Income-Based Loans Made Simple

Career College Central summary:

  • The array of different repayment options on federal student loans should be replaced with a single, income-based repayment system that automatically deducts payments from borrowers’ paychecks, according to a new policy proposal published Monday by the Brookings Institution’s Hamilton Project
  • The paper argues that the current federal loan system (including its income-based repayment options) does not do a good job of preventing defaults because it is too complicated and burdens young workers with large payments when they are least able to handle them.
  • Under the proposal, employers would withhold a fixed percentage from individuals’ paychecks in the same way they already deduct payroll taxes. Any outstanding loan balance that is not repaid after 25 years would be forgiven and the amount would not be considered taxable income, as it is under the federal government's current income-based repayment programs.
  • The authors of the proposal — Susan Dynarski, a professor of public policy, education and economics at the University of Michigan at Ann Arbor, and Daniel Kreisman, who is a postdoctoral fellow at the same institution — write that their plan is aimed at alleviating the burden on the vast majority of borrowers who have modest amounts of debt.

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