The Importance Of Budgeting To Avoid Defaulting On Student Loans

2249 words - 9 pages

The Importance of Budgeting to Avoid Defaulting on Student Loans

Students defaulting on their loans will always be a problem for the government as long as there are students taking out loans. There will always be a few that don’t pay off their loans. There are many reasons why students default on their student loans. According Ms. Farrell, the author of “Reducing Student Loan Defaults: A Plan for Action,” in the Office of Planning, Budget, and Evaluation Survey, said “The main reason that students default on their loans is that they cannot budget their finances” (Farrell 24). Even though a number of students are working while going to school, they don’t understand the financial burden that loans will place in their lives. In order for students to pay back their student loans, they need to calculate their in school and out of school budgets.

If too many students neglect to pay their loans, it can create a serious problem for students that are currently in school receiving financial aid. A school can be dropped out of the student aid program. Under a current law, colleges and universities can lose access to student loan programs if they have default rate of 25% or above for 3 consecutive years. Institutions can also lose access to all programs, including grants, if the most recent default rate exceeds 40%. The Department of Education just released a list of more than 300 institutions that could lose eligibility for some or all student aid programs, and 144 schools are no longer eligible to participate in student loan programs because of high default rates (Dervarics 6). So we can see how important it is for students to pay their student loans back; so that their school will not be dropped from the student aid program.

Although the nationwide percentage of students who default on their loans has dropped 50% from 22% in 1994 to 11% in 1997, it took the coming together of the President, the Department of Education, Colleges, and college students to make people realize that this was a problem (7). President Clinton said, “We have tracked down defaulters and made them pay” (17). The partnership between President Clinton, the US Department of Education, different Universities, and college students, can educate other students through different programs. They can teach students how they can budget their student loans into their finances and show them what the penalties are for not doing so. It makes sense for students to budget their finances in the first place, so that they will not fall into a pit of defaulting on their student loans. There are ways that students can budget their finances.

First of all, students need to know what budgeting is, and how it can help them. Budgeting can be defined as the ability to estimate the amount of money to be received and spent for various purposes within a given time frame (Finney 175). Budgeting can help students coordinate their activities, developing financial...

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