Strengthening Federal Student Aid: Reforming the Student Loan Repayment System

Amid concerns about student debt and default, many experts are calling for an income-driven student loan repayment system that will better protect students and significantly reduce defaults. The review of detailed proposals related to income-driven repayment in the Strengthening Federal Student Aid report reveals how alternative designs would lead to different outcomes for borrowers and for taxpayers, suggesting some important guidelines. The program should provide insurance for borrowers with unforeseen difficulties in repayment. Rather than minimizing payments, the design should ensure that most borrowers eventually repay and that incentives for institutions to overcharge and for students to over-borrow are minimized.