New Solution to Stop High Student Loan Debt

Cliché: Take out a loan.    
POCS Reality: Federal student loans are a form of financial aid to help pay for college.


The student loan crisis is visible on Wall Street and Main Street as the Occupy Wall Street movement spreads from city to city.

The Chronicle of Higher Education October 23, 2011 Commentary The U.S. Should Adopt Income-Based Loans Now states the problem:

Decades of greed, inattention, and failed policy have created a growing class of young men and women with few prospects of landing jobs good enough to bear the weight of their crushing college loans.

and a possible solution:

Under an income-contingent loan system, like those in Australia and Britain, students pay a fixed percentage of their income toward their loans. Payments are automatically deducted from their paychecks by the IRS, just like income-tax withholding. Self-employed workers pay in quarterly installments, just as they do with their taxes. If borrowers earn a lot, their payments rise accordingly, and their loans are retired quickly. If their income falls below a certain level—say, the poverty line—they pay nothing. After an extended time period of 20 or 30 years, any remaining debt is forgiven.

In other words, nobody ever defaults on a federal student loan again.

POCSmom’s College Prep DIY Insight: Past bad decisions led to the present poor economy. The future depends on how today’s problems are solved.

Right now, there is an Income-Based Repayment (IBR) Plan for federal Stafford student loans and student Grad PLUS not in default that caps monthly payment at an amount intended to be affordable based on income, family size, and state of residence. Use the IBR calculator to determine if your monthly payment would be lower than under the 10-year standard repayment plan. Note that borrowers may end up paying more interest because the longer the repayment period, usually the more interest is paid. However, after 25 years of repayment under IBR and meeting certain other requirements, any remaining loan balance will be canceled.

Not all education loans are eligible for IBR such as federal parent PLUS loans and non-governmental private loans.