Trent, this is an excellent plan you mention here that can help all sides in this monstrous problem.
I actually spent 6 months working with an agency that helps those with student loan debt find and use the current programs available to alleviate some if not most of their debt. I can not tell you how many times I would get off the phone and just feel sad.
I agree with you 100% that many, many of these people (particularly teachers, of which there are many) have been taken advantage of — the value of their original loan and all of the interest they are paying on top of the loan does not equal the education they received. And for those who took out their loans to pay for graduate school that would supposedly help them get much higher paying jobs… Here in Florida their pay raise (if they even received one) has often not come close to matching what their monthly loan payment is.
I have heard people say that these people should have known better than to get themselves into such large amounts of debt. But that is not the reality of the situation. Many of them were just trying to better themselves — which is what our society have told them they should be doing. Most of them deserve whatever help the government can offer, and your solution is actually the best I have come across to date.
Now — if only the powers that be would put together a plan like this. Unfortunately, they probably will not see it as being in their own best interest.