From an editorial Tuesday on Bloomberg View:
President Barack Obama announced steps Monday that he says will make student loans more affordable. That may be good midterm politics, but his tinkering isnt much help for a system of college financing thats spinning out of control.
Obama will give more student borrowers access to income-based repayment plans, which cap monthly loan payments at 10 percent of a borrowers income. He also urged Congress to pass a bill, sponsored by Democratic Sen. Elizabeth Warren of Massachusetts, that would reduce interest rates on student loans by letting borrowers refinance.
If the aim is simply to make student loans as cheap as possible, then these changes earn full points. But how much use is that by itself? The greater concern is the share of students who default, now at 1-in-7 its highest level in two decades.
A more efficient idea, proposed by Republican Sen. Marco Rubio of Florida earlier this year, would automatically enroll borrowers in income-based repayment plans, rather than leaving students to wade through the details on their own.
Another idea worth pursuing, from Republican Rep. Tom Petri of Wisconisn, is effectively removing the possibility of default altogether, by having a borrowers employer automatically deduct those income-based repayments from borrowers paychecks.
The administration is right to focus on reducing default rates; it could stand to be a little more creative in how it does so.
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