Mt. Vernon Register-News

Opinion

June 11, 2014

Student debt plan needs some creativity

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 — its highest level in two decades.

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 for them.

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.

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