Loans for Educational Opportunity: Making Borrowing Work for Today’s Students

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The Hamilton Project

In this article the authors propose a better model of loan repayment. A single, simple, income-based repayment system called Loans for Educational Opportunity (LEO) will replace the current, bewildering array of repayment options. Student-loan payments will automatically rise and fall with a borrower’s earnings, just as contributions to Social Security rise and fall. A fraction of earnings will be deducted from each paycheck, with a larger fraction taken when incomes are high and a smaller fraction when incomes are low. This is a system of loan repayment designed for the 98 percent of students who borrow a manageable amount. For the other 2 percent, the authors propose stronger consumer protection: private student loans will not survive bankruptcy, loans that need a credit check will not be marketed as “student loans,” and individuals will exhaust all federal student loans before being allowed to take out any private loans.

student loans, student financial aid, education, higher--government policy