Student Loan Debate Rages On

From Washington, D.C. to California, student loans are a hot topic.

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The growing chorus of concern over the rapid growth of student debt is being heard in the hushed and hallowed halls of Congress and at some of our nation's foremost educational institutions.

[Find out why the student debt crisis isn't just about the economy.]

In Congress, where the move for reform has recently been incremental, the latest concern is that the interest rates on subsidized Stafford student loans will double from 3.4 to 6.8 percent on July 1.

In response, Rep. Joe Courtney, a Democrat from Connecticut, and Democratic Sen. Jack Reed of Rhode Island have introduced legislation in the House and the Senate to prevent interest rates on these student loans from doubling this year and to permanently cap Stafford student loan interest rates at a reasonable and consistent 3.4 percent for low-and moderate-income students.

[See why you should consider subsidized Stafford loans.]

The Student Loan Ranger believes this is good legislation. If you agree, urge your Representative to support H.R. 3826 and your Senators to support S.B. 2051 by finding and contacting your Representative and your Senators.

At the same time, some students in the University of California (UC) system who have been hit hard by cuts in state funding and consequent tuition increases are calling for a fundamental restructuring of the student loan system. (The quadrupling of UC tuition over the last decade has led to protests at the University of California—Berkeley.)

The UC Student Investment Proposal is fundamentally pretty simple. UC students would not pay any upfront costs to attend school; after graduation, they would pay a fixed percentage of around 5 percent of their salaries for 20 years. It sounds a bit like Income-Based Repayment to us.

According to its proponents, the plan has a number of benefits. Students (and parents) would not have a financial burden during college and would not incur debt on graduation. They would be able to pay while they were earning money, and the payments would be affordable and fixed. Perhaps most interestingly, the UC system would have a vested interest in making sure its graduates obtain jobs that pay well.

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Proponents also claim that the UC system will be far better off financially under this proposed structure. A Data Report released by the UC students estimates that by year 20 of implementation, the UC system will be will be earning $4.6 billion—triple the amount that is being earned under the current system—without having to depend on inconsistent state revenue.

That's not to say the plan doesn't face obstacles.

According to a recent NPR report, University of California President Mark Yudof is open to the proposal in principle, but says that "in its current form, it's frankly unworkable." He also says that reducing the state's contribution to the university could be dangerous and that he would like to see "taxpayers pay their fair share—that we not treat higher education as a complete private good, in the sense that only the direct beneficiaries pay for it."

There's also the question of whether a program like this could be scaled up to a national level, although New Zealand, Australia, and the United Kingdom have similar systems. Plus, Milton Friedman proposed using income-contingent loans to finance postsecondary education in 1955.

So what do you think? Feel free to comment below and to continue the conversation on Twitter (@EJW_org) and Facebook. If you're relying on student loans, make sure to sign up for free student debt webinars on Public Service Loan Forgiveness and Income-Based Repayment.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works' educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.