I believe strongly that folks with student loan debt are required to pay back their debt. It is a financial commitment they made and is not the responsibility of other tax payers (including folks who didn’t go to college) to bail them out. Full student loan forgiveness penalizes people who didn’t go to college, and people who worked hard to pay their debt off - It penalizes good behavior and hard work.
With that being said, interest rates fluctuate and students have no control over the rates they get on loans - it simply comes down to when they went to school assuming a fixed rate. Some of the ideas I have can be found below:
- Cap the amount of principal that interest is being calculated off of. For example, say we set that cap at $100,000 - If a student has $175,000 in total student loans, the $75,000 in excess of the cap will not be used in the interest calculation. The cap could be lower, but once we start getting in 6 figure debt territory, the interest being paid starts to reach insurmountable levels. A debt of 200K can easily result in 500K actually paid over time, which in my opinion is asanine.
- Cap the interest rates. Set a (reasonable) federal standard interest rate for all student loans. Any student who has a loan with a rate above the federal standard automatically decreases to the standard. Any rate that happens to be below the standard remains where it is. This evens the playing field for students regardless of when they took on the debt.
- Incentivize students to make their payments. Reward good behavior by decreasing or reimbursing interest when milestones are hit. That may come in the form of a decreased rate for auto-pay, a decreased rate for a certain number of Income Driven Repayment plan payments, or bonuses in the form of an interest decrease if payments are in excess of the minimum payment. Basically, we need some sort of reward structure to increase the incentive to pay back loans while decreasing the burden of interest.
- Instead of the above ideas, and this is a little more liberal but a simpler and more forgiving approach - fully subsidize the interest portion of the payment assuming certain payback criteria are met. This way the student is still paying back the full amount they agreed to without getting hammered by interest.
- Eliminate interest capitalization on unpaid interest.
I have never heard these more common sense approaches to student loan forgiveness discussed by a politician, which tells me they only want to use loan forgiveness as a political carrot to get votes, and have no intention of actually doing what they say. Anyone who is actually serious about addressing the problem in a fair and common-sense way knows that interest is the obvious place to start. Really hoping for and looking forward to feedback on this, as I realize some of this is half-baked.