation of university financing in Georgia and Oregon. In Georgia, a system was chosen in which students with better grades are rewarded, financing part of their university education. Students who get a certain grade in the institute and on the SAT (university entrance exam) receive a scholarship. To finance, it is done through a lottery created expressly for that purpose.
In practice, what happens is that not depending on income, those who get better grades usually come from the middle and upper classes (university students usually come mainly from middle classes, and the best measure to see if a child will graduate or not in college is to see if his parents did it before). In addition, the scholarship does not finance full tuition, so it is not a strong enough stimulus for a young person with few resources to enroll in the university and obtain a university degree (which is still the main social lift).
As if that were not enough when financed through a lottery, it is a transfer of income from the lower classes to the middle and upper classes, since the former tend more to participate in games of chance and devote a greater part of their income.
In Oregon, a loan system was chosen through which students will return their tuition by paying a percentage of their salary in the years after graduation. Oregon students will pay 3% of their salary in the 24 years following the completion of their university studies. The percentage is lower if the student does not graduate. It takes 24 years thinking about twenty to return the capital and four for interest. The objective is to return to the state the money they have invested in us so that university education would be paid only by those who have received it.
How do student loans work in the United Kingdom?
In 2012, university rates in the United Kingdom were increased extraordinarily. It went from paying 3,000 pounds to universities that could set a fork between 6,000 and 9,000 pounds (most of the universities chose 9,000). The alternative offered to students was to offer even larger loans to those they were taking, which generated strong protests, even though the financing system changed.
With the new system, students borrow to pay high university fees on the one hand and can also ask for something more for their current expenses while they study (housing, food). The loan has an interest, but the repayment is interesting since only those with higher salaries return the money.
If the university graduate earns less than 21,000 pounds annually, he will not return the money borrowed, which will continue to generate interest. It will return at a rate of 9% of the part of your salary that exceeds 21,000 pounds. That is, if he earns 22,000, he will return about 7.50 per month and if he earns 25,000 about 30. If his salary falls below 21,000 pounds, he stops paying his loan. Be aware of making payments.
The loan has interests, but it will not haunt you for life
It is possible that the best private student loans are not the best ways to pay off student loans. We all want to go to Harvard, that it is free and that it does not cost us any effort to do so. But in real life, it is a way for those who have enjoyed an income driven payment method, to be in charge of it.