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

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.