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July 28, 2016 Comments (0) Attention

Evidence of Ability to Repay Student Loans Essential

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The Joint Select Committee on Deficit Reduction, the \”Super Committee,\” wants ways to cut $1.2 trillion deficit within the next decade. In order to achieve this goal, however, Jackson Toby in the American believes the Super Committee must not overlook a design flaw in the federal student loan program that threatens to blow a huge hole within the federal budget.

The federal government guarantees repayment of most student loans which means each loan default eventually increases the deficit. Because the current student debt bill is estimated to become at $1 trillion, that\’s a lot of weight on the government\’s shoulders.

Toby writes that the Department of Education has announced that the overall default rate for federally guaranteed student education loans had risen to eight.8 percent for the fiscal year ending on September 30, 2010, up from 7 percent the year before. Toby notes this was the highest default rate since 1997.

But this 8.8 percent only refers back to the 320,000 graduates from 3.6 million who defaulted?within 2 yrs?of their first payments being due. Toby notes that longitudinal studies of student borrowers reveal that defaults peak in the fourth year after payments start to be required and continue in subsequent decades; estimates are that about 40 % of student borrowers will default eventually.

The Department of Education must and does everything it may to prevent students from falling into the default category, however, the student\’s only permanent means to fix student-loan debt is receiving a job that pays well enough to start repaying the borrowed funds. But a weak economy makes getting these jobs difficult.

But Toby points out that there\’s additionally a flaw in the student loan program. The Department of Education and banks gave students loans without scrutinizing their ability to repay them.

Toby believes the Super Committee should recommend that student loans require evidence of ability to repay them by examining students\’ academic records, credit histories, along with other criteria of credit-worthiness.

\”This change would treat student education loans as risky investments and be sure they are given only to student borrowers with a decent chance of having the ability to repay them.

\”Such a student loan system makes better economic sense than one that gives loans promiscuously to?all?needy university students. Needy university students are still entitled to Pell and other college?grants. Grants don\’t impose essential of credit worthiness.\”

Toby points out it would save taxpayer money, too.? Evoking what Senator Everett Dirksen has been famously reportedly as saying, \”A billion here and a billion there, and before very long, we\’re talking?real?money.\”

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