Here’s a well thought out piece on student loan policy by Susan Dynarski at Brookings. Bottom line:
If we want to increase college-going by lowering its price, evidence shows that grants and lower tuition are the right policy tools. [v] Cutting interest rates on student loans won’t get more students into college, and siphons off revenue from the grants than can do this important job.
If we want to reduce distress and default among student-loan borrowers, cutting interest rates is also the wrong policy. It does little for distressed borrowers while providing windfall gains to those having no trouble repaying their loans. A well-designed, income-based repayment plan allows borrowers to pay back their loans when and if they are able and is the best route to reducing default and distress. [vi]