The Economics of Student Debt

Before diving straight into Student Debts, we must understand a closely related term called ‘Student Loans’. Student Loans refer to the money borrowed by a student from a bank (government or private, state-level or national), NBFCs, government schemes, or other means so that s/he can get access to high-quality education. Various international lenders are also ready to give these loans at certain conditions. These loans can be used to pursue Bachelor’s Degrees, Postgraduate Degrees, Professional Courses, Diploma and even pay tuition fees. This has to be repaid to the lender with the applied interest. These student loans, when accrues interest over time and remains unpaid even after graduation (or the purpose for which it was taken) takes the form of Student Debt.

Student Debt creates problems at times. If a student gets well-off after his/her graduation and starts earning big figures, he/she can repay the debt without facing many problems. Now, what if the situation is reversed? The student struggles to find a good job and starts getting crushed by the weight of the debt. This results in financial stress and economic consequences. This may hinder entrepreneurship, as the obligor (borrower) will decide not to take financial risks and prioritize paying the amount he/she owes.

To tackle these problems, several steps have been taken, both at national and international levels. For instance, in our nation, the Central Sector Interest Subsidy (CSIS) Scheme has been launched to ensure that the government provides financial aid to the needy in terms of education. On an international basis, the prominent Harvard University has made college free for students whose family income is below $100,000. Germany and Norway have made education mostly free for students. In the USA, despite the government trying its best, many university students start working as cashiers or other low-paying jobs to avoid taking loans to pay their tuition fees. Note that this is not the case for each student as the circumstances vary.

The soaring number of students taking loans to educate themselves creates a great fiscal void in their lives. Whether this debt is in the form of a study grant a government loan or a housing supplement, it involves a transfer payment.

In our opinion, students who possess academic skills like leadership should be given credit in the form of scholarships which may allow them to look after their expenses. The scholarship recipients must be required to maintain a certain level of grade rather than having to repay the award amount.

As an example, The Rhodes scholarship for Postgraduates in the US offers monthly stipends to cover accommodation and living expenses.

Thus, education need not be made free by the college. Instead, the skills of students may be harnessed in much better ways.