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How to limit the debt monster

The housing crisis of 2007 and rising college tuition rates are the two greatest financial crises of this generation. Observing all the steps that culminated in the housing crisis provides some insight on what may end up becoming the biggest, most far-reaching burden this generation will ever face.

During the 2007-2008 years, the housing crisis was essentially caused by banks loaning unlimited amounts of money to people who did not have the means of paying it back. These actions significantly contributed to the following recession. Banks knowingly continued to lend money out irresponsibly consequently putting massive amounts of debt onto a large portion of Americans. This scenario is starting to resemble the student loan bubble.

Student loans are primarily provided by the federal government, which typically allows students and parents to borrow up to their specific tuition rates. It may seem as if loaning the amount needed to students is the logical route to take; however, without some sort of stricter cap on these loans this age group will possibly spend decades attempting to pay off their degrees.

Going to university is becoming the new norm, and loans are crucial for many to be able to afford school. Loans are necessary, but the nearly unlimited amount of borrowing will and has caused almost inescapable debt for graduates. The solution? Cap federal loans.

Freshman pre-pharmacy major Annie Shafiq stated, “After graduating, many students find themselves in debt and do not know how to overcome this issue. Having a cap on loans from the start can help them in the long run and eliminate many economic problems they could face.”

When federal loans offer coverage on all tuition needs, it signifies to colleges that the government can pay tuition. Even if tuition is raised, their students can still “afford” to come to school despite a higher rate of payment. Universities can then constantly raise their cost of admission with the knowledge that the government can foot the immediate bill. After graduation, students will eventually be drowning in the debt of their loans (plus interest).

When asked about how caps on loans would affect how universities set tuition, Shafiq claimed “if there was a cap on loans, lenders and colleges would also stop increasing their tuition/interest rates which ends up hurting the students heavily in the long run.”

Theorizing that tuition is growing partially due to universities responding to unlimited loans is supported by statistics from the Labor Department. In the decade after 2003 tuition grew 80%. To put that in perspective, the second fastest growing sector, medical care, went up 43.1% in the same time period.

This growth is clearly not as simple as inflation, which occurs naturally within economic structures. This is evidenced by the consumer price index, whose prices grew less than half of the percentage that tuition did. The astronomical rise in tuition over the years can potentially be slowed down significantly if a cap on loans was enforced and severely limited.