Login  /  Register  | 3 premium articles left before you must register.

Student loan relief

Published June 11. 2014 4:00AM

The following editorial appeared on Bloomberg View.

President Barack Obama announced steps Monday that he says will make student loans more affordable. That may be good midterm politics, but his tinkering isn't much help for a system of college financing that's spinning out of control.

Obama will give more student borrowers access to income-based repayment plans, which cap monthly loan payments at 10 percent of a borrower's income. He also urged Congress to pass a bill, sponsored by Democratic Sen. Elizabeth Warren of Massachusetts, that would reduce interest rates on student loans by letting borrowers refinance.

If the aim is simply to make student loans as cheap as possible, then these changes earn full points. But how much use is that by itself? Student loans are already affordable compared with other types of credit; making them cheaper still will fuel more borrowing and leave taxpayers on the hook for more of the tab. (Warren's bill would cost $51 billion over 10 years, paid for by increasing taxes on high earners.)

The greater concern is the share of students who default, now at 1-in-7.

By that light, expanding access to income-based repayment is a good idea, as far as it goes. A more efficient idea, proposed by Republican Sen. Marco Rubio of Florida earlier this year, would automatically enroll borrowers in those plans, rather than leaving students to wade through the details on their own. Otherwise, the students who most need those programs may not be the ones who know enough to sign up.

Another idea worth pursuing is effectively removing the possibility of default altogether, by having a borrower's employer automatically deduct those income-based repayments from borrowers' paychecks and send the money to the Internal Revenue Service. That's what Republican Rep. Tom Petri of Wisconsin has proposed, modeled on systems in Britain and elsewhere.

Both automatic enrollment and payroll deductions would need to be approached carefully. It's important that borrowers retain the chance to pay back their loans faster without penalty. And the IRS would need the necessary technology and personnel to handle the task.

Still, the spiraling mess of U.S. higher-education funding can't be addressed through cheaper money alone. The administration is right to focus on reducing default rates; it could stand to be a little more creative in how it does so.

News by Town

Most Recent Poll
What are your feelings about the swap of Taliban detainees for Army Sgt. Bergdahl?
It was the right thing to do. No soldier should be left behind. Period.
24%
I thought our policy was to not negotiate with terrorist groups.
19%
I initially supported the swap, but as more details have become available, I am not so sure now.
11%
Absolutely not worth it, especially if the reports are true that soldiers died looking for Sergeant Bergdahl after senior American military officials say he wandered off his base.
47%
Number of votes: 1851

No current items found