9 ways to reduce student loan debt

Flickr user 401(K)2012

(MoneyWatch) In my last post, I described the characteristics of students who borrow excessively for college: Today I want to consider a new white paper by consultant and education expert Mark Kantrowitz, the publisher of FastWeb.com and FinAid.org, that focuses on what can be done to shrink the number of students who borrow recklessly. Here are some of his recommendations:

1. College financial aid letters must clearly distinguish between grants (free money) and loans. Many families are confused by aid letters that don't clearly identify what their out-of-pocket cost will be.

2. Financial literacy must be incorporated into the high school curriculum. Financial literacy classes would not only help students avoid getting into trouble with college loans, but would also help throughout their lifetime by giving them practical money skills.

3. Colleges should require new students to participate in a mini-financial aid class during their orientation.

4. Students who are borrowing excessively should be required to undergo additional debt counseling.

5. The National Student Loan Data System, the U.S. Department of Education's central database for federal student aid, should be expanded to include information about private college loans.

6. The federal and state governments must increase their investment in college students who need financial help. When college grants fail to keep pace with increases in college costs, more students graduate with thousands of dollars in additional debt. 

7. Financially distressed students must be given the option to file for bankruptcy to discharge debt. Giving students a bankruptcy option would force lenders to offer struggling borrowers more opportunities for financial relief. The bankruptcy option would also discourage lenders from making excessively large loans.

8. Annual loan limits should be pro-rated based on a student's enrollment status. Part-time students should not be able to borrow as much as full-time students. 

9. The total student loan limits should be pegged to a moving average of college graduates' annual starting salaries based on the level of their degree and their field of study, rounded up to the nearest $5,000.

Image courtesy of 401(K) 2012