“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” – Malcolm X

Introduction

This article analyses Student Loans and Interest Rates in the United States of America (US) and India. It utilizes statistics and incorporates a multidisciplinary ‘socio-economic’ approach to describe the impact of the current interest rates and student loans in both of the aforementioned Economies. Alternatives to Student Loans such as subsidies and scholarships are discussed.

I. The case of Student Loans and Interest Rates in US

US citizens borrow around 90-billion dollars a year to pay for their wards’ education. During the 1990’s, student loans became increasingly popular and the interest rates for the same grew at a very fast pace, especially for college students. The rise in interest rates was slower during 2000-2008 and the loans were stable. However, following the great recession in 2008, there was a surge in the interest rates and prices. Due to this reason, a lot of students relied on alternatives such as financial aid from NGOs and other industries to be able to meet the financial ends for their education. Scholarships from schools, corporations and universities was the only reason that the students, especially the international students, were able to study during the past two-decades. It has also been found that it is more difficult for women, queers, and non-white citizens in various economies to obtain student loans in the US.

Education is an essential requirement for the betterment of an economy. Similar to how technology increases the value of an industry’s production, additional education qualifications of an individual lead to an increase in her or his likeliness to perform better, to be employed and to earn more. However, rising interest rates causes difficulty for the students as it makes their education unaffordable for the most part. Sometimes students are so burdened by the debt that the repayment is impossible on part of the parents and the burden shifts on to the children. This causes detrimental consequences on the economy as it leads to more unemployment and eventually decreases GDP per-capita of the economy.

Between 1996 to 2008, the borrowing of funds by college students increased from 30% to 90% as per a study conducted by NPSAS-US. Further, borrowing accompanied with loans taken by students rose from 50% to 90% in the US from 1996 to 2008. It is notable that the capacity of students to pursue undergraduate studies declined from 1996 to 2008. The unemployment rate in US was 5.6% in 1990’s and decreased to 4.9% in 2016. However, the number of unemployed people has largely gone up due to the increase in population. This goes on to demonstrate that with the increase in interest rates and heavier student loans, the unemployment level of an economy such as the US increases. This further affects the capacity of an economy to consume and produce thus leading to a decrease in the GDP per-capita growth.

II. Student Loans in India

India due to the unavailability of public resources had begun showing an interest in the concept of student loans to reduce unemployment and improve the economic situation of the country. A vision which the government had was that only the needy or the deserving students should borrow money from the government to finance their education. They believed that due to this reason, the students would be obligated to perform better in their studies and market as they would carry the responsibility for repayment of debt. India also believed that students would be able to repay the loans in 5 to 10 years on an average. Thus, the idea of education loans was envisaged and implemented to reduce the educational and financial burden in the long run for the students.

India has increased the limit of loans which can be borrowed by the students. It is believed that just as dowry is paid by either spouses to the family of the other in Indian-practice, students repay a negative-dowry to the government in order to fund their education.

The next section is going to look at the Interest Rates on Student Loans in India and contrast it with that of US.

III. Differences between the two Economies and what one can learn from the other

India has put certain subsidies in education so as to allow students to gain access to education more easily. This is a good alternative to education loans as it reduces the debt of the students. One of the other reasons why “subsidy” is preferred over “student loans” is due to the fact that it leads to a better way of funding education. This is a major difference between the governments of US and India as the former believes in supporting merit based students and those with higher IQ’s, while the latter acknowledges that merit alone is not the only requirement as there is also a need to bring up the status of those in poverty. However, that being said, it is also important to note that the interest rates (including other factors and rules) for student loans is as high as 10.85% per annum in India. At the same time interest rates for other items such as automobiles, and other materials is way lower. This is something which needs to be looked into by the Indian government so as to allow for more affordable student loans and to reduce the debt of the students. Unless India realizes the greater significance of affordability in education, the progress of education in India will be slower.

The fixed interest rates for US student loans is generally between 4.29% to 6.8% which is lower than India’s interest rates. While we can certainly agree that this rate is theoretically lesser, we also need to look into the differences of the cost of living between these two countries. Holistically speaking, the magnitude or the impact of the student loan on a student would be greater in the US compared to India.

While the conditions for student loans in India are steadily improving compared to the US, it still has a great scope of improvement in terms of implementing government policies and making education affordable for its citizens. India needs to understand that privatization of education (which is running parallel to relatively lower education budgets) has increased to such extent that it is leading to difficulties in obtaining education for students.

US also has to consider a broader perspective of who requires affordable student loans and the alternatives such as scholarships. It needs to consider a nuanced method of encompassing students on the basis of ‘need’ besides ‘merit’. Despite it being a developed country, it has considerable unemployment coupled with lack of undergraduate and postgraduate education, which would require more government policies on education loans and funding of scholarships. Including subsidies in its policy like the Indian government would be a better alternative compared to the student loans for US as it will bereft the borrowers of student loans from paying back the interest rates to the lender.

Conclusion

There are some aspects of both the economies which they can learn and unlearn from the other. Student loans and scholarships are two methods of improving the education of any economy. However, there needs to be an increase in accessibility and ease of obtaining loans which would include lowering of interest-rates. Scholarships are also important as they allow for affordability of education and are better alternatives when compared to borrowing by students. Subsidy is a better alternative than student loans. ‘Need’ is also an important factor along with ‘merit’ of students. The economies need to factor these in order to improve education.

References

• Collinge, Alan. 2010. The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back. New York: Beacon Press.
• Hershbein, Brad &; Kevin M. Hollenbeck (eds) 2015. Student Loans and the Dynamics of Debt. London: W E Upjohn Inst. Pg. 92.
• Zajda, Joseph I. 2001. Education and Society. 3rd ed. Melbourne: James Nicholas Publishers.
• Hershbein, Brad &; Kevin M. Hollenbeck (eds) 2015. Student Loans and the Dynamics of Debt. London: W E Upjohn Inst. Pg. 85.
• Statista. 2017. “Unemployment rate in the United States from 1990 to 2016.” Accessed April 9, 2017. https://www.statista.com/statistics/193290/unemployment-rate- in-the- usa-since- 1990/
• Tradingeconomics. 2017. “United States – Unemployment Rate.” Accessed April 9, 2017.
• http://www.tradingeconomics.com/united-states/unemployment- rate
• Sharma, Shaloo. 2002. History and Development of Higher Education in India. New Delhi: Sarup &; Sons. Pg. 233.
• Panikkar, K.N. &; M. Bhaskaran Nair (eds). 2012. Globalization and Higher Education in India. New Delhi: Pearson Education India. Pg. 116.
• State Bank of India. 2017. “SBI Education Loan Scheme.” Accessed April 9, 2017. https://www.sbi.co.in/portal/web/interest-rates/education- loan-scheme
• Federal Student Aid. 2017. “Interest Rates and Fees | Federal Student Aid.” Accessed April 9, 2017. https://studentaid.ed.gov/types/loans/interest-rates

Anujay Shrivastava, the author, is a Third Year B.A., LL.B. Student and an Undergraduate Researcher to CITEL at JGLS.

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