“Outstanding student-loan debt, right now the number has already surpassed credit-card debt and is expected to cross the $1-trillion mark for the first time this year” reported Mark Kantrowitz, the publisher of FinAid, in the Chronicle of Higher Education.
Solution
President Obama has proposed a student loan repayment plan that will decrease the interest rate on current direct and bank-based loans by half a percentage point. He is also allowing students to consolidate their direct and bank-based loans between January and June 2012. He also plans to accelerate a reduction in maximum percentage on income-based loans from the current standing at 15% to 10%. This was initially scheduled to take effect in 2014, however President Obama wishes it to begin in the 2012 fiscal year. (Field, 2011)
Another solution that is rather popular on the Chronicle opinion section by Kevin Carey is a repayment plan structured like the current income-contingent plan in Britain and Australia. According to Carey, in this system payments are automatically deducted from their income toward their loan payments. If someone makes more money, then more is taken out of their checks and their loan will be paid off quicker. If an individual falls below the poverty line all repayments will be suspended, and if they remain under the poverty line for over 20 years, then their loans will be forgiven (Carey, 2011). There is no defaulting because the government would get their money directly (Carey, 2011). This option is now possible because the government took over the loan system in 2010 from the private-sector (Field, 2011).
Some activists are calling for wholesale full student-loan forgiveness, however I do not see this happening anytime soon.
Resources
Carey, K. (2011, October 23). The U.S. should adopt income-based loans now [Web log post]. Retrieved from http://chronicle.com/article/The-US-Should-Adopt/129504/
Field, K. (2011). Obama’s student-loan plan scores political points but offers limited relief. The Chronicle of Higher Education. Retrieved from http://chronicle.com/article/Obama-Takes-Steps-to-Help/129533/
Selingo, J. (2011). How much student-loan debt is too much? The Chronicle of Higher Education. Retrieved from http://chronicle.com/blogs/next/2011/10/26/how-much-student-loan-debt-is-too-much/
