17 September 2012

A "student loan" may not really be "financial aid"

I think a good point is made in a Salon op-ed piece entitled "Stop calling student loans 'financial aid'."
The government records and documents student loans as a form of aid... When pundits say that “student aid” has exploded over the past decade and argue that aid is driving increases in tuition, it disguises that the “aid” which has exploded is a signficant amount of debt for young people...

Student loans are an economic transaction, the same as if the government had contracted out to build a bridge or hired a person to serve in the military or police force or be a teacher. The money spent here isn’t “aid.”
If loans are forgiven, or provided at sub-market rates or with interest-free deferrals of paybakcs, then they can be described as gifts or aid.  Otherwise, they are just loans.


  1. When I took out my "financial aid" at 18, I thought it was a gift because I was naive. When I started paying them back after graduate school, they felt like plain old loans. Some people call that maturity in my understanding, I call it growing into reality.

  2. Your link goes to the print page. You may want to correct it to http://www.salon.com/2012/09/15/stop_calling_student_loans_financial_aid

    1. Ah, someone noticed...

      This time I did that on purpose. For reasons totally inexplicable to me, for weeks I have not been able to access the second pages of Salon articles by clicking on the "continue reading" link at the bottom of first pages, and the only way I've been able to read through articles is by clicking on the "print" link and then cancelling the print.

      I'm curious as to whether others have encountered the same phenomenon at Salon, or whether it's a glitch in my security/Java/cookies/whatever.

  3. I wonder if people feel justified calling it financial aid because the loan is one that would not be approved without further incentive or guarantee from some outside source.

    There is some value in what the government is giving the student in this case, the backing that makes it possible for a bank to give the loan.

    I don't think I like the argument, but I can see how someone would convince themselves that this justifies the label.

  4. I did wonder about this "financial aid" myself when I attended post-secondary. As crs noted, the expectation being that employment begins once the education is complete. Which is ridiculous in this economy; plus universities don't always produce labour-ready graduates.

    From Wikipedia (http://en.wikipedia.org/wiki/Loan) under Subsidized; "A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education."

    Perhaps the trick is too start post secondary education and never stop to make the loan a true aid to students? (tongue-in-cheek)

  5. When I was in graduate school, I got a scholarship from the state of Texas one year for $300 and got loans from them for $2,100. That combination paid for my tuition for four years (it was a long time ago, obviously) and I paid my room/board/books etc with a summer job.

    The loans I got were at 3%, which was below "market rates" as I recall, and the repayment was deferred until I completed training and had a paying job, which was several more years - so I did benefit from "aid" in those two ways. But I don't think it's the same for students nowadays.

  6. Aren't loans that the government promises to make good (if the student defaults) with the full faith and credit of the USA by definition below market rates available to any mortal. Essentially Uncle Sam cosigns on the loan. Sure the vast majority of his nieces and nephews are going to repay, but he is still on the hook for the full amount if they default.

  7. If either the rate or the term are subsidized by the gov't, that portion is aid, pure and simple.

  8. I am paying off my student loan here in the UK - just got my statement for the last financial year. Yes it did take them that long to send it.
    Apparently they are adding interest at a third of the rate at which they are claiming repayments, so for every £3 I repay them, they add £1 to my outstanding balance. And the interest rate is increasing year on year.


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