Are We Rearranging the Deck Chairs on the Titanic? Keeping Interest Rates Down on Student Loans

President Obama has asked Congress to pass legislation that will keep the interest rate on student loans from doubling later this year. Of course, this is a good idea; and I think Congress will act favorably on the President's request.

Unfortunately, keeping interest rates down on student loans is like rearranging the deck chairs on the Titanic. The ship is still going down. 

The core problem is this: millions of Americans have borrowed money for a postsecondary education, and they can't pay it back.  Solving this problem won't be easy, but we can start by doing these three things:

• Congress must pass legislation allowing overburdened student-loan debtors to discharge their loans in bankruptcy in the same way they can discharge other unsecured debts. In other words, Congress must repeal the "undue hardship" provision in the Bankruptcy Code that makes it almost impossible for students to discharge their student loans in a bankruptcy court.
• We must do a better job of regulating the for-profit colleges, which is where the student-loan default rate is the highest.
• We need to defer interest on loan balances for people who have economic hardship deferments or are paying back their loans through an income-contingent loan repayment plan (ICRP). Otherwise, most of the people who are participating in these student-loan hardship plans will never be able to pay back their loans because accruing interest will make their debt loads unmanageable.