Re-thinking college student loans

You’ll be shocked to learn that the U.S. is not so great at handling college student loans.  Really interesting NYT piece looking at how loan repayment works in U.S., UK, Australia, and Sweden to see how other places do it better.  The winner in a landslide is Australia.  We could learn important lessons from them.  I doubt we will, but if we did:

Lessons for the U.S.

Many of our panelists could not evaluate a loan repayment system without also considering the price of tuition or questions of access. There are big differences among the four countries beyond how students repay loans. Rethinking repayment is a start, but bigger changes to how students pay for college may be necessary.

Our panelists agreed that the best student loan repayment system is one that is simple, that is based on students’ incomes, that spreads loan payments over longer periods and that’s able to collect payments automatically through the tax system.

Such a system is a far cry from what’s in place in the United States. In Australia, student loan default is rare. In the United States, the number of borrowers in default rises every year, even if the default rate falls, because defaulted borrowers are unlikely to return their loans to good standing. Beyond the individual pain this can cause, it has negativeconsequencesfor the economy.

In its recent spending bill, Congress passed a one-time $350 million forgiveness fund to smooth problems for some borrowers. The government has made strides over the years with income-based repayment plans, but the plans are so complicated that Mr. Chapman, our panelist from Australia, once tried to fill out applications as an experiment and “couldn’t do it.”

Democrats and Republicans share blame for a system that seems broken, and major reforms don’t seem near. Maybe the first step is acknowledging that possible ideas for improvement don’t stop at the border.

Of course, that’s a first step for a ton of policy.  And on that score, it’s pretty damn clear that Democrats are a lot better on that first step than are Republicans (health care, anybody?).

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

2 Responses to Re-thinking college student loans

  1. ohwilleke says:

    “the best student loan repayment system is one that is simple, that is based on students’ incomes, that spreads loan payments over longer periods and that’s able to collect payments automatically through the tax system.”

    At that point, a student loan pretty much ceases to be a loan in the conventional sense of the word. It is more like some sort of equity instrument or partnership arrangement, not a debt obligation. So, the point may be that loans are a bad way to finance higher education.

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