College, at a high price
The government announced the creation of an American-style, government-backed student loan program as part of its campaign to reach out and provide relief for those suffering from economic difficulties.
Under the program, the government will help students finance college and will allow them to defer payments until they land jobs.
Existing student lending programs not only carry high interest rates, but they also must be fully repaid immediately after graduation ? regardless of whether the graduate finds a job.
Tied down financially in a tight job market, nearly 14,000 graduates have been unable to repay their loans so far this year.
The government is betting that the new loan program will free students and their parents from financial stress throughout college.
If it’s such a good idea, though, why did the government wait until now to try it? The government has considered the idea before, but backed away from it, as subsidizing translates to higher fiscal spending.
President Lee Myung-bak’s strong belief in educational equality prompted the latest foray into government-backed student financing.
Of course, we completely agree that investing in education is the best welfare policy. But we advise the government to scrutinize and fully consider the downside of these types of student loan programs, which have proved to be a costly burden for many advanced countries amid a credit crunch and an economic slowdown.
The student loan business is a volatile one that can jeopardize the country’s fiscal health.
Assuming 1 million students - about half of the total enrolled in colleges in Korea - use the program, the government will have to shell out 1.5 trillion won ($1.2 billion) a year. The government believes the cost will be less of a burden and will be more manageable once the first round of students starts repayment.
But the outcome is a bit foggy considering the worsening condition of the job market for graduates. The United States has been grappling with a serious rise in defaults on student loans, as graduates are finding it difficult to find jobs right now.
Moreover, graduates will be starting their professional lives with a huge debt load on their shoulders. Even if they repay the loans over a long period, they could find themselves falling deeper into the debt trap as they progress on life’s path. U.S. President Barack Obama confessed that it took him and his wife 13 years to free themselves from student loans.
So before applying for the program, students should remember a rule of thumb: There is no such thing as a free lunch. Regardless of the program, you will end up having to pay it all back.