Income Contingent Loans

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Income Contingent Loans Can Solve the Student Loan Debt Crisis

Students in the US are currently drowning in student loan debt. One recent study found that the majority of American borrowers, 56% of them struggle with paying their student loan payments in the first five years after college.(Paragraph 12) Finding a solution to the problem will help millions of students. This US should adopt income contingent loans to solve the student loan debt crisis.

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Imagine yourself being fresh out of college, wondering what you are going to do next. What would your plan be? In America young adults have fewer opportunities to land a good paying job without an education. Students believe that after graduating college that they will land an awesome paying job and things will be great.

This is usually not the case, entry level paying jobs pay much less than what students expect. Students then end up in defaulting in their student loans. In Britain, by contrast, 98% of their borrowers are meeting their obligations (Paragraph 12) to their income contingent loans. These loans are simple for students. The payments are at a fixed percentage of the borrowers income, The IRS then automatically deducts payments from the students paychecks. Since income contingent loans go by the students income the students with lower paying jobs below poverty level end up paying little to nothing. Students with higher paying jobs and up paying more to paying off their loans quicker. After 20 to 30 years of a loan not being paid the student loan is forgiven.

In Britain and Australia they have proven that income contingent loans have worked for their students for many years. This idea was proposed by and noble prize winning economist Milton Friedman back in 1955. One might wonder why they don’t already exists. Historically, administrative complications had been the major culprit. Until last year, the federal government managed most student loans by paying private banks to act as Linders and then guaranteeing their losses. (Paragraph 8) The problem arises when students sign on the dotted line, they don’t realize that the consequences of all the debt will affect them the rest of their lives.

These students end up not being able to pay their student loans, causing them to go into default along with paying late fees and extra interest. Going into default means that the students credit is decreasing month by month as it is in default. Students begin to get married and have children they are looking into buying houses and new cars, this then becomes an issue due to their student loans being in default for so long. Because student loans can almost never be discharged in bankruptcy, default in loans can hunt students for a lifetime. (Paragraph 13) If not paid off before retiring this can result in garnishment of Social Security checks to make good on defaulted student loans.

The student loan debt crisis can’t be solved with income contingent loans. this week the US erased $13 million of unpaid tuition receivables belonging to 9438 people associated with Everest college a Corinthian subsidiary. (Taylor) Nobody ever defaults on a federal student loan ever again. The whole concept of Default is expunged from the system. (Para. 5) Income contingent loans are extremely simple. They are the easiest way to pay back student loans.

This allows student to be able to buy cars, houses and live a quality life. Students wouldn’t have to worry about receiving 10 calls a night from creditors haseling them to have to pay money back. people unlucky enough to graduate during the horrible recessions or even more likely to have bad jobs or no jobs and struggle paying back their loans. (Paragraph 3) The students who want to enter low paying jobs such a teacher, or social work would no longer have to worry about unimaginable student debt. With this being said the republicans and democrats both agree that income contingent loans are a great idea, helping students with loans debts. This isn’t a political issue this is a human issue that all political sides agree upon.

It is true that students who pay over long periods of time with pay more interest and that the taxpayers will bear the cost of partially forgiven loans. But, under the current system the federal government is already eating the cost of defaulted loans, and low income students who can’t repay loans are often hit with fines and penalties that dwarf the cost of extra interest. (Paragraph 10) Even though they may be simple, with the government controlling the loans, it is hard for student to meet all the requirements such as different rates, terms, lenders and consolidation options. While trying to solve the student loan crisis, the prices of community and university colleges are still on the rise and don’t plan to drop any time soon. But this does provide an outlet to paying back student loans.

The millions of young people today, who owe over $1 trillion in loans, may want to consider my example (Siegel) I believe that income contingent loans will solve the student loan crisis for all Americans. When it is based on the student’s income the student loans will never be an issue. Even students below poverty will never have to suffer from their student loan debt. Student will no longer have to deal with the annoying collection phone calls that threaten people with up to 10 phone calls a night. People will be free of debt and more open to purchasing houses and homes helping the economy be better for everyone. Students will no longer have to be haunted by default of loans. Income contingent loans are just one way to help students be debt free and in helping our government by not having to write off defaulted loans.

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