Forget Elizabeth Warren
"With summer campaign season underway, the Democrats are looking to rouse young voters by offering them a break on their student debt. At the moment, liberal favorite Elizabeth Warren is championing a bill that would let borrowers save money by refinancing their old education loans at today’s low interest rates," Slate's MoneyBox reports.
"There’s a bit of irony here. While Democrats are busy turning America’s student debt crisis into campaign fodder, a Republican may actually have the single best plan for fixing it. His solution lacks the populist punch of Warren’s bill. But the idea could save millions of future borrowers from financial ruin without costing taxpayers a dime—which means that, if it could get enough attention, it might also stand a small chance of becoming law.
Since 1983, Tom Petri, a low-key House GOP congressman from Wisconsin, has advocated an idea that education wonks sometimes call 'universal income-based repayment.' It would completely scrap the convoluted system that former students currently rely on to repay their loans. Instead, college debt would work like just tax withholding. A borrower would simply pay a set percentage of her monthly earnings to the government, deducted straight from her paycheck.
Countries including Britain, Australia, and New Zealand already take a similar approach. And, as many education experts have agreed, bringing it stateside would likely cure some of the worst symptoms of America’s student loan binge. It would ensure that every single borrower’s payments stayed manageable and virtually eliminate the risk of delinquencies and defaults. …
In the meantime, fewer than 2 million federal direct loan borrowers are signed up for an income-based payment plan, despite the fact that millions more obviously would benefit from enrolling.
The reason, many believe, is that too many vulnerable debtors simply have no idea what their options are. It’s probably no accident that college dropouts, according to one estimate, are more than four times more likely to default on their loans than graduates. Aside from having a tougher time landing work, they’re also much less likely to receive any sort of loan counseling when they leave campus. The same goes for for-profit-college students, who are responsible for about half of all federal loan defaults. They’re leaving school in the dark.
'I don’t really call it a debt crisis, because the ones defaulting aren’t the ones in the most amount of debt,' says Justin Draeger, president of the National Association of Student Financial Aid Administrators. 'They’re most likely the ones who dropped out or stopped out of college and then ignored their student loan debt and then didn’t follow up or felt overwhelmed.'
It doesn’t help matters that the Department of Education offers a bewildering array of payment plans, and hires 11 different private loan servicers to service them. These organizations are notoriously terrible at communicating with borrowers about their various options. The entire operation is a giant malfunctioning Rube Goldberg device. …
But Obama could also consider a plan like Petri’s, which strips down the whole creaky system and puts in place something simpler, more efficient, and less prone to leaving the most hapless borrowers out in the cold. It might even be one of those fabled moments of potential bipartisan accord. Petri has found a high-profile ally in Florida Sen.—and potential Republican presidential candidate—Marco Rubio, who has endorsed the idea of universal income-based repayment on the stump as well as in an op-ed with Petri. Some House Democrats, including Jared Polis of Colorado, have also co-sponsored Petri’s latest bill. ...
But broadly speaking, implementing universal income-based repayment would finally take the risk out of student debt. And as long as we’re handing out education loans virtually no-questions-asked to all comers, that seems like a goal worth making some legislative compromises for. It wouldn’t solve the rising cost of college, but it would make paying for it far, far safer. That’s worth more than a few political points, no?"
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