Increasing federal student loan limits

With many college students scrambling to find the money they need to complete their education, a new proposal suggests increasing the amount of federal money students can borrow.

While federal loans carry many benefits for students, there are some who are concerned that pushing young people to borrow more money is bad idea.

Peter Kerwin from the Rhode Island Higher Education Assistance Authority, joined The Rhode Show to talk more about it.

Why not allow students to borrow more money from the federal government?

The short answer is that even if it’s the federal government doing the lending, that money is still going to have to be paid back in most circumstances. An assistant professor of law at the University of California, Irvine and former New York Times reporter named Jonathan Glater released a paper last month titled “The Other Big Test: Why Congress Should Allow College Students to Borrow More Through Federal Aid Programs”.

He is making the argument that federal loans have the best terms and most generous repayment options out there. We’ve talked here before about the benefits that come with federal loans as compared to private loans, which don’t have the generous repayment or forgiveness terms that come with federal loans. At RIHEAA, we’re always telling students to max out on their federal loans for that very reason.

But the one element of all this that’s come under fire is the idea that by increasing the amount of federal loans students can take on you are actually encouraging students to take on more debt. Zac Bissonnette wrote a piece on this on Time Magazine’s Moneyland blog and he is just horrified by the proposal. He just graduated from UMass last spring and wrote a book called “Debt Free U” and his whole approach is to tell students don’t borrow ANY money.

Is that a realistic approach for most students though?

Well, I have to tell you, he makes a pretty compelling argument about not getting in over your head debt-wise and passing on the dream school in favor of a quality education at a state school if it’s going to help you avoid a mountain of debt.

And with this proposal to increase the federal loan limit, the concern is that it’s going to encourage young people to borrow more than they need and enroll at schools they really can’t afford. Bissonnette goes out of his way to highlight a couple section titles in the report which he considers to be real howlers, such as “Borrowing More Can Be Good” and “Learning to Love Debt”. There’s nothing to love about debt and nothing good about borrowing more than you have to.