Matt Taibbi has an article in the latest issue of Rolling Stone called Forgiving Student Debt Alone Won’t Fix the Crisis. It’s a good argument that doesn’t get enough attention. Every semester that clicks by is another semester where thousands of students are issued loans to cover tuition, books, materials, and living expenses at colleges both expensive and affordable.
I agree with Taibbi and so many others that total or partial student loan forgiveness is a good idea. Where Taibbi’s article doesn’t go, and to his point politicians don’t either, is into what could be done to provide long term solutions. Here’s a short list of things that I, a lay-person who has learned a lot about this stuff, can think of that might help:
- Cut interest rates. Interest rates are set by Congress. The lowest interest rate for undergraduate student loans is about the same as a mortgage right now, but the interest rates for some loans are much higher. If Congress can set interest rates they can also cap them at some arbitrary rate. They could even set rates to 0.0% for some loans!
- Increase funding for non-loan aid mechanisms. I worked through college including a work study job that paid minimum wage and only allowed 20 hours per week. That was barely enough to cover meals in the cafeteria let alone cover room and board or any appreciable amount of tuition. Congress could dramatically expand this program if they wanted to, maybe ED could do it without them, I’m not a lawyer so I’m not sure.
- Stop collecting interest during deferrals and forbearance. It’s a really nice thing that borrowers can suspend payments when they can’t make them but your servicer can also put your account in forbearance without telling you and your automatic payment won’t go out and the interest will pile up.
- Limit balance growth to a certain percentage of the principle. If your on a long enough deferment, you can end up with more balance than you started with. This happened to me. I overpaid my loans while we were teaching in Korea, then went on deferment while in Hungary and couldn’t afford them. The result? My loan balance was just as high at the end of two years as it was when I left school.
- Set automatic cancelation for all borrowers regardless of payment plan or job and incentivize on time payments by moving that date up. If you paid your loans on time for 15 years, your balance is forgiven, no matter what payment plan, or how many deferments or forbearance. If you missed 1 to 5 payments in that 15 years, it’s 20 years. Something like that.
- Simplify the PSLF and other existing programs. The Public Service Loan Forgiveness Program is way too complicated. It’s not “10 years” as advertised, it’s 120 on time payments on a qualifying payment plan. If you’re off one of those plans for a month, but still make a payment, it won’t count toward PSLF.
- Limit the total amount the can be borrowed.
- Give students amortization schedules and other tools to simulate the effects of switching jobs or payment plans. It’s very hard to get a straight answer about when the 20 year loan forgiveness date hits, and what you have to do to qualify for it.
- Allow students to chose their own loan servicer.
- Set up federal refinancing programs to allow borrowers in good standing an opportunity to cut interest rates in the future. There’s currently no way to refinance a loan short of taking it private.
- Allow student loans to be discharged in bankruptcy.
- Increase the amount of student loan interest payments that can be written off on income taxes. Currently you can write off 100% of interest paid on a mortgage but for student loans, there’s a limit of $2,500. I don’t know for sure, but I’m willing to guess most borrowers pay more than that in interest during the first years of repayment when their earnings are lower and their principal is higher. Since the interest payment is going to the government, that’s ostensibly a double tax on low income earners. This one feels like a no-brainer to me! I bet we could even get Ted “HULK SMASH TAXES” Cruz on board with this one.
Again, these are just twelve ideas I could come up with by thinking about this for like half an hour. I’m sure they’re expensive but I’m also certain these would work toward changing the federal loan program away from being a predatory regime rigged against the borrower.
Edit: I missed 11 and 12 in the original post.