Blowing The Bubble On Student Loan Debt Crisis

Following years of scrutiny directed primarily at for-profit, post-secondary institutions, the ever-expanding student loan debt crisis is now bringing all U.S. higher education into its growing bubble.

As widely reported, the amount of student loans awarded last year crossed $100 billion for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than credit cards.

First enacted by Congress in 1965, The Higher Education Authorization Act (the Act) was last reauthorized by Congress in 2008 as the Higher Education Opportunity Act. It includes the programs under Title IV that are the primary source of federal student financial aid. The Secretary of the United States Department of Education (USDOE) is charged with administering regulations on behalf of the Congressional reauthorizations of the Act.

Lower Interest Rates and Income Based Repayment
In advance of the next reauthorization, the current one expires at the end of this year, Congress is mulling both the lowering of interest rates on student loans, set to double to 6.8% on July 1, as well as implementing an automatic income-based repayment program.

With past due student loan payments also at an all-time high, it is clear some federal action is warranted. As a post-secondary education veteran, I have witnessed first-hand unintended disparities between student loan awards and job income prospects. Members of Congress and student loan reformers advocating the automatic income-based repayment plan must certainly be aware of the existing voluntary program. It allows eligible students to pay back loans at 15% of discretionary income.

Conceivably, opposing opinions may ask why not simply remind students of the automatic plan that already exists. It appears revamping the student loan program by forcing all borrowers into a structured income-based repayment, may not go far enough. A delinquent payer's challenge may persist if the student has borrowed an amount that does not compliment the income potential of their chosen career. Alternatively, proponents may scrutinize the front end of the student financing process and recommend enhanced methods to control the amount of initial loan awards.

For example, my general rule of thumb, cultivated based on observations as a former campus administrator, is limit total student tuition commitment so not to exceed average potential first year income of the chosen field of study. This assumes the student is relying primarily on their career for income as opposed to an affluent household or trust fund. Granted, privileged students will survive this crisis [read SA contributor Robert Kuttner's relevant article: Higher Education: The Coming Shakeout.]

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