NEW YORK (MainStreet) -- At the first Democratic debate on Tuesday evening, the candidates diagnosed the student loan debt situation as dire and proposed a drastic overhaul.
Vermont Senator Bernie Sanders called it "a major crisis in this country." Hillary Clinton stressed the urgent need for increased college affordability.
"All the 40 million Americans who currently have student debt will be able to refinance their debt to lower interest rates," she said. "My plan would enable anyone to go to a public college college or university for free."
Sanders has proposed something similarly grandiose: completely eradicating tuition at public four-year colleges.
Of course, there are nuances to their plans -- Clinton revealed she wants students to work ten hours a week to make the affordability possible, and Sanders, along with former Maryland Gov. Martin O'Malley, supports in-state college tuition to undocumented immigrants -- but all in all, the student loan debt antidote all boils down to a common theme: reduced interest rates.
Clinton, Sanders, and O'Malley have each proposed allowing existing borrowers to refinance student loans at lower interest rates (some at current rates, some restoring the pre-2006 interest rate formulas). They have also proposed simplifying the various income-dependent repayment plans into a single plan modeled after the Pay As You Earn (PAYE) repayment plan and making it the default choice.
But that might not be good enough, as the interest rates aren’t what’s causing the student loan debt crisis.
“The problem with student loans is the amount of debt, not the cost of debt,” says Mark Kantrowitz, a financial aid expert and president of MK Consulting Inc. in Las Vegas. “Refinancing the loans at lower interest rates may be attractive to voters, especially students, recent college graduates and their families, but the actual relief to borrowers will be small, reducing loan payments by a few dollars a month.”