Experts Consider Impact of Changes to Federal Loans on Student Debt

Will an increase in federal loan limits ease our nation's educational debt burden?


With an increasing number of graduates unable to repay their educational loans and total educational debt expected to top $1 trillion this year, commentary is being proffered from all sides on how to address this growing national problem.

Some (such as this commentator) are calling for a reduction in the federal student loan program to decrease the nation's educational debt. The reasoning: with fewer low-interest loans available from the federal government, students would have to choose lower-cost alternatives and would be in a better position in the long term. And, they argue, this reduction in available federal loans may also cause colleges to reduce their costs of attendance.

[Take a look at your federal loan options.]

Professor Jonathan D. Glater, however, has taken a different approach. In an article published earlier this year in the New York University Law Journal of Legislation and Public Policy, Glater concludes that Congress should actually allow college students to borrow more in federal loans if it aims to promote access to higher education, protect students from unnecessary debt with harsher terms, and enhance the effectiveness of repayment assistance programs intended to enable pursuit of public interest careers. (He also notes that a 2001 study does not support the assertion that colleges raise prices in response to greater availability of funds.)

Currently, the maximum amounts undergraduate students are permitted to borrow in federal loans are not always enough to cover the costs of a college education. Dependent undergraduate students may borrow at most $31,000 over the course of four years, while the costs to attend some private colleges and universities exceed $50,000 per year. Graduate students have access to the Grad PLUS loan, which can often cover the difference and is eligible for federal relief and assistance programs, but there is no similar loan for undergraduate students.

[Get more tips about paying for college.]

According to Glater, the need to fill this gap between federal loan amounts and the total cost of education has led to the rapid growth of private lending. He believes students and families care less about the source of loans and more about the amount they can borrow and the terms of repayment, so if the federal government reduces available funds private lenders will continue to step in and fill the gap.

Since these private loans are extremely difficult to discharge in bankruptcy and are not eligible for federal forgiveness or repayment programs, reliance on private debt means that more borrowers must make high monthly loan payments for longer periods of time, are more likely to have to default on their loans and are unable to pursue career ambitions that may offer lower income. A few borrowers, as the Huffington Post recently reported, make drastic life choices in order to make their loan payments.

On the other hand, if federal loans could cover the full cost of college, then income-based and public service repayment assistance and forgiveness programs would be more likely to have the intended effect of reducing the influence that high educational debt has on career and life choices.

[When choosing a school, consider student loan debt.]

Glater isn't the only one making these arguments. The American Bar Association recently passed a resolution calling for the availability of assistance and relief programs for all types of debt. And in a recent post, we urged readers to consider the benefits of federal student loans, pointing out that federal loans include a choice of affordable repayment plans such as Income-Based Repayment and are eligible for a wide variety of federal assistance and forgiveness programs, including Public Service Loan Forgiveness.

What do you think? If you knew all your loans were eligible for Income-Based Repayment and various forgiveness programs, would you make different career and life choices?

To learn how repayment assistance and forgiveness programs work, register for our free Wednesday, August 24, webinar: Plan Before You Borrow: What You Should Know About Educational Loans BEFORE You Go to Graduate School. You can also E-mail questions to and keep up to date by subscribing to our Twitter feed and following us on Facebook.

Radhika Singh Miller is a program manager at Equal Justice Works focusing on educational debt relief initiatives. An expert on educational debt relief, Miller served on the Student Loans Team in the Negotiated Rulemaking for the College Cost Reduction and Access Act (CCRAA) in 2008 and has extensive knowledge of this landmark legislation. She conducts educational webinars and presentations; advises schools and organizations; and advocates for legislation and policy. Prior to joining Equal Justice Works, Miller was a staff attorney at the Partnership for Civil Justice in Washington. She received her J.D. from Loyola Law School Los Angeles.