I'm 25 years old, I have a BA from a liberal arts College, and I owe more than $55,000 in student debt. I feel like I'm already a slave to this country, even though I've only lived here for a few years. I signed my life away at the age of 17, when all I ever wanted was to go to school and learn.
But here's the proposal:
For every $10,000 owed in student loans, a person should perform 6 months of community service. The community service will benefit the economy as a whole. New jobs will be created, and the person will gain EXPERIENCE in the field in which they choose to volunteer. The logistics will need to be worked out, of course, and there will be the 'fairness' questions as well. Well, what about the people who paid off their student loans? How about the people who went through school with 100% scholarships? And what about the parents who saved for decades to put their children through College? There should be an incentive for them as well. Nothing in life is fair, but bailing out CitiGroup and Merryl Lynch is DEFINITELY not fair. If a person borrowed money to attend College or University in the US, but has in the meantime moved to another country, that person can perform volunteer work for a US based company abroad. It CAN be done. This cannot be impossible.
i had wondered if instead of a "complete clean slate" perhaps something could be done with the private loans to make them federal loans which qualify for IBR and PSLF type programs. I mean heck the gov't bought GM....why cant they buy our private loans and make them federally backed to become eligible for the gov't programs they have recently initiated. along with a more reasonable apr.
I am still for an all out forgiveness but I will take anything to lessen the burdon on my family.
You really know your stuff... Keep up the good work!
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Obviously, the system needs to be overhauled, but it seems to me that some immediate changes could go into effect that would at least START the process and alleviate a little (not enough, but some) of the awful strain on everyone stuck with these terrible student loans:
1. Interest rate caps/reductions/regulations for private lenders - interest rates are a reflection of credit risk. The higher the likelihood that the loan will not be paid, the higher the interest rate. Private loans, however, cannot be discharged in bankruptcy with very rare exception, so if you default on loans your private student lender can garnish wages and you have very little means to escape payment. By comparison, credit cards are relatively easily dischargeable in bankruptcy. So, tell me again why so many private loans are sitting at the same 12-20% interest rates that many credit cards are at? Clearly, the interest rates charged by student loan lenders are not reflective of actual risk, otherwise they would be far lower, somewhere between the 12-20% credit card rates (fully unsecured and fully dischargeable - about as high risk as it gets) and the 2-7% federal rates. Strict regulation needs to govern private interest rates.
2. Remove the provisions in the Internal Revenue Code prohibiting deductions for student loan interest paid. If you are fortunate to make more than 75,000 per year in gross income, you cannot deduct a dime. What you can deduct begins to be "phased out" well before 75,000. So if your parents still claim you as a dependant you're probably screwed to some degree, or say you are one of the thousands upon thousands of law school or med school graduates leaving school with 150-300k in loans and you land a 75,000 a year job (not unlikely for the top 25% of law school graduates and a number of new doctors who have finished residency), you can't deduct the more than 12,000-20,000 in interest payments you make a year from your income. You're paying taxes to the federal government on all of that, because the assumption is if you make 75,000 you can easily and comfortably carry the debt burden. Almost no one can carry a 1500-3000 monthly loan payment and have any semblance of a normal life. Incidentally, removing this cap would probably help encourage more doctors to enter into less-specialty (and lower-paying) practices such as family medicine since it helps alleviate the med-school debt burden. Two birds, one stone.
For those without much tax liability to reduce, there should be an additional dollar-for-dollar, fully refundable tax credit for student loan payments, INCLUDING principal payments, not subject to garnishment by a student loan lender.
3. Mandating a 20 year repayment term on private loans. Part of the reason monthly payments are so high is because of the abbreviated, fixed and ultimately relatively inflexible 10 year repayment term. a 60,000 private loan debt at a 12% interest rate generates somewhere around 7200 in interest in the first year alone. Someone smarter than me can run the amortization on it, but monthly payments on that one for ten years will just be crushing. Stretching it out will result in more payment over time, but would have to reduce the monthly payment by a good chunk.
4. Put in place strict regulations with respect to how lenders are allowed to compound and credit interest. Some lenders compound interest daily, some monthly, but in the end if your interest charges are not payed as accrued lenders often roll the interest into the principal balance at a set period of time, such that next time they compute interest the balance on which that interest amount is calculated is higher. Lenders are not exactly transparent about how they calculate or credit interest or payments.
5. Regulate a minimum percentage allocation of payments to principal only. It doesn't help you one lick if you're doing nothing but paying 70-90%% of your minimum payment to interest only every month.
6. Actually enforce the anti-harassment laws preventing lenders from calling you at work, calling you repeatedly, and just generally being a jerk about collecting on payments. I would even propose that the penalty for lenders found violating these standards is, rather than a fine per se, a "forfeiture" (i.e., forgiveness) of some specified chunk of the debt they hold, pro-rata, for all borrowers.
Just some thoughts. So much more can be done, and so much more would have to be done, but it doesn't seem like any of the above would be too tough, terrible, or otherwise unmanageable. Lots of times it's just building on what is already there.... Plus, these would be long-term changes or reforms to the system such that regardless of the outcome of the "forgiveness" push, future borrowers are not sunk into the same pit we are.
but...I have no faith in our system. Writing, talking, sitting on door steps do not seem to help. I think it will take years to make these changes, and when money and profit is involved...I wonder if any one cares "out there in government land" to help to make these changes.
As far as all of us gathering together, we work hard, and it is even harder to be more involved...is not that what they want us to be like, to busy to be a squeaky wheel?
Great thoughts! One day....
I’m impressed, you know what you’re talking about
Jerom,
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You've obviously given this a lot of thought. Obviously, the ultimate goal is full and total loan forgiveness across-the-board. These, however, are certainly great ideas for a more incremental approach to reform.
Funny you mentioned that; I happened upon this article earlier today: http://www.tradingmarkets.com/.site/news/Stock%20News/2504633/
It might have already been addressed by the board, but it's newsworthy to me!
Great post! Thanks for the information
Berlin,
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i dont like how its worded that students "who didnt take full advantage of eleigible federal loans" can swap that amount into a federal loan from a private. what about those who used the full federal amount offered and still had to turn to private loans? thats what i dont get....i took out what i was allowed and still came up short. if i could turn all my private into federal...then we could be getting somewhere, at least for me....especially with PSLF available to me in 8 more years.
i helped three college freshman with their fafsa and award information this year. all three "had" to take out "private loans" according to their award letter. even with their grants, scholarships, & federal loans there was still a remaining balance to be paid by the student (and what student today has 2-4k to drop per year) or get a private loan. students are set-up right from the first day to be stuck with private and federal loans.
