Our current system for collecting student loans makes no distinction between deadbeats who cheat and the much greater numbers of people who just don’t have the money to repay. As predatory debt collection agencies ruin the lives of more and more Americans, we are ignoring an easy and fair solution.
But while these reforms might provide easier paths for many struggling borrowers, they largely leave the current system and its many dysfunctions in place. Borrowers will still be reliant on the servicers to tell them about their repayment options, including IBR. Collection agencies will still be paid based on how much revenue they can extract from defaulted borrowers, which means they will have strong incentive to find ways not to comply with the new requirements. The Department of Education’s lax system of oversight of servicers and collection agencies shows no real signs of improving.
Even if these incremental measures could bring some improvement, it’s worth asking some bigger questions: Is this even the system we want? Do student loan repayment options need to be so impossibly complex? Is it really necessary to subject borrowers to the caprice, incompetence, and abuse of loan servicers and collectors? Should our system take no account of the reality that some students embark on careers that are vitally needed by society but that only pay modest or uneven income, from being a primary care doctor to starting a new business?
As it happens, there is a better way. We could follow the lead of countries like Australia, New Zealand, and the United Kingdom and create a single student loan repayment system that is entirely based on a borrower’s future income. Under such a program, employees with federal student loans would see a portion of their income withheld by their employers and used to pay down their debt, much as they see payroll taxes withheld today. Self-employed borrowers would use a simple schedule on their federal income tax forms that would tell them how much they owed on their federal student loans. When a borrower’s adjustable gross income went up or down, so would their monthly payments, with the only enforcement mechanism needed being the Internal Revenue Service. Defaults would be virtually eliminated, along with the need for the government to spend tax dollars on collection agencies. Borrowers with high incomes would simply pay off the loans more quickly than those with low incomes. (For answers to questions critics of ICL raise, see “Answering the Critics of ‘Pay as You Earn’ Plans”)
The proposal is a win-win. Efforts would still be needed to crack down on college dropout factories and shady trade schools, and to promote improved efficiency and accountability throughout higher education. But borrowers would no longer be left on their own to navigate among a dizzying array of repayment options as their debts spiraled. Nor would anyone need to forsake such callings as family medicine or social work, or even being an entrepreneur, just because of the crushing burden of fixed student debt payments. And above all, the millions of today’s younger Americans who are earnestly trying to repay their debts would not need to endure the hell faced by struggling former students like Gregory McNeil. If this proposal seems political impossible, consider that the Obama administration has already gotten the banks out of the student loan business. Having done that, surely it will be easier to throw over the repo men.
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