As Congress begins to work on reauthorizing the Higher Education Act, it has become clear that one of the issues lawmakers are likely to address is student loans. The question is, how far will they go?
Rep. Tom Petri, R-Wis., is hoping they'll overthrow the system.
Petri has been pushing legislation that would provide an alternative to the current arrangement, under which federal student loans are granted based on financial need but repaid at a fixed monthly rate, regardless of a borrower's income. Under his bill, after borrowers hit an income level sufficient to cover their basic needs, 10 percent of their discretionary income would automatically be deducted from their paychecks to pay back student loans. (The deductions would not be mandatory; those who wanted to could still opt for a more traditional repayment plan.) In addition, last month Petri and Sen. Marco Rubio, R-Fla., proposed separate legislation that would allow students to forgo the loan system altogether by promising a percentage of their future earnings to private investors who agree to pay their tuition.
Both bills are an attempt to address the growing consensus that the current system hasn't been working out so well for those who take the loans or those who make them: The default rate hovers around 9 percent, and past-due balances — delinquencies plus defaults — total $85 billion, according to the Federal Reserve Bank of New York. What's more, collection agencies are pocketing an additional $1 billion annually in late-payment fees from borrowers, according to Sen. Tom Harkin, the chairman of the Health, Education, Labor, and Pensions Committee.