Yesterday, President Obama unveiled a plan designed to help students deal with the growing cost of college and the burden of student loans.
In front of a crowd of Georgia Tech students, the President elaborated on the importance of a college degree, insisting that as the job market grows ever more complex, the importance of a college degree also grows: “a college degree tells employers that you don’t just have one set of skills; that you’ve got the continuous capacity to learn new skills.”
The Plan
The President announced a “Student Aid Bill of Rights.” The plan, which by the President’s words, is not a “fancy new program,” but instead a “declaration of values,” consolidates President Obama’s educational initiatives into one formal document.
It consisted of four articles:
1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
2. Every student should be able to access the resources needed to pay for college.
3. Every borrower has the right to an affordable repayment plan.
4. And every borrower has the right to quality customer service, reliable information and fair treatment, even if they struggle to repay their loans.
Let’s break them down:
Access to Affordable Education
The most noteworthy part of the first article is a reiteration of Obama’s January proposal to make two years of community college free for “responsible students.” Sending more students to community college will likely have a positive impact, especially as more and more working adults are heading back to community college programs to learn technical skills. However, many criticisms of the President’s plan focus on the fact that the U.S’s community college infrastructure isn’t prepared to handle the influx of students that free education would cause.
The administration plans to supplement the idea of free tuition by expanding the First in the World Grants awarded by the Department of Education to colleges that “expand college opportunity, improve student learning and reduce costs.”
Finally, the first article also incorporates the Department of Education’s initiative to develop a college ratings system that ranks colleges based on the value that they offer prospective students. The system should be completed in advance of the 2015-16 academic year.
Access to Resources
President Obama has already raised the maximum Pell Grant award by $1,000 since taking office in 2008. The President has since proposed that the award is indexed, or matched, to the rate of inflation.
The other provisions of the “Resources” article of the Student Bill of Rights include a simplified FAFSA form and increased, simplified tax benefits for families with students in college.
Affordable Repayment Plan
The President rolled out a “pay-as-you-earn” plan in 2011 that ensured graduates could cap their student loan payments at 15 percent of their discretionary income. In July 2014, that percentage dropped to 10 percent.
Under the President’s newest proposals, the system would continue to be reformed so that the program is “safeguard[ed] for the future.”
Quality Customer Service
Students should be able to better understand and manage their student loans. The plan calls a new website that would make it easier to file complaints and see all of your student loans in one place.
For borrowers that are having difficulty repaying their debt, the plan also looks to cut out private debt collection agencies. Debt collectors would be forced to apply prepayments to student loans with the highest interest rates first, saving students money in the long run.
Finally, the administration seeks to clarify the rules pertaining to student debt and bankruptcy. According to Time Money, “Congress and the federal bankruptcy courts have imposed tough rules that make it far more difficult for student loan borrowers to get out from under their obligations than almost any other kind of debt.” The President seeks to at least simplify the rules so that they are applied more consistently when borrowers file for bankruptcy.
What’s Missing
It’s terrific to see politicians paying attention to the growing issues of student debt and the rising costs of education. Some of the President’s proposals, such as an expansion of the government’s pay-as-you-earn policy, would immediately help students struggling to keep their heads above water.
However, as we’ve already argued, expanding government grants and loans, while a seemingly good solution, actually encourages colleges to raise their rates.
Some argue that the seemingly “endless” supply of cheap student loans requires much more drastic action in order to taper down what looks like a growing asset bubble that may soon burst.
As it is, the Federal Loan program is limited to providing students a maximum of $31,000 to finance an undergraduate education. However, private lenders are allowed to loan students whatever they deem necessary to cover the “cost of attendance,” which can amount to more than $100,000.
That’s a huge amount of debt for a 20 year old to take on. And it’s way too easy to do.
That’s why some people, such as investor Mark Cuban, suggest a much more radical reform. As he proposes, it’s time to pass a law that restricts the amount that private lenders are able to loan to students. Cuban explains: “When you put a cap on loans, the money’s not available to universities and colleges,” Cuban said. “They have to either raise student aid or lower tuition, or some a combination of the two.”
After all, if the goal is to let, “every American have the right to go as far as their talents and hard work will take them,” as the President insists, it’s time to ensure that their efforts are able to take them further than bankruptcy court.
