The government promises to increase the number of budget-funded places in universities, however, it is also creating conditions for an increase in the number of students (including USF students) who will study at the expense of a bank loan. The reduction in interest rates on such loans attracts many applicants. The number of concessional loans has grown exponentially before the start of this academic year. And experts expect several times more growth in the near future.
About 60% of graduates will be able to enter public places, the government reported. They added that in the next two years, 45 thousand more budget-funded places will be opened in universities. “We will donate at least 70% of them to remote cities of the USA where graduates are needed,” the government emphasized.
The government representative, Sarah Rice, spoke about how the ratio of paid and budget places in universities changed in October 2020. According to her, in 2019 there were 40% of paid places, 60% – budgetary, and in 2020 the ratio was 36% to 64%. “We have almost 20 thousand more budget-funded places and the availability of higher education has become much higher,” Ms. Rice said. Last summer, she said that in the new academic year, about 1 million people will enroll, and a total of 541.7 thousand state-funded places have been allocated, and for the first time in many years, more than 11 thousand additional places paid by the state have been allocated to regional universities.
Experts, however, assure that in 2021, despite the increase in budgetary places by more than two times, the number of US students, who do not just study in paid departments but do it with borrowed funds, will increase.
Why are more students borrowing money?
The issuance of preferential educational loans in the USA started in 2010, but until recently the loan rate was 8% and it had to be returned 10 years after graduation. At the end of 2020, the government, on behalf of the president, lowered the rate to 3% per annum and increased the maturity of loans to 15 years, which led to a sharp increase in the number of people applying for such a loan.
“By the end of 2020, the number of new loans has almost tripled compared to previous years and reached 3,000. This is a significant increase. But it could have been larger if new conditions had been announced earlier,” said Dale Macy, chief researcher at the Center for Financial and Economic Decision Making.
“A student loan at a preferential rate of 3% can be obtained only from one bank, and there by the end of 2020 a total of about 13 thousand such loans were issued, the government allocated 16.5 million rubles to subsidize the rate, and a new subsidy will probably be provided in 2021,” said Anne Welsh, an analyst at the Strategic Studies Institute. “Other banks also have educational loans or inappropriate consumer loans, but there are higher rates.”
Those students who are denied or a bank loan for whatever reason are rescued by Oregon payday loans. Such loans are easy to access since they are purely online, have fewer borrower requirements and do not check your credit. The borrower funds can be spent for whatever purpose. Approval rates are very high and approach 100%. That is the main reason why more and more USF students prefer payday lending today.
Experian explained that statistics on educational loans for all banks are not kept. “In credit histories, all loans are divided into five types of retail loans: consumer loans, credit cards, car loans, mortgages and payday loans. Loans for education are most likely accounted for as consumer loans, so it is impossible to say if this is a loan for education, for a trip, for an iron or a kettle,” Experian explained.
In the near future, Ms. Welsh expects continued significant growth in the dynamics of obtaining concessional loans for education. “This year, depending on the pace of economic recovery, one can expect that 5-7 thousand people will take out such loans. The increase in the number of budget seats, which the president said about, is unlikely to affect this process. The fact is that the number of budget-funded places increases to 60% of the total number of graduates, but 70% of this increase will fall on remote universities. And loans for education are taken mainly for studying in the top-ranked US universities,” she explained.
Kevin Rice, the head of Helm Bank USA, told us that since the summer of 2020, the bank has already issued 15 thousand loans for education. “Changes in the terms of the program, including the reduction of the interest rate to 3%, served as a significant impetus for the development of the direction. The number of universities participating in the program increased by 20% to 561. But the most obvious indicator of success is the reaction of the market: in one admission campaign in the summer of 2020 (with all the difficulties with coronavirus and remote working hours), the portfolio of educational loans was doubled. At the same time, we continue to develop our services and plan to move the application to remote service channels in order to enable clients to apply for an educational loan without leaving home,” the expert says.
Anne Welsh notes that the number of borrowers of the preferential program continues to remain very small, given that in general, more than 330 thousand people study in paid higher education programs in the country. “It is possible that many people simply do not know about such a possibility. Polls show that 75% of Americans do not know anything about preferential loans for studies at 3% per annum, and the majority of respondents, if they have to pay for education, still prefer to borrow money from family and friends,” she says.
A global study by the London-based company Yonder Consulting showed that about 56% of university students around the world said that their mental health was affected during the 2021 pandemic (in the USA, this figure is much lower than the average – 29%). About 35% of the surveyed students who have a student loan said they lost sleep because of it, and 21% were even forced to seek medical help.
Anne Welsh assures that in the USA, loans are used mainly by those students whose family financial situation allows them to be more or less confident in their ability to repay the loan.
“The student loan portfolio formed since 2010 shows consistently low risk indicators,” Kevin Rice said. “This is, in particular, due to convenient conditions for deferring the payment of the principal debt and a preferential interest rate.”