We’re pleased to announce that another state is tackling student loan debt. Joining Oregon and Pennsylvania, Rhode Island is working on a proposal to give recent grads a better start when they graduate with debt. Although student loans are a national crisis, since few meaningful solutions are being offered at this level, it makes sense that states are stepping in. Grads saddled with excessive debt make large student loan payments that result in monies in the coffers of banks rather than circulating in the local economy. Here’s what Rhode Island is proposing and how it differs from other state plans:
Rhode Island’s Proposal
Rhode Island’s Student Loan Authority (RISLA) is considering a plan to encourage start-up and entrepreneurship growth in their state among indebted college grads. With student loan borrowers reporting they are putting off buying homes, getting married or starting families, it’s logical to follow that those with enormous education debt are also not in a position to launch their own business. RI would like to see that change.
RISLA is looking at a proposal to defer or greatly decrease monthly student loan payments for those grads that take a job with a start-up or start their own business within the state. Charles Kelley, RISLA’s executive director told The Boston Globe, “We are trying to mitigate brain drain and looking at this as a way to help the Rhode Island economy.”
Rhode Island’s Concerns
According to the Project on Student Debt, Rhode Island grads carry the fourth highest average student loan debt in the nation at $29,100. Only New Hampshire, Pennsylvania and Minnesota rank higher. As well as a higher average debt, RI has the eighth highest percentage of grads in debt at 69%. With this much debt, it’s promising that Rhode Island is taking steps to try and help them out.
This plan could also help out the state. RI has a host of growing economic ills including high unemployment at 9%, grads fleeing the state due to a lack of jobs, low birth rate, more émigrés than incoming workers and retirees that will soon outnumber those working. If RI is able to implement a plan that ties entrepreneurship to a student loan solution, it has the potential to be a win-win for indebted grads and the state! That being said, this plan may not be far-reaching enough to accomplish this.
Rhode Island’s Plan Compared to Other States
We’ve written recently about Pennsylvania’s plan that proposes interest-free student loans so that grads would pay back a relatively low percentage of their income until they have repaid just the principal borrowed. Sounds like a good deal. RI offers only a temporary respite from payments and interest is still intact, so the PA plan is comparatively preferable.
Oregon’s plan is a little more onerous even though the “Pay It Forward” plan sounds benign. This proposal tags you for a small percentage of your income for a long period of time which can be a really good deal or a really bad one depending on how much you earn. If you have a high income, you can end up paying back far more than you borrowed – far more than you would under a traditional student loan arrangement. Not as good as the PA plan and it’s chalk and cheese compared to RI’s proposal.
Rhode Island’s plan is unique but may not offer enough incentive to encourage taking a job at a start-up or delving into entrepreneurship. Starting your own biz or jumping onboard a start-up is risky. You may luck into developing the next innovation in wireless tech or you could be back on the street when the start up flops… A two year deferral that leaves you facing the same amount of debt may not be enough of a mitigating factor to keep grads in debt within the confines of Rhode Island. Perhaps they could sweeten the deal with an interest reduction or forgiveness of a portion of the debt…
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