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In depth: Ideas surfacing to solve the student loan debt crisis, P. 3

In the previous two posts, this blog has been discussing the growing student loan debt problem that is gripping the United States. Student loans sit in a special category under the nation's bankruptcy laws. In the last post, the discussion focused on student loans in bankruptcy and the near impossibility of finding relief from the special category of debt. Other emerging ideas, however, have been bandied about in recent months.

Is expanding loan forgiveness an option?

Loan forgiveness programs exist under current laws regarding student loans. Currently, a limited number of borrowers may qualify for the loan forgiveness program, but the income-based program does not mature to forgiveness for 25 years. Next year, the program will allow graduates to qualify after 20 years.

A measure has been introduced in the U.S. House to reduce the repayment period before eligibility kicks in to a 10-year period for the income-based repayment program. Certain public-service jobs would make graduates available for loan forgiveness after five years. The current law allows for loan forgiveness for public service jobs after 10-years of full-time service.

Current forgiveness programs are generally only available for borrowers who have remained current on the student loans. The House bill would make the program available to borrowers who have fallen behind on payments due to financial difficulty. The bill would also allow borrowers to convert private loans to federal student loans.

Other ideas involving current and future students

Some commentators say that changes during college may serve to better put an end to future growth in student loan debt. One idea put forth in recent months is to increase the availability of Pell grants to current college students. Congress recently changed the eligibility rules for full Pell grants that commentators say will result in more students needing to borrow to stay in school.

In his State of the Union Address, the president proposed reducing aid to colleges that fail to rein in the cost of tuition. Lower tuition would arguably lower student loan debt. However, some critics say that reducing aid to colleges, especially state aid at state colleges and universities, can lead to increases in tuition.

The founder of FinAid.org says that many students are not properly educated on financial aid, including student loans, before the student takes on the debt. He says many students are shocked when they learn of the total debt that they have taken on until the post-graduation grace period has run its course. Some commentators say that increasing financial aid awareness before debt is taken on will help ease the student loan crisis.

Critics of programs aimed at correcting student loan issues aimed only at current and future students does little to solve the current crisis that affects graduates, parent and cosigners throughout the country that owe more than $1 trillion.

Ideas have made the radar, but the issues are complex. No real reform has been enacted on the issue, and in the near term the problem threatens to continue to grow.

Source: USA Today, "Five proposals to solve $1 trillion college loan crisis," Sandra Block and Christine Dugas, May 21, 2012

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