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The Basics Of The Student Loan Mess

These past weeks there has been talk in theprofessional school students who could not
higher education press about private lendersqualify for the maximum amounts for
and state guarantee agencies eithersubsidized  interest  loans.
withdrawing from the government-subsidized
student loan market or refusing to underwriteDuring the go-go Eighties, a graduate or
new loans. These financial institutions citeprofessional student could borrow up to
either a cash crunch or a credit crunch, or$5,000 a year from the subsidized interest
reductions in the federal interest subsidy asloan program - but had to prove financial
the  reasons  for pulling back on such loans.independence or go through a means test along
with their parents. Then they had to turn to
These are all legitimate reasons for thethe unsubsidized loans - popularly known as
private financial markets to back out.PLUS loans to make up the difference. Back in
Student loans were never meant to be a profitthose days, the subsidized loan and the
center when they were first proposed by theunsubsidized loan together with some
federal government under Presidentemployment could pay almost the full freight.
Eisenhower. The purposes of student loans are
to make college affordable and accessible toThat's  not  the  case  today.
anyone who is admitted to college and to help
them establish good credit early in theIt's easy to blame the colleges; their
working  lives.administrations make the tuition decisions,
not the federal government. But they are just
When I applied for my first student loan 30like other businesses that must deal with
years ago, I could borrow up to $2,500 and Iescalating health care costs (tenured college
didn't need to pay an origination fee. Today,faculty are more senior level workforce than
the maximum a college freshman can borrowmost government agencies and private
under the subsidized loan program is $3,500;corporations); fuel prices (larger schools
considering inflation it's a lot less than Iown and operate as much housing as some
could have borrow 30 years ago and covers amedium  and large-sized cities) and pensions.
much smaller share of the costs! The $2,500 I
could borrow in 1978 would have covered moreThere will need to be a major redesign of the
than half the cost of my freshman year atstudent loan programs in the next
Rutgers. The $3,500 I could borrow todaypresidential administration not only to
would cover less than a fifth of thereconsider outdated borrowing limits, but
freight-assuming I received the full amountalso the means tests and multiple government
after  going  through  a  means  test!loan programs with their own set of
regulations and bureaucracies. In an ideal
The federal unsubsidized interestsociety, students should not end their higher
(unsubsidized meaning the borrower or theireducation owing more than their first year's
families pay the interest while the borrowersalary  in  their  chosen  field.
is in school) loans were a creation of the
Reagan Administration. They were initially aThat's a lofty ideal, but one worth reaching
means of providing loans for graduate andfor.



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