One upside to student loan having reached a state of crisis is that smart people are giving the issue a lot of attention, which has precipitated a slew of new ideas aimed at fixing the currently broken system. The latest of those ideas comes from state democrats in Alaska. Representatives in the state House plan to reintroduce a bill that will reduce student loan interest rates by 3% as well as provide an annual reduction of borrowers’ principals of 2.5%. Proponents of the bill are determined to find a way to make postsecondary education more affordable.
Three Percent Interest Rate Reduction
Representative Les Gara, a strong supporter of the bill, has spoken to AP about the imbalance between student loan interest rates and the interest rates on buying a car: “Right now you can get a used car loan for about two and three-quarters percent,” Gara said. “You can get a mortgage in the four percent range. People who want to go to college or get job training are paying seven percent. Some people have outstanding eight-percent loans.” It’s an interesting comparison because it makes clear how out of whack the financial disincentive to going to college really is. Do we really want to be making it this difficult for young people to pursue their passions and livelihoods? Gara also points out the 7% interest rate looks even higher when compared to the current inflation rate of less than 2%.
Two and a Half Percent Principal Reduction
As for the measure’s principal reduction component, the only requirement would be for students to have established residency in Alaska for one year prior to taking advantage of the annual 2.5% principal reduction. The residency requirement calls to mind some other programs that are in place in economically challenged areas of the U.S. These areas are using student loan reduction incentives to encourage young people to move to the area to help boost the economy. Although in Alaska’s case, the measure seems to be more aimed at helping Alaskans and encouraging young people to stay by making college more affordable and opportunity more available. “The bottom line is, money should not be a barrier to college,” Gara told AP. “Money should not be a barrier to job training, and student loan rates are crippling for people.”
One of the reasons the previous version of the bill was shot down was because of uncertainty over where the money for the principal reduction would come from. Gara has stated that the new and improved bill has addressed these concerns.
It’s encouraging to know that despite the tough environment for student loan borrowers right now, there are people looking out for students. Fortunately, too, there are many ways to deal with student debt to make it manageable so it doesn’t have a stranglehold on life. If you’re feeling overburdened, don’t hesitate to contact a student aid organization with the expertise to help.