Monday, January 25, 2010

Student Loan Reform

The Obama administration has proposed a solution to the student debt fiasco. From Yahoo News:
Obama will also call for caps on some student loans, limiting a borrower's payments to 10 percent of his or her income, and forgiving all remaining debt after 10 years of payment for those in public service work — and 20 years for all others.
This cap and forgiveness program is similar to the student loan program in the UK. The model helps reduce some of the asymmetries associated with student loan debt (really easy to obtain, hard to predict rate of return, and almost impossible ability to discharge) by ensuring there is a finish line to the loan race and by encouraging people to obtain higher education.

I fully support such a system. Education, particularly legal education, is a huge financial gamble. The current student loan system relentlessly punishes those who lose the bet until the day they die. This alternative model better helps apportion the risk of obtaining an education. While the individual who ultimately receives the education gets the most benefit (and correspondingly, should pay for that benefit), there is a huge societal interest in educating the masses. Because both the State and the student benefit, they should rightly split some of the risk/cost. Simply loading the debt onto the student without the possibility of discharge ensures that such a student will be held back financially for the rest of his life (hard to get credit if you can't pay your $3500 a month student loans).

This is a sensible solution. Let's hope it goes somewhere.


  1. THERE IS A GOD! Thank you Obama...this is about the only good thing you've done.

  2. Another Obama failure in my opinion (though it won't be if this goes nowhere)

  3. I hope Obama gets this one done. I am not a fan of Obama, but he will win me over if he gets this passed. I'll buy my own health care if I get student loan relief. I do not like the 20 year deal becaise I am 46. I had to go back to school at an older age. I wish he woudl make it 10 for everyone and not pick and choose winners liek that. Heck, gov jobs pay mor than non-gov jobs...but, at leat it is a step.

    Now, allow us to put student loans on bankruptcy for thos who have already filed chapter 7 like myself and we can get some real stimulus. Hell, if I were able to discharge my student loan debts I'd actually be a productive consumer in society. Instead, I buy nothing and go nowhere...just work, home, watch some TV...Nice thes go to school and you are worse off...I understand the logic behind not allowing student loans to be discharged in bankruptcy, but the logic is retarded. If someone qualifies for chapter 7, then that person is in financial ruin, not allowing student loans to be included just creates a situation where they go from pathetically broke to broke. It is hard to say wth a straight face that college pays off. Colle today only pays of for the lucky, those who picked the perfect major, or those who have college paid for by someone.

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