Save me from Myself- Government takeover of Student Loans?

I recently published a blog about the impending Student Loan bubble if nothing is fixed. Well, there is a proposed fix out there that I have learned about since that post. The proposal is that student loan payments undergo a major overhaul and start coming out of people's paychecks, much like taxes do.

I know, I know, calm down, keep reading.

There are a lot of really great benefits built into this. The amount that you pay would be capped at 15% of your income AFTER cost of living is taken out. This would make it so that if you have a high paying job you pay off your loan more rapidly than if you have a lower paying job, but either way you are paying, and the amount isn't arbitrary, it is based on what you make. This would also make it so that if you lose your job you quit paying and when you get a new one you start again.

Also, they would put a cap on the amount of interest you can be charged. The cap would be that you can only be charged up to 50% of what your loan's valuation is at the time of graduation. So, if you owe $20,000 you cannot be charged more than $10,000 in interest. This is also, however, where a danger point lies. If they pass this they (the government) are expected to  drastically reduce the number of subsidized loans that they issue. This would make it so that you would be accruing interest the whole time you are in school, adding to the valuation of your loan at the time a graduation. The other danger here is that there is no regulation written in as to what kind of interest rates they can charge while you are in school. This is probably just an oversight and not something that they actually plan on nailing students with, but some of you will disagree, and that's ok.

I think this is a great plan. I was talking with a fellow student about this and we both agreed on this point. The biggest benefit that we saw to the graduate is that it comes out before you ever get your paycheck, so you won't really miss it. It is much harder to write a check than to just never have that money in the first place. My boyfriend has health insurance benefits through his job and he makes several payments into that each month. They come out automatically and so he never misses that money. Now, if he had to write a check to pay into those same benefits I guarantee he would almost never make that payment.

Why is this even a problem? Student loan debt has topped $1 trillion, finally beating out credit card debt. While all other consumer debt industries saw payment improvement this past year the student loan category took a major turn in the opposite direction. "Last year, 5 million borrowers were in default - meaning they had failed to make payments for at least 270 days -- on $67 billion in loans, more than twice the amount in 2003." (Collections and Credit Risk)

It is hard to pay for school. Getting loans is the only way that some people can get through school. Knowing that there was a better repayment program in place may help make it so that lenders are willing to grant funds to those people who currently struggle with finding funding for school.

Thoughts?