So student debt has, as we know it, exceeded $1 trillion. While students are left to deal with college debt on their own, what exactly can the big boys of the game – the federal government, state governments and the educational institutions – do about this problem?
Reform the Bankruptcy Laws – aka give students the option for a “fresh start” by declaring bankruptcy. Sallie Mae already supports bankruptcy reforms as long as the borrower tried in good faith to repay loans over five or seven years.
Still, strict controls must be put in place to prevent people from abusing bankruptcy reforms to get a free education at the expense of lenders.
Expand loan forgiveness– aka grads facing extreme financial situations could be eligible for loan forgiveness. This is currently set at 25 years of regular payments and 10 years for those in public-service. Next year’s grads will be eligible after 20 years of paying off income-based increments.
Exactly what it will take to be eligible for loan forgiveness must be drafted if loan forgiveness is to be expanded.
More Pell grants – aka reduce dependence on student loans altogether by substituting Pell grants instead. I am all in favor of more Pell awards, as this is one of the most profitable investments the American government can make on its citizens.
The only problem is meeting the current financial needs of Pell grants, which has become a pain considering how much money is sucked out by other ‘more urgent’ programs.
Reward colleges for keeping tuition low – aka give more aid to schools that can cut the cost of education while still being able to perform according to a certain set of standards. “If you can’t stop tuition from going up, the funding you get from taxpayers will go down,” says Obama on the issue.
The benefits won’t be apparent in the first few years, but the changes could be strongly felt in the long run – assuming colleges don’t muck up on the technicalities and provide sub-par education in exchange for lower tuitions.
Teach students to be responsible borrowers – aka educate students about the ups and downs of borrowing money. This is, in my opinion, the first thing we need to do to prevent debt from snowballing.
Teaching kids to resist the urgings of financial ‘advisors’ to take out another $10,000 for unnecessary fees is a must, and isn’t really as earth-shatteringly difficult to implement as the other previously mentioned macro-solutions to student debt.
Editor’s Note: A version of this article appeared May 21, 2012, on USA Today, with the headline: Five proposals to solve $1 trillion college loan crisis.