There were three different options for educational tax breaks
this year, and each student could choose one. I tested the
system, and if I had paid $12,000 in college costs during 2007,
my highest potential tax credit would have been $2,000. The
problem is, most college students are paying far more than
$12,000 per year, and yet their tax break stays limited to about
$2,000.
When high school students apply for college financial aid,
they usually receive a package heavy in loans and light in
grants. For most of the 1990s, students signed for their loans
without thinking twice about the interest rates they were
agreeing to. But during the 1990s, when student loan agencies
like Sallie Mae vastly grew in power, students learned the sour
truth about paying back loans: Interest rates are killer. Loan
companies encourage repayment methods that look good (low
monthly rates), but the fine print reveals it can take over
twenty years to finish making payments on such a schedule. By
the time the loan is paid off, usually about 25% of the payments
have gone towards interest. Students do not usually notice that
of their monthly payment, 50% or more is going to interest, not
the actual loan ("principal"). However, bitter students saddled
with enormous debt are doing something about it. They are
educating current students to beware of loans, and they are
petitioning the government to limit the power of loan companies.
The consequence of student loan debt is hard. The average
debt upon completion of a four-year college degree is $20,000.
Students with an advanced degree have a debt closer to $100,000.
In the past eight years, student debt has grown by 60%. What
usually happens is that the student comes out of a four-year
program, enters their first job, and approaches the payment of
their loan without any financial education. Unless they studied
business or finance, they have no idea how to handle their
finances. They do not understand the consequences of delaying
their loan or making late payments. They also make the mistake
of trusting the loan agency. They sign up for marketing frauds
that promise lower interest rates. They make late payments and
do not understand the consequences on their credit rating. Then,
when they apply for their first home loan, they are shocked when
banks deny them. At this point, their credit rating is low; they
do not qualify for a home loan.
Students cannot hide their credit history from banks. The
bank uses an
application processing system with a computer software
business process management tool to determine the person's
credit history and loan eligibility. Many banks rely on such
tools to make final decisions. With recent bank failures and a
difficult recession in play, banks are more likely than ever to
deny loan applications. They cannot take the risk on some young
person who did not pay their student loan on time.
Students were relieved to see tax break options this year,
but tax breaks are not enough. Students are taking their
complaints further. The "Student Debt Alert" is a national
campaign meant to teach students how student loans can influence
their adult life. SDA gives speeches, demonstrations, and
encourages students to speak out to the government through
petitions and letters. The SDA wants to reform student loan
programs, increase student aid funding, improve loan forgiveness
policies, and loan refinancing options. Some reform has happened
as a result of this activism, and general awareness about
student loans is increasing.
By Amy Brevard is a Freelance Writer who works with Innuity. For more
information about a
business process management tool
or an
application processing system
go to
ZootWeb.
