Jeb Bush Proposes Overhaul Of Federal Student Loans System

Republican presidential hopeful Jeb Bush has announced an education blueprint that includes a plan to redefine the federal student loan system.

The proposal would see federal student loans replaced entirely with a line of credit that would be available to all high school graduates provide access to a $50,000 fund.

It would form an education savings account that every U.S. student would have from birth.

Students would be able to use the fund to pay for a range of education programs over the course of their lifetime, both at traditional colleges and universities but also more skill-specific certificate programs.

Those who opted to use the funds would have to repay by contributing a percentage of their income, proportional to the amount spent — 1 percent for every $10,000 spent. Repayment of the fund would be deducted through federal income taxes over a 25-year period.

“It would encourage low-income students to aim high and invest in their future, and give students ownership of their student aid, incentivizing them to be cost-conscious and spend funds carefully over the course of their education, which will help bring down the spiraling cost of post-secondary education”

No student would pay more than 1.75 times the amount spent, and if the maximum amount of credit were drawn down, it would come to $87,500.

The proposal received support from Sen. Lamar Alexander, a Republican who heads the Senate education committee and will be drafting an overhaul to the Higher Education Act.

“Gov. Bush’s proposal to abolish the confusing federal student aid application form and replace the entire federal aid system with a $50,000 line of credit is innovative and shows that he is in tune with the 20 million families who fill out those complex federal forms every year.”

The plan was also endorsed by higher education policy experts who argued it would “all but eliminate” defaults by running the repayment process through tax withholdings and by tracking a student’s income in real time.

The average college grad entered the workforce with more than $35,000 in student loan debt this year.

At present, grads burdened with federal student loan debt have the option of student loan refinancing, the process whereby they can transfer their debt to a private provider and negotiate lower interest rates and monthly payments. In addition, a cosigner with excellent credit can help someone who has a low credit score or hasn’t established a solid income source to qualify for a loan with better terms and lower interest rates when refinancing student loans.

When refinancing federal student loans with a private lender, students will lose out on certain benefits and protections. Lost benefits include options such as Public Service Loan Forgiveness (PSLF), income-driven repayment plans, loan deferment, and forbearance.

Bush also wants to rewrite federal bankruptcy law and make it easier for private student loan borrowers to write off the debt in bankruptcy. Student loans are currently the only kinds of consumer debt not dischargeable in a bankruptcy.

If intended for undergrads only, Bush’s proposal would represent a big increase on the current cap for undergrads federal loans, which is $31,000. However, if intended to cover both undergraduate and graduate expenses, it would be a big reduction. The cap on federal grad school loans is $57,500 in addition to the $31,000 people can borrow as undergrads.

As the governor of Florida, Bush championed the Common Core and for-profit colleges and is a former investor in Academic Partnerships, an online for-profit college.

[Photo by Scott Olson/Getty Images]