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Two new reports on student loans highlight the remarkable growth in the program that threatens a crash akin to the mortgage crisis and identify what Congress could do to potentially avoid that crisis. The first report comes from the federal government, and shows that more people than ever before are receiving federal tuition aid, in large part student loans.
For the first time, a majority of undergraduates are receiving some kind of federal financial aid — 57 percent. A higher proportion than ever are taking out loans. But while the federal government gave out more grants for low-income students, colleges continued using their own money on grants for students from wealthier families. That’s a trend that concerns some who argue that colleges should do more to help students of limited means. [...]

About 41 percent of all undergraduates took out loans, up from 35 percent four years ago. Borrowing is on the rise even in top income brackets. About 46 percent of students with families making more than $100,000 per year took out student loans, and a majority of students from families making $80,000 or less borrowed to pay for college.

The simple fact is, college costs are far outstripping wage increases for families across the board, and for many students loans are the only option for getting a college degree. Having a college degree is essential in this economy—with so many highly qualified and experienced unemployed people—for competing in the job market. So students take on more and more debt, with less and less hope of getting out from under that debt in their working lifetime. Which is where the second report comes in. In it, the Center for American Progress argues that Congress could change student loan and bankruptcy laws to ease that burden. As of now, student loans cannot be discharged through bankruptcy.
In Tuesday’s report, CAP higher education experts Joe Valenti and David Bergeron argue for a new system. Rather than simply repeal the laws that make student debt inescapable, they propose that only loans that are sustainable for students be protected from bankruptcy. If a loan offers “reasonable repayment conditions such as low interest rates and access to favorable forbearance, deferment, and income-based repayment options,” and the school where the loaned money was spent has a good track record on the employment rate of its graduates, then it wouldn’t be dischargeable.

But private lenders who charge double-digit interest rates would no longer enjoy the legal protections they do at present. Schools that fail to achieve reasonable rates of employment success for their graduates would find the flow of borrowed tuition funds to their accounts drying up. And the newly-designated “Qualified Student Loan” system would create “a race to the top for lenders and institution.”

File this proposal away for a time when we've got a Congress that is actually willing to work on the issues that matter to Americans.

Originally posted to Joan McCarter on Tue Aug 20, 2013 at 11:02 AM PDT.

Also republished by Daily Kos.

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