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Last week our Miami bankruptcy law blog discussed how Florida State College at Jacksonville agreed to set their own limits regarding how much some students can take out in federal loans. Today we will discuss why the school has chosen to pass this recommendation and how others argue that this decision could create a worse financial situation for some students by forcing them to take out more debt.

FSCJ claims that the decision to set a ceiling for some students’ debt is to prevent more students from graduating with “massive debt loads.” The college’s president told the school’s board of trustees, who voted on the recommendation, that the amount of student loans taken out by FSCJ students has doubled since 2007.

A spokeswoman for the National Association of Student Financial Aid Administrators commented that schools may be discouraging students from taking out federal debt because of the increase in student-loan default rates. Lowering the maximum a student can take out loans may help lower the amount of loans that students default on.

Although the school may be trying to help students by encouraging them to only take out what is necessary to cover tuition, more students could be forced to use credit cards or other unsecured loans in order to fund the rest of their college education. But credit card debt and unsecured debt will only damage a student’s financial situation even more.

Interest rates are higher and some students would have to start paying their loans off before they even graduate, creating even more of a financial strain on the student. Graduating with debt at a higher interest rate will also make it more difficult for students to pay off their loans and become debt-free.

Source

The Florida Times-Union: “FSCJ to set ceiling for some students’ debt,” Kate Howard, 9 May 2011

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