Guidance note suggests reforms to tackle student debt crisis during pandemic
April 22, 2020 |
As part of coronavirus relief for student loan holders, Congress voted last month to suspend loan payments for six months.
Individuals do not have to make a student loan repayment before October 2020 and there will be no interest or penalties during this period.
“It offers instant relief to people who make payments,” said Brian Backstrom, director of education policy studies at the Rockefeller Institute of Government. “It does not relieve these people at all [who] due to financial difficulties, payments are missing. All of this only pushes back the same tough talks we need to have now until October. “
To discuss how the current student debt crisis can be resolved during the pandemic and into the future, the Rockefeller Institute of Government released the brief titled “Student Loan Debt Reform in the Economic Wake of the Virus” .
In the analysis, Backstrom made recommendations for reforming long-term student loans.
“One of the things that got lost is some kind of deeper exploration to find out which students are really burdened with student debt,” Backstrom said. “And once we start looking at that kind of detail, we can really craft effective public policies that can ease the debt burden of lending to the people who need it most. “
According to the analysis, half of current student debt is held by people with graduate degrees, which on average equates to the highest paid university graduates. Global loan cancellation could “disproportionately” favor borrowers with higher incomes, the brief said.
The first recommendation for reform was the use of loan cancellation as an incentive to obtain university degrees. The brief states that student borrowers who do not complete their college degree are three times more likely to default on their loans than those who graduate. In addition, 42% of families with unpaid student debt have a household head without a bachelor’s degree.
For people who did not complete college, Backstrom suggested that the federal government at least write off all debts related to first-year expenses when a student graduates. In addition, this would also include the waiver of interest and penalties.
“I think that’s a great way to think about the program because you’re really trying to achieve the overall goal of getting kids through college and through them,” Backstrom said. “I think one of the things that is often lost is the responsibility of the colleges in all of this.
For the second reform, the government could encourage college financial aid funds to act as partners with students. The number of students deprived of financial aid is high.
In 2018, more than 600,000 high school graduates missed out on $ 2.6 billion in Pell grants after failing to submit the necessary forms. What’s more, 37% of all high school graduates who applied to college did not file for Free Federal Student Aid (FAFSA), according to the brief.
To help support students, Backstrom says colleges and universities may offer assistance and support for students who wish to complete FAFSA forms. Additionally, completing FAFSA forms may be a requirement before a student is admitted to college.
“There are too many colleges and universities doing all they can to just make sure students pay their bills,” Backstrom said. “They have no interest in releasing students from college debt. I think you could really do that by forcing the colleges to say that you are a financial partner with the students in all of this and not just a social or academic partner. “
Before graduation from college, finance offices could also review each student’s eligibility for aid. For example, if Federal Pell Grants were available to students but were not received, the school could offer credits and help file a claim with the Department of Education. This reduces the amount owed before students start repaying their loans, according to the brief.
Finally, student borrowers could be enrolled in an automatic repayment plan. Currently, countries like the UK and Australia have income-based reimbursement programs. The US Department of Education offers four options.
The repayment amounts are fixed in proportion to the monthly income of the borrower, between 10 and 15%, for a determined number of years. Additionally, if a person loses their job during this time, payments could be suspended until consistent paychecks are received again, the brief said.
“We have to change the structure of how student loans are made and we have to change the structure of how they are repaid,” Backstrom said. “We need to change the structure of everyone involved in the process, from students to colleges to lenders. And when we make these fundamental adjustments, some of the solutions seem particularly easy. “
Sarah Wood can be contacted at [email protected]