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Instead of income based repayment, I would rather see very low interest rates on student loans (like 1.5%). That way everyone pays the full amount they borrow,
by subroutine 4y ago
Instead of income based repayment, I would rather see very low interest rates on student loans (like 1.5%). That way everyone pays the full amount they borrow, there is still incentive to repay promptly, borrow less, earn a higher wage, and those with low income can at least pay off the loan interest so their loan does not balloon. And it's simpler.
Another thought I had (not completely fleshed out)... Federal student loans could help cap tuition costs somewhat like medicaid/medicare. The fed offers a fixed amount per semester (say $4k) to each student. The catch is that a uni can only accept fed loans if their tuition is fixed at the cap. (i believe this is how medicare negotiates reasonable prices for meds - "if you want to accept medicare here is what we will pay for Rx, and it's all or nothing").
- sokoloff 4y ago> incentive to repay promptly, borrow less In an environment where inflation is running well over 5% and 1 Year Treasuries are yielding 4%, there is no [economic] incentive to pay off a loan at a 1.5% interest rate. You would literally be better off to buy 1 Year Treasuries than pay off that loan (and consequently, to borrow as much as you could).
- maerF0x0 4y agoI think we should be careful not to discount the idea where the 1.5% likely was actually a stand in for a variable to be discovered/optimized
- awinder 4y agoThat’s not how loans work, if it was credit card debt yeah you could pay a minimum forever, but education loans have terms attached with fixed payments.
- sokoloff 4y agoYet people have loans outstanding 20, 30, or more years after taking them out, so obviously there's some amount of flexibility in the system. In any event, on its face, this system would not encourage prompt repayment but rather the opposite: the slowest possible repayment.
- s1artibartfast 4y agoA very practical solution is to mail monthly loan statements to students while they are in school, and not only when they graduate.