My position on President Joe Biden’s plan to wipe the slate clean for borrowers on billions of dollars in federal student loan debt: I don’t like it.
I understand why there are many arguments in support of the White House plan. But, like many readers, I feel it’s a slap in the face to those who graduated college with debt but made the payments like clockwork—even when it hurt—to forge a successful outcome. They stuck to their commitment to repay the money.
Now they’re being told to cover the debt of more than 20 million who can’t. At least the president’s plan includes a new repayment program that would lower student debt repayments in the future, with monthly payments capped at no more than 5 percent of a borrower’s discretionary income, down from 10 percent in existing income-driven programs.
Borrowers who stand to benefit from the president’s plan—assuming it survives challenges—will be able to kick the can down the road with Uncle Sam there to clean up the mess. It’s the American way, given the huge federal bailouts in years past to automakers, big banks, and other corporations that were deemed too critical to fail. This time, ordinary Americans get the direct break.
But I also understand there are millions of borrowers whose lives have been shattered because of the loans—and all the interest accompanying them. Is there a better way other than a bailout to help them?
Of all the statistics and data trotted out by both proponents and critics, I zeroed in on this one: The nation’s federal student loan debt level—currently at $1.6 trillion—will return to today’s levels within five years of the cancelation without dealing with the rising cost of college, according to the Committee for a Responsible Federal Budget, a nonprofit that advocates for lower deficits.
But I digress. Politics and policies aside, what can be done now by parents and students to avoid winding up in the same debt trap?
Scholarships
If there’s a high school senior in your house, start looking now for scholarships, grants and other forms of “free” money, which unlike debt, don’t require a payback. Many nonprofits, businesses and other private organizations have application deadlines by Dec. 31. There are any number of websites that list a full complement of scholarship programs.College Credits
Sign up for as many advanced placement courses as you can handle. Earning college credits while in high school shaves thousands of dollars off the total tab.Community Colleges
Tuition at community colleges generally is a fraction of state school tuition. In some states, students can even transfer credits to a four-year state school after two years. Make sure your home state offers credit transfers. Likewise, trade schools may be the way to go for those looking to develop a craft.No-loan Schools
More than 50 colleges provide no-loan financial aid packages that feature scholarships, grants and work-study opportunities. Most colleges offering this option tend to be smaller liberal arts institutions, such as Grinnell, Bates and Amherst. Other no-loan schools included Princeton, Yale, Brown, the University of North Carolina and Virginia.Just Say “No”
Ideally look for colleges that fit your child’s academic needs without requiring the family to load up on debt. If your teen is looking at colleges that will break the bank, just say “no.” Look for schools that will pay you to attend—there are plenty of them.529 Plans
The most effective way to save for college is to start contributing to a 529 college savings plan, ideally when your child is still in sleep sacks and diapers.Money Smarts
Take a personal finance class in high school. Learn the basics, especially on how to avoid racking up debt of any kind.(Questions, comments, column ideas? Send an email to [email protected].)
