Ailts: Income-based loan repayment could set a generation free

Rates of graduates defaulting on their loans is on the rise again, but we can easily solve this problem.

Ellen Ailts

Over the past decade, outstanding student debt has skyrocketed from around $450 billion to more than $1.25 trillion. This can be explained, in part, by the increase in university enrollment, but it’s also due to the rising cost of higher education. Recently, the Education Department reported that the amount of people who fail to pay their student loans within three years of graduation has increased; out of 5 million borrowers from 6,173 schools, 580,671 have defaulted in the last three years. According to the non-profit Institute for College Access and Success, as of June 2017 there are 8.5 million federal student loan borrowers who are in default. This is a record number that will only continue to grow if our current system of loan repayment remains unchanged. 

The cost of tuition continues to rise, and since wages often don’t, graduates are deeply burdened by the weight of their student loans. Defaulting on student loans has harsh and long-term consequences including loss of eligibility for forgiveness plans, lowered credit score (which continues to be visible to lenders even if the default is resolved quickly), collections fees, wage garnishment and higher interest rates. The titanic amount of student loan debt has set an entire generation up for failure, or at the very least an extended period of quasi-indentured servitude, all for a degree that was supposed to provide more options, more freedom. Instead, many college graduates find themselves looking for any job, anything that will repay their debts.

But there is a promising and feasible solution, proven so by its implementation in other countries, like the United Kingdom and Australia. Income-contingent repayment of loans provides graduates with a much more manageable method of student loan repayment, because borrowers only have to pay a certain percentage of their income. This way, you don’t have to repay debt if you find yourself unemployed or in a low-paying position — as many recent graduates do. Right now, students pay loans back on a fixed schedule, usually over 10 years, and since new graduates often don’t land high-paying jobs right out of college, they are immediately burdened by much more debt than they can presently handle. This is especially true of those who graduate during economic recessions, and partly why there has been a recent, sharp increase in loan defaults. With the income-based model, no one ever has to default on their federal student loans ever again, and it wouldn’t be any more expensive than the current system, since the federal government can calibrate interest and payment rates. 

The student loan system is truly a monstrous problem, limiting the dreams and opportunities of an entire generation. The solution of an income-based repayment model wouldn’t solve the root issues of rising college cost and a weak economy, but it would relieve many people of a weighty affliction — not only those who are currently in debt, but future graduates who will be similarly encumbered. An income-based system is a humane, non-partisan idea that would help so many Americans in building their lives and achieving their goals. The only question is: how is this not already a thing?