3 ms·

You could means test repayment. That's how it's done here in Germany, only once I earn a good deal I'll have to pay back a small percentage each month. If I nev

You could means test repayment. That's how it's done here in Germany, only once I earn a good deal I'll have to pay back a small percentage each month. If I never get a steady income I just won't have to repay it if I understand it correctly.

dragonwriter 3y ago
We already means-test repayment in the US, we just make the means-testing opt-in, and have loan servicers who have a financial incentive to steer people who would benefit away from the means-tested option.
- semiquaver 3y ago
  Honest question: in what way are student loan servicers in the US financially incentivized to steer borrowers away from income based repayment plans? I think that the opposite is true. Servicers are paid a flat fee per outstanding loan, without regard to balance or monthly payment, _as long as payments are current_. Delinquent accounts are worth less. Being put on an IBR reduces your monthly payment, making it more likely it can remain in the state that is most profitable for the servicer. https://thecollegeinvestor.com/36556/how-much-do-federal-student-loan-servicers-make https://thecollegeinvestor.com/36556/how-much-do-federal-stu... From that perspective, the servicer is strongly incentivized to use IBR plans for accounts at risk, with no downside to them for erring on the side of lower payments. Furthermore, income based repayment plans aren’t a forgiveness of debt or reduction in interest rate. They simply reduce the monthly payment by extending the term as needed. In practice this can mean adding decades to the term, sometimes creating a situation where the principal grows every month. The longer the extension, the more fees paid to the servicer, since they make a flat monthly fee per loan. Again, one would think that the servicers would have every incentive to promote such a system.

3 ms·

You could means test repayment. That's how it's done here in Germany, only once I earn a good deal I'll have to pay back a small percentage each month. If I nev

by pohuing 3y ago

dragonwriter 3y ago
We already means-test repayment in the US, we just make the means-testing opt-in, and have loan servicers who have a financial incentive to steer people who would benefit away from the means-tested option.
- semiquaver 3y ago
  Honest question: in what way are student loan servicers in the US financially incentivized to steer borrowers away from income based repayment plans? I think that the opposite is true. Servicers are paid a flat fee per outstanding loan, without regard to balance or monthly payment, _as long as payments are current_. Delinquent accounts are worth less. Being put on an IBR reduces your monthly payment, making it more likely it can remain in the state that is most profitable for the servicer. https://thecollegeinvestor.com/36556/how-much-do-federal-student-loan-servicers-make https://thecollegeinvestor.com/36556/how-much-do-federal-stu... From that perspective, the servicer is strongly incentivized to use IBR plans for accounts at risk, with no downside to them for erring on the side of lower payments. Furthermore, income based repayment plans aren’t a forgiveness of debt or reduction in interest rate. They simply reduce the monthly payment by extending the term as needed. In practice this can mean adding decades to the term, sometimes creating a situation where the principal grows every month. The longer the extension, the more fees paid to the servicer, since they make a flat monthly fee per loan. Again, one would think that the servicers would have every incentive to promote such a system.