Education Costs
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By Karen Weise

Whether students leave college with a degree or without one, they face a dizzying array of challenges -- where to live, how to get a job, and increasingly, how to repay their loans. Five organizations, including the National Association of Student Financial Aid Administrators and Young Invincibles, have a proposal that aims to answer that last question with a streamlined and automated alternative to the complex system of repaying loans.

As of now, and with few exceptions, borrowers must start paying back their loans six months after they leave school and repay according to a standard 10-year schedule. If their monthly payment is too high, things get complicated quickly. The government has six other repayment options. Two are pretty straightforward: Borrowers can reduce monthly costs either by extending payments over 25 years or by keeping the 10-year period but starting with smaller monthly payments that gradually increase over time.

Four more plans tie payment schedules to how much the borrower earns, each with different thresholds, eligibility, and terms. Those plans are far from perfect,
but advocates for student borrowers generally like them because they provide graduates with flexibility and typically forgive the remainder of the debt after 10 to 25 years. For a long time, the Department of Education struggled to get students to use the plans, though recently borrowers are signing up in greater numbers.

The proposal rolls up a number of suggested improvements into one comprehensive attempt to fix the two biggest problems: the complexity of having so many options, and the relatively low participation by borrowers. Taking a page from the successful effort to encourage automatic enrollment in retirement savings plans, the groups advocate what they call "auto-IBR," short for income-based repayment. The plan would change the default payment option from the standard 10-year term to a repayment schedule that's tied to a percentage of the borrower's income and eventually forgives the remaining balance after a certain period of time. It also suggests the payments be automatically deducted from a borrower's paycheck, similar to the way Social Security is collected, an idea championed last year by Rep. Tom Petri, a Republican from Wisconsin.

The plan recommends various ways to make this work. One option is to require borrowers to pay 18 percent of everything they earn above $25,000 a year; another sets the payment level at 10 percent of income above $10,000 a year. The proposal also suggests longer terms for borrowers who take out a lot of debt, at least $50,000 or $60,000 in different scenarios. That's to minimize giving a disproportionate benefit to students who borrow a lot -- looking at you, law students! -- and could see huge amounts forgiven. While this all may sound a bit complicated, it's far simpler than the current situation.

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jdykbpl45

Load 16 trillion of national debt .... another day older and deeper in debt. Obama don't call me because I can't go. I owe my soul to your democrat store!

March 24 2014 at 3:15 PM Report abuse rate up rate down Reply
jj2301

How about taking the taxpayer out of the equation altogether? Have the Universities underwrite any student loans they grant with their own capital or with VC they raise. This puts the risk on the primary beneficiary of such lending and it does away with Universities' tendency to press for more liberalized lending at the expense of a faceless public. When Universities are risking their own capital, they're more likely to:

1) Lend to prospects who are more employable (e.g.: engineering/sciences versus liberal arts)
2) Charge an interest rate commensurate with risk, to minimize portfolio loss.
3) Seek to improve their hiring numbers, by selecting better candidates, instead of practicing social engineering through admissions.

Anything other than having Universities underwrite their own student lending portfolios is Corporate Welfare.

March 24 2014 at 2:14 PM Report abuse +2 rate up rate down Reply
zanshin2

For those of us who participated in and "paid off" our education debts under the traditional 10 year architecture, it is baffling to me that the "powers that be" would not seek to alter the paradigm limiting the amount of borrowing based upon degree and anticipated return on that investment. This would have a converse effect on the rapidly escalating "cost of education." There is no doubt that educational institutions costs have inflated faster than surrounding markets (ex., healthcare). To take the "investment" out of a student's education is simply not logical.

March 24 2014 at 10:39 AM Report abuse +2 rate up rate down Reply
1 reply to zanshin2's comment
rostra

In which case, we'd be limiting intellectual growth, and would lose more ground to countries with free education. Reality, the cost has hit a point, where the poor and middle class are struggling, with limited free Federal money. According to the WSJ, last Friday, 78% of free Federfal money goes to families in the top 5% percentile, the folks who can easily pay their own way.

March 24 2014 at 10:52 AM Report abuse -2 rate up rate down Reply
1 reply to rostra's comment
jj2301

@dopey: He means "free to me".

March 24 2014 at 2:02 PM Report abuse -2 rate up rate down
teapartyisdying.uall

The Obama administration has done more to help the college students than the TPGOP has.

March 24 2014 at 9:32 AM Report abuse -2 rate up rate down Reply
dollibug

It is odd that the government expects a person to pay back the money they borrowed.....it does not matter to them IF you have a job or can find one....just pay the money back, no matter what.

March 24 2014 at 9:11 AM Report abuse -1 rate up rate down Reply
1 reply to dollibug's comment
jj2301

Well, it *is* a loan. Not a loan from mommy and daddy, where the terms are 0% interest, payments optional.

March 24 2014 at 2:04 PM Report abuse +1 rate up rate down Reply