Last year, President Obama asked for loan forgiveness [YouTube] after 20 years of income-based repayment (or 10 years of income-based repayment for borrowers in public service):
And let’s tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.
He got what he asked for with the Health Care and Education Reconciliation Act of 2010, which included the Student Aid and Fiscal Responsibility Act (SAFRA) as a rider. We shouldn’t expect anything on student loans this year, but here’s what we should ask for:
- Loan forgiveness after 10 years of income-based repayment, regardless of career. Former Secretary of Labor Robert Reich endorses this plan. No school should be allowed to charge more than 10% of 10 years of a graduate’s future salary. Some schools won’t be able to justify their existences based on these numbers. And rightly so. Students should also be able to count at least part of a deferment toward the 10-year period. It’s unfair to punish students for a bad economy.
- Interest rate reductions for PLUS and GradPLUS loans. In the boom times, an 8.5% fixed interest could have turned out to be a good deal. Interest rates on variable-rate loans could have gone higher or lower, and PLUS and GradPLUS borrowers might have benefited from the stability of fixed rates. But now with the government aiming to keep interest rates at historic lows, PLUS and GradPLUS loans are a ripoff. Even at the current rate of 7.9%, these loans are far too high for the economic times. These rates should be reduced to no more than 5%.
- Interest subsidies for unemployed students. This economy has hit new graduates particularly hard. Imagine this: You graduate from college or law school and then . . . you have no job. And even though you search and search you can’t find a job. All the while, student loan interest is piling up. And it’s not that you don’t want to pay your loans, it’s that you can’t. Nobody will hire you for the position you seek, and even positions that you seek that are beneath you–they won’t hire you. You deserve a break, and the government should extend the subsidies from subsidized Stafford loans across the board when it comes to unemployment-based deferments.
These proposals would go a long way to help students who have been struggling with student debt.
Unfortunately, I’m confident that none of these proposals will be in the President’s State of the Union address. Prove me wrong, President Obama.
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