Student loans: Sallie Mae's ambitious, yet unrealistic plan

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I know a lot about student loans. I sent one son to Princeton University and one to Berklee College of Music. And I sent myself to Temple University's graduate school when I was 40 – years after I majored in beer and boys at The Ohio State University.

I know how absurdly expensive college is these days and student loan rates are through the roof – some as high as 10.25%. That's why student loan maven Sallie Mae's recent move to make student loan debt more affordable so grabbed my attention.
On Tuesday, the loan provider announced new features for its Smart Option Loan, including incentives for students to pay off more of their loans while they're still in school. Starting May 10, the incentives include lower rates -- based on today's London Inter-Bank Offer Rate, known as Libor, the rates would range from 2.88% to 10.25%. The program also would waive application fees, and it would allow loanholders to "earn back" 2% of their in-school interest payments if they make on-time payments.

"By paying the interest while in school, families can save a lot of money and pay off their debt much sooner. This goes a long way in managing your finances responsibly," said Scott Kahan, president of wealth management firm, Financial Asset Management, in the Sallie Mae press release.

It's great in theory, but where is that money supposed to come from? Selling blood?

The Wall Street Journal, recently wrote about a decline in hiring among soon-to-graduate and recently graduated lawyers. One young jobless man said he owed $150,000 in student loans. At 10.25%, he could owe as much as $1,635 a month on a 15-year payback. How do you pay that every month and still keep a roof over your head and beer in the refrigerator?

Industry leaders in the student loan finance business are meeting next week in Washington D.C. High on the agenda is a discussion of concerns over student loan reform that was mostly sacrificed at the altar of health care reform.

President Obama is probably too overwhelmed to get the student loan discussion back on track, but I have an idea for an easy fix. Put the onus on the educators. If after graduating with a reasonable GPA – say 3.0 – a student doesn't land a job that earns him enough money to pay off his loans and still have enough leftover to pay his bills and keep a roof over his head, the school should forgive his student loans.

Like the automotive lemon laws – if it education doesn't work, you ought to get your money back.
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