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.)

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.