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Restructuring Student Loan Program Could Ease Graduates' Burden

By Michelle Singletary
Thursday, January 13, 2005; Page E03

Graduate students borrow, on average, an additional $31,700 beyond their undergraduate debt, according to a 2003 report by Nellie Mae, a student loan lender. For many, paying off that debt can take decades.

Robert B. Reich, labor secretary in the Clinton administration, recently joined me online to take questions on an idea he thinks will help people with burdensome student loan debt.

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Reich, now a professor at Brandeis University, says we should restructure the federal student loan program into one in which people attending graduate school would pay back a certain percentage of their income over a 10- or 15-year period. The repaid loan money would go into a general student loan fund, then would be lent to others for graduate school. Private lenders could provide the loans, and the part not repaid by the graduate students would be subsidized by the government.

To say the least, many readers had a lot of questions about Reich's idea. I think his proposal is worth more debate. He answered these questions after our online chat:

Q Under this proposal, what incentive would a person seeking a graduate degree in a typically low-paying field have to pay for any of their education upfront? Why would they bother to work nights and weekends or save up before enrolling to foot part of their bill when they end up having to pay the same 3 percent of their salary regardless of the loan balance?

AIt's still cheaper to earn the money upfront than to pay it back as 3 percent of full-time wages, unless someone were to choose a very low-paying job.

What's wrong with the current system that would necessitate such a change?

The debt load carried by graduates is so large that most can't possibly enter low-paying professions like social work, teaching or legal services -- even though they might want to. That's bad for them, and it's also bad for the country.

Would you consider household income or just the borrower's income? What if the graduate decides not to work, but his or her spouse makes $100,000?

For graduate loans, it would be easier to consider only the borrower's income. Yes, it's possible that borrowers may decide never to work, but it's unlikely. Presumably, they went to graduate school in order to help them in their future career. If this program is extended to undergrads, it may be fairer to consider spousal income as well -- if it turns out that a significant number of college grads decide never to work. That seems unlikely, but we need more data on this.

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