Published on 2013/10/25

Proposal Calls for Student-Loan Repayment System Overhaul

Student loans in the United States have gotten out of control, but a new proposal could help stop the flood.

A policy proposal released on Monday, titled “Loans for Educational Opportunity,” identifies a number of issues with the federal student-loan repayment system in the United States and discusses its inadequacy in preventing students from defaulting on their loans after entering the workforce.

Published by the Brookings Institution’s Hamilton Project, the proposal’s authors point out that borrowing for postsecondary education has been steadily rising for decades, and that student-loan debt has surpassed $1 trillion. The proposal argues that the current system needs to be replaced by a new and improved repayment model.

“We have a repayment crisis because student loans are due when borrowers have the least capacity to pay,” Susan Dynarski, one of the authors of the proposal and a professor at the University of Michigan, said at a forum discussing the paper. “It often takes years for college graduates to settle into a steady, high-paying job that reflects the value of their education.”

To address the repayment crisis, the proposal outlines a new repayment model concept intended to reduce the burden of student-loan repayments. Under the new model, employers would be required to deduct a fixed percentage of a student-loan borrower’s paycheck. The percentage deducted from an individual’s income is intended to fluctuate based on their earnings.

The proposal was one of three papers released on Monday by the Hamilton Project all looking at the financial issues facing American higher education.

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