Sweet Relief

You asked the politicians for help with student debt. And maybe, just maybe, you're about to get it.

Good news for the millions of you saddled with student loans—help may finally be on the way.

At least, that's what the politicians say. "College affordability has become a top priority," says Rachel Racusen, whose boss, California representative George Miller, chairs the House Committee on Education and Labor.

This time, promises of change may be more than talk. Of all the pet Democratic proposals passed in the new Congress's first hundred hours, a 50 percent cut in the interest rate for student loans drew the largest number of affirmative votes. And in February, George W. Bush—the same guy who gave us the stiffest cuts to student aid in American history—submitted a 2008 budget proposal that includes pumping the maximum Pell Grant from $4,050 to $5,400. The president's move seems designed to one-up the Democrats. Students can only benefit from this little contest.

Why the sudden change from the bleak political landscape of a year ago, when Sallie Mae's favorite congressman was House Majority Leader Boehner? For starters, the issue of paying for college has obvious middle-class appeal. Students have been speaking up (the Make College Affordable Facebook group, anyone?). The student loan industry, in which hugely profitable corporations soak up billions in government subsidies, makes for some fat political targets.

Half a dozen reform bills are under consideration, many with bipartisan support. We've ranked the key proposals and other legal maneuvers in order of their potential to pass/change anything, from "sure bet" to "pie in the sky."

1. Tear up the red tape.
Anyone who's ever faced it knows the Free Application for Federal Student Aid is an invasive, five-page, 103-question monster. The form puzzles even CPAs, let alone high school kids and their parents. On Tuesday, March 20, Congressman Miller and Democratic caucus chair Rahm Emanuel announced the "College Aid Made EZ Act." The bill would cut the FAFSA down to two pages by letting the IRS supply families' verified income information directly, just as with mortgage applications. It would also allow high school juniors to file early.

PREDICTION Simple but smart. Little opposition is expected.

2.Let the sunshine in.
On April 2, New York State's own attorney general, Andrew Cuomo, announced that six schools he'd targeted as part of an ongoing nationwide investigation into financial aid practices would reimburse student borrowers a total of $3.27 million.

What are the dark rituals of this "unholy alliance"? When you're accepted to school and apply for loans, your financial aid office is likely to steer you to its "preferred lenders." NYU, for example, advertises 14 private loans, including the "Citibank CitiAssist Loan for NYU Students" and the "Nellie Mae/Sallie Mae Signature Student Loan for NYU Students." Cuomo's office says 90 percent of student borrowers end up choosing from their school's list.

And lenders may pay kickbacks to schools in exchange for sending the business their way. These can include direct cash percentages on loans, all-expense-paid luxury trips for financial aid officers and their spouses, and setting up funds and credit lines for schools to profit from, to operating call centers for understaffed financial aid offices.

Meanwhile, the House and the Senate are considering the Student Loan Sunshine Act, a bill that would require full disclosure of all such dirty dealings.

PREDICTION It's hard to put a scandal back in the bottle. Some reform, through the courts or Congress, is probably inevitable. Meaningful? Who knows.

3."Throw the student loan industry under the bus."
That's what Wall Street analysts are saying about President Bush's budget, which pays for the Pell Grant increase with a projected $18 billion cut in subsidies to student lenders.

On Capitol Hill, Senator Ted Kennedy and Congressman Miller have reintroduced a bill with similar aims. The STAR Act would reward schools that switch to Direct Loans, a program in which students borrow money straight from the US Treasury. That would cut subsidies to private lenders, with serious savings for taxpayers. The savings would be channeled back to schools and used for Pell Grants—$10 billion more for need-based aid over 10 years, without raising taxes.

PREDICTION The bankers will feel the pinch before you notice the kiss.

4. Pay What You Can
If you are a graduate who finds it tough to make good on those monthly student loan coupons, read on. Senator Kennedy's Student Debt Relief Act, introduced in January, would let you limit your payments to 15 percent of your discretionary income. (Discretionary income is defined as anything above 150 percent of the poverty line for your family size; people earning below that would have complete protection.) All student loans would be forgiven after 25 years. For public sector and public service employees like teachers, forgiveness would come after 10 years.

So-called Fair Payment Assurance would shield the most vulnerable borrowers and bring the American student loan program more in line with others around the world, from Northern Europe to the UK to Japan. "People hit potholes on the road of their lives, and we want them to be able to slow down and fix the tire as opposed to watching the car come apart," says Luke Swarthout, of the U.S. Public Interest Research Group's Higher Ed project.

Other benefits in the Student Debt Relief Act: Graduates would be allowed to consolidate loans repeatedly to take advantage of falling interest rates, just as you can refinance a mortgage more than once. And they'd get a tax deduction for student loan interest, similar to the deduction for home mortgages.

PREDICTION A hard sell. No word on how these measures would be financed.

5. A Break for the Unluckiest
Besides the bills already introduced, more student aid reform ideas are likely to get consideration soon. One would involve amnesty for people who've seen defaulted loans double, triple, and quadruple with interest and penalties, growing to amounts too great to repay in this lifetime. Winning this broad relief is a top priority for activist Alan Collinge of Student Loan Justice, who spent this spring crisscrossing the country in an RV, meeting with two-thirds of the 60 legislators on the House and Senate education committees. "They have been very responsive and receptive," Collinge says.

A second area for reform: Getting rid of the bankruptcy exemption. People who run up huge credit card bills or lose their shirts on a business have at least a fighting chance of having those debts cleared through bankruptcy. That's not the case for student loans of any type. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act decreed private student loans can't be forgiven in bankruptcy. The same has been true of FFELP and Direct Loans since 1998. Student advocates would like to get rid of both rules and have the courts treat student loans like other consumer debt.

PREDICTION Small steps now, giant ones later

Anya Kamenetz is the author of 'Generation Debt'. She lives online at anyakamenetz.blogspot.com.

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