Education Web sites are abuzz synopsizing from a new report from the College Board, Rethinking Student Aid Study Group, “Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid.” Proposals from the report that might be of interest to Stafford borrowers:
p. 17: “…but a provision should be added limiting the size of the total debt that can result from accrued interest and fees to 150 percent of the original loan principal. A limit of this sort will prevent borrowers already under financial strain from seeing the amount of their debt skyrocket even as they conscientiously make the required payments.”
p. 20: “Eliminating the distinction between the two Stafford Loan programs means that a federal need analysis system will not be necessary for the allocation of student loans…The Rethinking Student Aid study group recommends that the interest rate on Stafford Loans be flexible but lower than market rates for all students. It is appropriate for the federal government to subsidize student borrowers to some extent, since the lack of collateral makes them vulnerable to high rates in the market. However, there is no reason why taxpayers should bear a particularly high share of the cost of student loans during periods of time when interest rates on mortgages and consumer debt are higher. Similarly, students should not pay higher fixed interest rates when market interest rates are low…”
I couldn’t locate any info in the proposal on reducing or eliminating capitalization.