The newest report from the U.S. Department of Education shows that the student debt crisis is only getting worse. The average college graduate leaves school with $30,000 in debt, up from $10,000 in the 1990s. The amount of student loans outstanding now tops credit card and auto debt at $1.6 trillion outstanding. More students are defaulting on their loans and it is now estimated that nearly 40 percent of students who took out loans in 2004 will default on their debt by 2023. The issue has become so prominent that there are now many ideas being floated on the best ways to change the education debt system.
Reports have emerged that the Education Department is considering selling all or portions of the $1.6 trillion federal student loan portfolio to private investors. There has also been a proposal to spin off the outstanding portfolio from the Education Department to its own agency. At a conference of financial aid professionals, Education Secretary Betsy DeVos said of the proposed changes, “Congress never set up the U.S. Department of Education to be a bank.”
Another idea being floated as a potential solution to the student debt crisis is income-sharing agreements for debt repayment. Diane Auer Jones, principal deputy undersecretary at the Education Department, recently confirmed that the idea is on the table. Under this type of agreement, the recipient doesn’t pay anything back on the loan until they secure a job following graduation. Once the borrower has secured employment, they pay a set percentage of their income for a set number of years with any remaining debt discharged at the end of the period.
There is also interest in modifying the current repayment plans to make them easier on the student. Both Republicans and Democrats have shown interest in reducing the number of repayment plans from 14 to two. Both sides have also shown support for eliminating the origination fees on student loans. Committees are also exploring reducing the interest rates on student loans, making it easier for borrowers to refinance their debt, and allowing student debt to be discharged in normal bankruptcy proceedings.