We Already Have an Alternative to Massive Student-Loan Cancellation

Income-driven repayment (IDR), an existing set of programs that function somewhat poorly, can be improved to ensure that not a single borrower will ever have to make an unaffordable payment on federal student loans. Under IDR, monthly payments are tied to a borrower’s income and unaffordable balances are ultimately forgiven. IDR accomplishes this in a way that minimizes moral hazard and delivers benefits in a true progressive manner — with more benefits going to people who invested in a college degree, and took on debt to do so, but didn’t see the return they were promised in the form of a high-paying job.”

“IDR allows borrowers to make monthly payments that are equal to a fixed percentage of their current disposable income. When income is high, they pay the full amount due, and when income is low, they can make a reduced payment without penalty.”

“The balance is forgiven once a borrower has made a requisite number of IDR payments. This takes between ten and 25 years depending on the student’s eligibility and choice of IDR program. Borrowers may not like having a balance hanging over their head for that long, but the reduced monthly payments (often reduced to zero) mean the process isn’t excessively burdensome.”

“Despite the IDR system’s appropriateness for the policy challenge at hand, the system hasn’t been working well. The reason for this is largely that IDR is administered through a variety of programs each with different eligibility criteria and a range of program parameters. The amount borrowers are expected to pay is calculated differently across programs, as is the number of years before borrowers can qualify to have their balance forgiven. The result is a system that is excessively complex to navigate, with many borrowers unaware of the benefits that are available to them. While IDR is now universal for all federal student borrowers, it became that way only after a series of legislative and executive interventions, between 1992 and 2015, stitched together a patchwork of loosely related programs. Factual evidence about how IDR has been used is limited, but anecdotes about the challenges of navigating the system, even by financially savvy consumers, indicate systemic problems. This rickety policy framework desperately needs to be replaced with a single user-friendly, income-driven repayment plan that can be universally marketed and better understood.
Reasonable people can disagree about how generous IDR should be. Moving the conversation away from mass loan forgiveness to reforming IDR would be a step in a fairer and more efficient direction.”

https://www.yahoo.com/news/already-alternative-massive-student-loan-113013284.html

Leave a Reply

Your email address will not be published. Required fields are marked *