It’s no surprise that student loan debt is becoming – if not already – a national crisis of financial burdens. It currently amounts to over $1 trillion, and most seeking a higher education are resigned to the fact that they, upon graduating, will be dealing with monthly bills to last for decades.
This financial strain invites many other problems as well, from defaults, wage garnishments, fraudulent activity regarding payment collection, and ultimately hemorrhaging the potential of many young Americans. While there’s an increase in attempts to help students pay off loans, the bottom line is the same: there will be debt, and plenty of it.
The subject is important to many, and has recently found its way into presidential nominee politics. Hillary Clinton, the Democratic presidential candidate, is proposing a new way to tackle this increase in financial debt. The plan is mainly focused on refinancing, which groups debt bills into one for easier ways to pay it back.
The idea is to create more options and grant graduating students opportunities to get a handle on their debt. Hillary’s plan promises a 3-month postpone of debt payment with an increase on income based repayment options. Other options include increased deferment for entrepreneurs (though the criteria for that hasn’t been established) and employer assistance programs.
How helpful those solutions are will depend on how they are implemented. There are a few roadblocks, as not all students use refinancing to pay their loans. For example, refinancing changes how the loan is repaid and those using it would lose out and government repayment programs.
A forward thinking plan, the refinancing option does create some risks for those looking into it. While interest rates decrease, fewer methods for repayment exist. In some cases, the loan cannot be deferred or postponed. In others, the monthly cost cannot be adjusted or isn’t based on income. This is often because only private companies offer refinance options, and for an enormous percentage of students, the tradeoff is simply not worth it, even if they pay less.
Because of the tradeoffs surrounding the issue, Hillary’s plan is aimed towards those who can afford larger monthly payments but a lower interest rate. Interest regarding loans is one of the largest problems, because it can extend the life of a debt by thousands. While refinancing solves this issue by lowering interest, there’s no guarantee a student wouldn’t face financial difficulty in the future. With government programs, one can usually put their loan on forbearance or lower payments if those difficulties occur, but with refinancing, these options are lost.
Hillary’s plan is also dependent on companies and their policies. Even though flexibility is lost, a student can save thousands in how much they actually have to repay. They can also cut down the amount of time they pay back their loan by years, even decades. But, this is entirely reliant on how a private company handles loan repayment. Some are better than others, offering fair interest and likely have their own regulations on handling potential late payments, but others may not be as lenient. Additionally, lower interest rates are qualification based, meaning a student might not get what they see.
Other benefits from Hillary’s plan require a little planning on the student’s part too. Refinancing consolidates loans, as mentioned. This is good to keep all payments in one easy place. However, the cost of those payments can be higher. While it’s true refinancing also reduces the amount of years a student has to pay a loan back, it means the monthly payments are much higher. A graduate will still have to understand the long term risk, and make sure they actually have the financial ability to pay the monthly amount in their given timeframe.
Overall, Hillary’s plan is only a concept and not yet concrete. It certainly has much to offer, especially for those who want to use refinancing as a quicker way to pay down certain loans. But, it is not the prime solution and only a small piece of a much bigger puzzle. Students who look into refinancing should understand all the risks and make sure they have the resources to repay what they owe.
Student debt reform is still an enormous issue, and it’s likely there will be more to see. The coming months should provide some interesting new paths for students to find debt relief as the American political system attempts to tackle this rapidly growing issue.