The observatories of finance and the French student landscape are formal: more and more master’s students are using student loans. Why did we get there? Student credit, long the prerogative of American students, is increasingly imported into France. Let us try to understand why and what are the mechanics which seem to take shape behind all this. Are you ready ? We tell you everything!
What is a student loan?
To properly analyze our subject, we must understand what we are talking about here. The student loan or student loan is a consumer loan that was contracted for the sole purpose of financing studies. This may be tuition fees, but also geographic travel, and why not living expenses such as rent or shopping. It must be said that the majority of French students are today either dependent on parents, or dependent on a student loan. It is therefore a major challenge to understand the mechanics and motivations that push students to go into debt with a bank to finance their studies.
An increasing cost of studies for the private sector!
If a majority of French people pursue studies in a public and institutional framework such as the university, more and more students go through private schools to acquire diplomas. It can be business diplomas, engineering diplomas or journalism diplomas, the fact remains that for certain fields, students are forced to use private schools, recognized by the State and especially by the profession.
The average cost of a year of study in a private school is 8000 dollars per year. However, this exorbitant cost for some students is increasing year by year. Thus, where a year in business school cost around 5,000 dollars a year in 2005, it reached an average of 8,500 dollars in 2017. The fault of an ever-increasing student demand and a scarcity of private diplomas recognized by the ‘State. In fact, schools bargain at private prices for private diplomas recognized by the State. It even becomes a commercial argument since some recruiters only judge by that!
Take out a student loan to secure a professional future!
One of the big prejudices that students have about public studies is the following: they do not ensure a professional future. In fact, public studies, beyond the license, would not grant enough time slots dedicated to decisive professional internships when students enter the job market.
Conversely, private studies, thanks to close partnerships with professional players, would allow students to obtain more internships and therefore optimize the arrival of young people on the job market.
Taking out a student loan and enrolling in a private school would therefore be the key, on paper, to offering yourself a decent professional future.
Difficulties in reimbursing certain students!
The big concern with student loans is that they commit students to start repaying once they finish their studies. If some manage to win stable and remunerative contracts quickly enough, the fact remains that some do not succeed and find themselves having to repay monthly payments without having the means.
This situation is quite new in France, but it is already the norm in the United States. In fact, there, as many as 44% of Americans take out a loan to study. On these borrowers, the majority will stop repaying at the age of 40. They therefore spend half their professional lives paying off their student loans. Something that is less common in France where the cost of student loans is on average 15,000 dollars. Students therefore repay their student credit on average within 3 to 5 years after the end of their studies.
An economic crisis because of a bubble in student loans?
If students seem to be taking out student loans for legitimate reasons, the fact remains that observers are worried about this harmful trend for the economy and the banking system. Most student loans are in the list of consumer loans. However, more and more young people from Western countries are starting out in life with student loans on their backs. Some find it difficult to repay and therefore spread the monthly payments over several decades. Attached by a credit to their bank, some people dare not take out other loans for fear of not being able to repay them. This dynamic tends to curb the economy and wages are reduced every year, which slows down the repayment capacity of indebted students. Faced with such a challenge, some economists fear that the next economic crisis will be caused by a bubble in student loans. Banks that have issued too many student loans to their customers have lost sight of the repayment capacity as the main variable in the allocation of student loans. We find ourselves in a configuration similar to the subprime credit crisis and economists are therefore very worried about the consequences of a generalization of student loans in our stagnant economy.