The students who take higher educational debts are expecting that their initial salaries would be higher
because the interest that they have to pay could not be paid at lower salaries, whereas students who
take limited educational loans are more likely to pay lower amount of interest after their undergrad
education, when a candidate will ask for a higher initial salary then they have to compromise on their
future increase in salaries and vice versa.
Higher education act of 1965 developed the GSL program which later turned into SLP program, their
main function was to facilitate indigent students in accomplishing their higher studies, the financial aid
program was shifted to loan grant program, and these programs were based on lower interest loans. In
the past years the loan aid was increased by 125% whereas grant aid was increased by 55%.
As the trend of loans was increased, there was large increase in the grant of loans which was affecting
the students in pursuing their graduate studies, to counter this issue the loans granted during graduate
school education was interest free, whereas the effect of higher educational debts on the future
schooling and employment was adverse.
After finishing their schooling the students are given 6-9 months grace period after which they have to
submit monthly repayments of their loan, in some cases those former students who took higher debts
are now liquidity constrained and when these students are offered jobs they ask for higher initial
incomes from their employers, so that they could payback the loans which they took during their
studies, and if they are getting higher salaries then obviously they are sacrificing their future growth.
Firstly, it is concluded that the current financial aid program is ineffective because the students who
financed their studies through aid programs are unable to invest in their career development and are
also unable to pursue their desired career. Secondly, the current structure of balloon payments is also
ineffective because it causes the liquidity constraint to the debtor after the completion of their studies.