5 ways to tackle the student debt crisis

(MoneyWatch) Reacting to the national concern about the student debt crisis, the National Association of Student Financial Aid Administrators has released a report that recommends numerous ways to fix the system.

While the NASFAA report notes that the average student borrower leaves college with a manageable $26,500 in debt, borrowing has increased and families are shouldering a greater portion of college costs. (It should be noted that the $26,500 figure doesn't include what parents borrow.)

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Here are five of the organization's most notable recommendations:

1. Make the income-based repayment program automatic.

For students who are eligible, the federal government should make the Income-Based Repayment program automatic. Under this program borrowers would pay no more than 5 percent of their discretionary income and automatically receive loan forgiveness after 25 years.

Steering eligible individuals into this valuable IBR program should significantly reduce student loan defaults. It would also provide relief to millions of borrowers who aren't aware of the program. While there are 37 million borrowers with outstanding loans, only 1.1 million are enrolled in this program.

2. Make student loan interest rates stable and predictable.

The federal government should let loan interest rates vary from year to year that are based on the cost to the government to lend and service the loans. The rate should be variable based on the year the student takes out the loan and then fixed at that rate for the life of the loan. The current system has Congress setting rates years in advance without considering the economic conditions at the time of borrowing.

3. Allow colleges to set loan limits for some borrowers.

Schools currently cannot stop a student from overborrowing. When some schools have attempted to require additional counseling or documentation before approving a student's loans, the federal government has not allowed it. Abuses can include students borrowing for years for an associates degree until they maxed out the amount intended for a bachelors degree.

4. Reexamine parent loan eligibility.

Parents can currently borrow through the federal Parent PLUS Loan program even if they have no ability to repay the debt. If parents have a good credit history they can borrow up to the cost of a college (minus financial aid) even if they don't have the financial wherewithal to repay the loans. The federal government, as the lender, should evaluate parental ability to repay using a debt-to-income ratio.

5. Create a universal loan portal for students.

From this federal portal, students could easily access information about all their loans -- federal, private and institutional. Having loans all in one place would be extremely valuable to borrowers.

[studentloanjustice]

These recommendations are almost completely bogus and ridiculous. The NASAA is a corrupted duplicitous joke of an organization made up of the Financial Aid administrators whose job it has been for years to at the very least warn students about what they're getting into with student loans- a job that the completely and utterly chose not to do and instead spend their time galavantine with the lenders who have plied them with all manner of niceties.

I should have guessed that they would spew out self-serving recommendations that do nothing to control college prices, nothing to protect students from the predatory underpinnings of the loans- as MA224 describes- that have enabled unchecked inflation and a cavalcade of systemic failings...

The big question is: When are the college presidents going to step up, do what's right, and acknowledge this problem as it is instead of completely ignoring, downplaying, or otherwise evading it? These are supposedly wise, responsible people with strong community roles to fulfill, yet they would allow their students to be financially skewered by a predatory debt instrument the likes of which have never existed before in this country?

I went to school in South Central LA during the LA Riots. While the entire neighborhood was burned to the ground, the community left the school almost totally unscathed.

[ma2244]

Interesting that no where in these recommendations do they mention returning the basic free market, capitalistic mechanisms of consumer protection. Fair debt collection practices, truth in lending, usury laws, right to refinance/consolidate, bankruptcy protections and many more have all been curiously stripped from this debt instrument. Returning them would quickly resolve the crisis, anything less will likely fail just as we have been seeing. There is something fundamentally wrong with the fact that gambling debts can be discharged in bankruptcy but student loans cannot be. I'm sure future historians will get a lot of mileage out of jokes about the absurdity there. The irony is unbearable! Thats all there is too it.

[studentloanjustice]

Agreed. What is more ironic is that the NASFAA members are the people charged with guiding students through the financial aid process. They have completely failed to warn wtudents about even the most shocking differences between student loans and all other loans (one of which you mention above).