The Biden Administration is forging a plan that will be released in the coming weeks on how to address the student loan crisis and the $1.7 trillion in debt facing 43 million Americans. The National Association of Student Financial Aid Administrators and 21 other organizations have a good idea why the system has failed and have proposed their own set of solutions beyond simple loan forgiveness.
NASFAA and those groups have combined in a 42-page report that includes more than 30 recommendations they say can help provide a framework for policymakers to avoid repeating the same mistakes in years to come.
“As the president and Congress consider widespread debt forgiveness, we call attention to the noticeable absence and urgently needed policy reforms that will prevent borrowers from being in this same exact position in the future,” said NASFAA President and CEO Justin Draeger. “Fixing the loan program would be less expensive than forgiving $1.5 trillion in loan debt. We need a reset. And whether that reset does or doesn’t contain loan forgiveness, it’s beside the point. People need simplicity and predictability.”
From servicing to repayments to defaults, the coalition’s “holistic” plan aims to improve the student loan process, which has been confusing, chaotic and punitive for some borrowers. Though the Administration has helped victims of predatory institutions and a sputtering Public Service Loan Forgiveness program, they have been quick fixes. There are also no guarantees that any debt relief proposal pitched by the President—be it $10,000 or more—will get through Congress. Republican legislators are warning they will try to halt the cancellation of any debt or any extension of the grace period on student loan payments beyond Aug. 31. So a thoughtful, long-term solution involving a multitude of stakeholders is the best option, they say.
“It was pretty clear from the beginning that loan forgiveness would attract a lot of attention,” Draeger said. “But what would receive almost no attention is addressing the systemic failures of the loan system that have brought us to this point. We thought it best to try to pull together some organizations and policy experts to address the underlying issues that have contributed to our national student loan debt woes.”
Inside the report
The group that helped draft the report is among the most prominent across higher education and includes the American Association of Community Colleges, the American Council on Education, the Association of American Universities, the Center for American Progress, the Education Trust, NASPA, the National Association of College Admission Counseling, National College Attainment Network, National Association of College and University Business Officers, and The Institute for College Access and Success. Together, they developed a series of themes on potential policy changes—with dozens of recommendations in each area—to ensure a more comprehensive and forgiving federal student loan system. They include:
- Making income-driven repayment plans far easier to access, while ensuring students have more flexible options for repayments
- Providing a more robust system to help borrowers understand and make payments
- Forging strategies that help struggling borrowers instead of penalizing them
- Strengthening the positions of low-income borrowers
In the proposal, there are highly progressive ideas, including lowering interest rates, wiping out origination fees and negative amortization and having only “three easy-to-understand” payment plans: income-driven, a 10-year plan and a 25-year extended plan for those who owe $30,000 or more on direct loans. They also are pitching a one-time reset for all borrowers who are in default. All of this is being developed because there has been no action for more than a decade.
“What hasn’t happened is a reauthorization of the Higher Education Act,” Draeger says. “We have this legacy program in an entirely new environment, when states have divested themselves of their responsibility of supporting higher education. That’s left students and families on the hook for a lot of loan debt, with unfavorable terms and conditions. No student or family should have loans that experience negative amortization. When you look at up-front taxes, or origination fees, these are unconscionable in a federal access program.”
When asked about the parallels to mortgages—amortization, origination fees, etc.—Draeger said student loan terms have been worse. “Historically, over the last decade, there are federal student loan programs that were far costlier than mortgages. Over the last 10 years, mortgages have been less expensive.”
Can the crisis be solved?
As inflation roars on and students question the value of higher education, the reality is that presenting them with more debt and a loan process that is cumbersome might push them further away from postsecondary pursuits. Even those who try to work within the system now and get access to certain programs are either left out or face too many challenges.
“The execution of those programs has been complicated,” Draeger says. “People have to be in the exact right loan program in the exact right repayment program working for the exact right employer. Every time a new administration tries to implement fixes to what ails us, it does it through bureaucracy and regulation, which ultimately just adds more levels of confusion.”
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The crisis goes beyond the government, servicing and lenders. High tuition and fee costs levied by institutions don’t help.
“In the long term, college almost always pays off. But at open-access institutions, we’re seeing double-digit enrollment declines,” Draeger says. “I think people are doing that math. ‘I can take on loan debt and I hear about the student loan crisis, or I can just go make $15 or $20 an hour at a job that two years ago was only paying $10.’ For colleges and universities, part of this report also focuses on accountability. We have to think about how much loan debt parents are taking on on behalf of their children. We’ll need to think about, what is an appropriate amount for graduate students? Those are hard questions that we have to tackle in higher ed.”
The holistic proposal not only could solve some of the deepest financial issues of loan programs but also in other areas such as oversight and ensuring servicers are more attentive, more available and more understanding to borrowers. Authors said a “full-scale reform” of the system not only would allow for more transparency and consistency but would also prevent a lot of the red tape plaguing the system now.
“Part of that contract has to be that we are making these loans affordable and simple for students and families to figure out,” Draeger says. “If that costs a little bit of money, I think that’s worth it in the higher education access equation.”