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June 4, 2022, 6:46 a.m. EDT

Our student-loan system needs fixing — and this change would be smarter than just forgiving debt

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By Sandy Baum and Michael McPherson

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That said, raising the threshold for beginning payments to 200% of the poverty level would come closer to assessing only earnings exceeding those of typical high-school graduates.

In addition:

  • Borrowers whose monthly payments do not cover the interest charged see their loan balances increase, even when they are in good standing. Limiting the amount of interest that can accrue would mitigate this problem.

  • A disproportionate share of the loan forgiveness under ICL is projected to go to those who borrowed for graduate school. Most people eager for larger public subsidies to students do not have these students in mind. While there are strict limits on the amount undergraduate students can borrow from the federal government, this is not the case for graduate students. Imposing such limits would reduce the cost to taxpayers and make the system more equitably targeted toward increasing access to and success in undergraduate education

  • For borrowers who do not fully repay their debts before balances are forgiven (typically after 20 years for undergraduate borrowers), the amount they repay depends only on their earnings paths, not on the amount they borrowed. This is a giveaway to those with large debts and unfair to those who made the effort to hold their borrowing down. Tying time to forgiveness to amount borrowed could solve this problem.

We have further detailed guidelines for strengthening the ICL system elsewhere. In an environment where mitigating current difficulties with loan repayment is both politically and economically critical, we should keep the basic purpose of student loans, which is to help more people attend and succeed in college, front and center. To achieve that end, we need to do a better job of steering students away from educational options that will serve them poorly while ensuring that students whose education has helped them prosper pay back their loans.

Barring a dramatic transformation of our tax system and the resources available to pay for higher education and to cover students’ expenses while they are in school, eliminating federal student loans would severely restrict educational opportunities in the U.S. Fixing the current system is the best approach to preserving and augmenting those opportunities.

Sandy Baum is a nonresident senior fellow at the Center on Education Data and Policy at the Urban Institute and professor emeritus of economics at Skidmore College in Saratoga Springs, N.Y. Michael McPherson is president emeritus of the Spencer Foundation and Macalester College in Saint Paul, Minn. They are the authors of “Can College Level the Playing Field? Higher Education in an Unequal Society.”

Now read: Teens headed to college this year could face almost $40K in debt, and more parents are shouldering the load

Plus: ‘I was treated unfairly by everyone’: Student-loan lawsuit claims government and collectors cost borrowers tax refunds and Social Security checks

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