When it comes to managing our student loan debt crisis, it seems Americans can benefit quite a bit from “multifaceted solutions” according to the Federal Reserve Bank of Philadelphia President, Patrick Harker.
“If we approach education and the needs of the workforce from a different angle, we can save a lot of the heaviest-hit students a world of debt hurt,” said President Harker.
Referencing our friends Down Under and across the Atlantic, Harker explained that some of the Australia’s programs can provide relief to students trapped in “a world of debt hurt.” He specifically mentioned the income repayment plan through Australia’s tax system.
Students in Australia can finance their education in two ways: If they pay up front, they get a 10% discount. And if they borrow money (which most do) from the government through the Higher Education Loan Program, the monthly amount that needs to be repaid is based on income. Borrowers earning more than AU$54,000 pay between 4% and 8% of their income with payments automatically deducted from their earnings. If someone is sick, unemployed or their falls under the minimum earnings required for repayment, then payments temporarily cease with no interest or penalties accruing to the borrower.
While Australia is still seeing students accumulate debt, Harker believes a plan like this one can have a real impact for American student borrowers. He noted in his speech that the number of people with student debt doubled between 2000-2014, and approximately 11% of these loans are past due.
During his speech, Harker also said that educating high school students about options (whether it's a scholarship, private loan, federal grant or student loan) and consequences can also enable them to make better, more successful choices. Many students are not fully aware of their options while in school or what their monthly repayment amount will be upon graduation.
At any rate, Harker’s points hit the mark. As student loans are grabbing the attention of many, politicians and students alike are calling for solutions to a problem that has been on the backburner for quite some time.
Ever since the federal takeover of student loans with the Student Aid and Fiscal Responsibility Act of 2009, college tuition has risen and student loans have met the price increase. The demand for higher education as well as the availability of federal funding have both contributed to mounting student debt. While this debt level is certainly a byproduct of these factors and much more, one thing is certain: a call for reform is the byproduct of student loan debt and default.
Now, not only politicians are calling for this reform, hence Philly Fed President Harker’s points. The new year in Congress will surely see reintroduced legislation such as ISA policies, federal student loan refinancing, and even free college.
Interestingly enough, former President Obama and current President Trump have both touched on the viability of income-driven repayment plans, somewhat similar to Australia’s system. Obama was the originator of the American version after introducing the first income-driven repayment plans along with Public Service Loan Forgiveness. President Trump expanded on these ideas with an idea to modify Obama’s original plan with a more aggressive repayment strategy (shorter terms and higher payments).
Image Copyright Griffin Boyce. (Image was Edited)