Student Loans-In Need of a Fix or a Change?
Every day we hear more tales of woe from college students who are inundated in debt due to their huge student loans. Paying off student loans is a factor affecting lifestyle choices for many. More recently, the loans have become a larger influence on graduates, impacting decisions about home buying and even marriage.
Some believe that the sudden jump in college tuition is directly related to the government taking over the student loan program and advertising easier options for students to attend college. Is this so? There does seem to be precedence. Look at the sudden, sharp increase in house prices when so many were able to get non-principle loans through government sponsored programs. Or, the drastic rise in prescription drug costs since the implementation of Medicare Part D. There may be something to this argument. Others will point to the severe financial situation of states which forced them to cut college funding.
No matter the cause, what can be done to fix the problem?
Lower interest rates, which may help in the long run, still leave students with loans and long term repayment plans. (Interest rates for undergraduate loans were approved to remain at 3.4% for one more year in the recently passed Highway Bill effectively kicking the can down the road until after the election.)
In 2007, Public Service and Public Service Loan Forgiveness was enacted. This program allows graduates who work in the public service sector full-time for ten years and make qualifying payments during those years to have the rest of their loan forgiven.
A new House bill The Student Loan Forgiveness Act, introduced by Rep. Hansen Clarke (D-MI) offers a unique solution. The Income Based Repayment plan offers: Students pay 10% of their ‘discretionary’ salary for 10 years at which time the remainder of the loan is forgiven. As expected, this bill is wildly popular with college students, especially when so many graduates are competing with experienced unemployed workers resulting in lower pay jobs. In its current form, this bill is retroactive for those who have made qualifying payments; only available for federal loans; and places caps only on future loans.
With many government programs a fairness question causes discord among those who find themselves just outside the benefits of the potential bill. If the bill passes this year students who graduated ten years ago and paid their 10% will find their loans forgiven. Qualified students who graduated over ten years ago will also find their loans forgiven but will have paid a much larger portion of their personal debt. Students who received private loans are not eligible. And students who consolidated their loans may find their repayment plan starts over from the consolidation point.
These forgiveness programs aside, one might ask why the government is responsible for both offering student loans and for offering forgiveness? Wouldn’t it make sense just to offer college at a lesser cost? Some theorize that this is further evidence of the government wanting direct involvement in one’s life choices; including employment and housing options. Some are concerned that the commitment to work ‘for the government’ is part of a hidden socialist agenda; that the more ties one has to the government the more dependent he will be on its benefits.
Fiscal conservatives and those who want smaller government look at these forgiveness programs and ask why taxpayers are again having to foot the bill? Older generations look at today’s young graduates with disbelief. Student loans are not new but were often looked at as a hold on personal growth and something that should be paid back as quickly as possible, even if necessitating working more than one job. Many believe this generation has had high expectations give them; that they should not have to start at a beginning wage for a job. They mistakenly believe they should immediately on graduation be able to afford a new car, a new home and all the good things they grew up with but without having to wait and save as their parents did.
Tuesday, Part 2 of this article will look at some options for the new high school grad: How can a student become qualified for quality employment without wallowing in school debt and how to make common sense decisions.