While the United States’ economy has shown encouraging signs of recovery in recent years, one issue continues to get worse: the student loan debt crisis.
At more than $1.2 trillion, national student loan debt has surpassed credit card debt, and is second only to mortgages as Americans’ largest source of consumer debt. Soaring college costs and reduced state investments have made student loans a massive burden on graduates—especially Millennials, who are struggling to buy homes, pursue advanced degrees, contribute to their children’s’ education, save for retirement or invest in their futures as a result.
Last year, Scholarship America released its first public policy agenda to address the rising cost of college, the strain of student loan debt, and the importance of helping students most in need. The policy agenda outlines several key ways that the private and public sectors can contribute to student success:
- Increasing access to federal financial aid by simplifying the FAFSA and using prior-prior year tax data to determine federal student aid eligibility
- Strengthening the Federal Pell Grant Program by reinstating year-round eligibility and significantly increasing the maximum award
- Addressing loan repayment on the front end, so that students have clearer information upfront about their loan options—while also keeping the federal government, postsecondary institutions and loan agencies more accountable for educating and supporting borrowers throughout college
There’s no easy fix, but these recommendations are steps toward solving a huge problem that affects millions of students. That’s why, in addition to helping students before loans are an option, there are a number of initiatives to help students after loans become a reality.
On the federal level, President Obama signed an executive order to expand the Pay As You Earn Plan, which would allow more students to cap their federal student loan payments at 10 percent of their income. And in the private sector, we’ve seen a rise in companies offering student loan refinancing. Just as borrowers regularly refinance mortgage loans, companies like SoFi and CommonBond are offering refinancing for federal and private student loans. Here’s how Robert Farrington explains it for Forbes:
“With student loan refinancing, you actually take out a new loan, and use that loan to pay off all other existing loans. This could be done for one loan or many. Some borrowers refinance in order to consolidate multiple loans. The benefit of refinancing is that you are able to change your loan terms – simply because you are taking out a brand new loan. With the new loan, you can decide on length and interest rates that make sense for you. Many times these will be lower than your current rates (which is what makes your payment lower as well).”
Refinancing isn’t always the best option, but in cases where it makes sense to refinance student loans, the decision could potentially save students thousands of dollars in payments.
Another benefit rapidly gaining popularity is employer-provided student loan repayment. The idea is still in its infancy, but it’s shaping up to be a win-win for both companies and students. As a concept, it’s fairly simple: a company hires a recent graduate, and the new employee’s benefit package includes a contribution to repaying their student loans.
Last fall, PricewaterhouseCoopers (PwC) became one of the first major multinational companies to offer student loan repayment. Natixis Global Asset Management and Fidelity Investments soon followed, offering their own spin on the reimbursements. As opposed to PwC’s paycheck-by-paycheck reimbursement, Natixis is offering a $5,000 lump sum on the employee’s five-year anniversary, with a further $1,000 each year for the next five. The $10,000 covers a sizable percentage of the student’s debt load; it also rewards those who come to the company out of college and stay to build a career. Fidelity will also offer up to $10,000 for student loan repayments at $2,000 per year for employees who have been at the company for at least six months.
Individual companies aren’t the only ones thinking about student loans after college; the public sector is also recognizing the importance of faster loan repayment. In New York, the “Get on Your Feet” program launched this year as the first income-based state student loan forgiveness; the state will pay up to two years’ worth of loans for eligible residents earning less than $50,000 per year. Other states, and the federal government, defray loan costs for students who agree to live and work in certain underserved areas, but New York’s is the first state benefit to be strictly income-based.
For years, the student loan debt crisis has loomed large over the nation’s economy—and our graduates. But with these new efforts, from the federal government down to individual companies, we can make significant strides toward helping students achieve their potential.