According to the findings of a survey, about a third of all students have to depend on payday loans, credit cards, and overdrafts to fund their university education. Many of them were depending solely on cash loans. The Future Finance research discovered that as many as 31 percent of the students have to depend on these sources for covering their university expenses. The study was carried out among 1,000 full-time students.
63 Percent Students Taking Payday Loans Understand Financing Matters
Researchers also discovered, after talking to these students, that more than a quarter did not consider a payday loan to be a kind of debt, because of its short-term nature, and the small amount borrowed. Interestingly, 63 percent of the students who were questioned said they have good knowledge of finance, while the others conceded that their financial understanding could improve.
For instance, many of these students did not know what the Annual Percentage Rate or APR stood for. However, these students were a minority. Most of the researched students had a decent understanding of finance. Payday loan critics have often said that one reason why there is such a huge demand for these loans is because a big section of the population does not understand finance and how to manage money efficiently. That is clearly not the case, as evident with the findings of this research.
A natural question to ask is – So, why are these students still taking payday loans? They are doing so for two reasons. To cover their university expenses, and also because these payday loans are not causing any burden to them!
Payday Lenders Agree
Payday lending agencies across the United States have been saying just this, and trying to convince the critics for a long time now, even as they are convinced about the need to pass stricter legislation. The quick-cash or payday loans are not a problem for a majority of Americans, and that’s why a huge majority of them pay it back in time, every time. It’s only a small fraction of people who default, but that’s the case with every type of loan. So why single out the payday loan businesses?
Even imparting financial education or showing them how to manage money in their daily lives may not be enough. Remember, 63 percent of students who are taking payday loans already have good understanding of finance.
The Parents Need To Be More Pro-Active
The survey faulted parents for not showing positive financial example, at least to the other section of students, who lack the knowledge. University is a critical time for them because this is the first time they have to make financial decisions, and must stand on their own feet financially. This is a big change in their lives.
81 percent of the parents said they are qualified to provide financial educations to the children, and yet, only 39 percent of the students said they are receiving this from their parents. There is thus a gap here. Parents clearly need to do more to better prepare the students for their university days.
Getting a Traditional Loan Is Very Stressful
The report also suggests that most students, and also their parents, find the process of getting a student loan extremely stressful. In fact, they said it was more stressful than the process of applying for college. Three out of four students said they do not know how the loan process works, and many indicated little knowledge of the terminologies. What paperwork would be needed was also unclear to most of them.
Applying for a payday loan, on the other hand, is as easy as 1-2-3. Often, the loan application can be made online, removing the need to visit a traditional lender and stand in long queues. There is little paperwork. There is no checking of credit score. Finally, the loan amount is disbursed quickly, usually within 48 to 72 hours.
Many students are turning to payday loans also because of the convenience factor, and because they understand this better.
No Long-Term Debt is a Good Thing
What happens when a student passes out and gets employed? Obviously the loan amount has to be repaid. The person is just starting off, and so, in most cases the pay would be low. Never mind that, the loan must still be repaid, which means that for a considerable period of time, there would be quite a bit of financial pressure.
A payday loan, on the other hand, is much easier on the pocket and for the future. There is no long-term debt, as these are short-term cash advances. So there is no pressure to repay after clearing the exam and getting the job.
ObamaCare Worse Than Payday Loans
Meanwhile, some observers have pointed out that ObamaCare charges an interest of more than 100 percent when the working classes accesses its own money, unable to find affordable options, and ending up staying uninsured. The payday loan industry’s interest rate in every American state is way less than this. But the Consumer Financial Protection Bureau or CFPB would still target these valid businesses.
The intentions of ObamaCare were noble. It wanted to make coverage accessible and affordable for those with pre-existing conditions and people with low income. But it didn’t work out that way eventually. About 8 million people have been penalized a total that exceeds $3 billion. Politicians have supported ObamaCare, even though it will charge 3 percent pre-tax income from people who earn modest wages.
But when it comes to payday loans where the charge is way less, the lawmakers still want to pass legislation to make it stricter. This doesn’t make any sense.
The Tide Is Changing
But the tide is changing now. Many people are speaking up now from across the country, saying good things about payday lending, and how they help everyone – a student going to university, a housewife trying to meet both the ends, a poor or middle-income worker go to work, and how a parent can use the money to pay his bills or buy urgent medicines.
Sure enough, the US has the most number of billionaires in the world, more than double of China that comes in as second. But there is another side of the country that is not discussed that much and this makes the more common picture.
A lot of people have little savings, with less than perfect credit scores. Many of them don’t even have a bank account. So there is nowhere to turn to if there is a sudden emergency. Payday loans help them carry out car repairs so that they can go to work and earn money, pay up their bills, buy medicines, and for many other valid reasons.
This is why there is such a huge demand for payday loans. People in Alabama took two million payday loans in 2015, with an average of eight loans in the year. It’s much the same in many other places in the United States.