The U.S. Should Adopt Income-Based Loans Now

Kevin Carey:

A new generation of student debtors has seized the public stage. While the demands of the Occupy Wall Street movement are many, college lending reform is near the top of every list. Decades of greed, inattention, and failed policy have created a growing class of young men and women with few prospects of landing jobs good enough to bear the weight of their crushing college loans.

Some activists have called for wholesale student-loan forgiveness--a kind of 21st-century jubilee. That's unlikely. But there's something the federal government can do right now to help students caught by our terribly unjust higher-education financing system: End all federal student-loan defaults forever by moving to income-contingent loans.

The concept is simple. Right now, students pay back their loans on a fixed schedule, typically amortized over 10 years. Since people usually make less money early in their careers, their fixed monthly loan bill is hardest to manage in the first years after graduating (or not) from college. People unlucky enough to graduate during horrible recessions are even more likely to have bad jobs or no jobs and struggle paying back their loans. Not coincidentally, the U.S. Department of Education recently announced a sharp rise in loan defaults.

Posted by Jim Zellmer at November 6, 2011 2:45 AM
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