US terms of aid

The article “Income-contingent loans ‘could solve US student debt crisis’” (14 March, www.timeshighereducation.com) contains a significant error.

US federal education loans, such as the Stafford Loan and the Direct PLUS Loan, already have characteristics of income-contingent loans. In fact, there are four different income-driven repayment plans available for these loans: income-contingent repayment (ICR), income-based repayment (IBR), pay-as-you-earn repayment (PAYER) and revised pay-as-you-earn repayment (REPAYER). The first of these became available in 1993. Monthly payments are tied to discretionary income, and the repayment terms range from 20 to 25 years, with remaining balances written off at that point.

Public service loan forgiveness cuts the time until forgiveness to 10 years (120 payments) for any of these plans if the borrower works full-time in a public service job.

The real problem is that there are too many income-driven repayment plans, making it difficult for borrowers to choose. If a borrower qualifies for PAYER, it is the best plan. Otherwise, IBR or REPAYER will be the best plan. There are subtle differences. For example, IBR caps the monthly payments at the standard 10-year repayment plan amount, while REPAYER allows the payments to grow without a cap as the borrower’s income rises.

In addition to seeming unaware that the US has had an income-contingent repayment plan for more than two decades, the article also assumes that there is a student debt crisis. While $1.4 trillion (£1.13 trillion) in student loans may be an impressive milestone, the debt of individual borrowers matters more. As long as a borrower’s total student loan debt at graduation is less than their annual income, they can afford to repay the loans within 10 years. Only about one-sixth of bachelor’s degree recipients graduate with more debt than they can afford to repay in 10 years. That’s hardly a crisis. The US does not have a student loan problem so much as a college completion problem. Students who drop out of college are four times more likely to default on their loans than those who graduate, and they represent nearly two-thirds (63 per cent) of the defaults.

Mark Kantrowitz
Publisher and vice-president of strategy, Cappex.com

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