Income-contingent Loan Repayment: A Solution to the Student Debt Dilemma

“It’s your debt. Pay it yourself” (Adolphsen). While many of us would conceptually agree with Sam Adolphsen’s statement, the current student loan scene in America does not facilitate an easy path to actually follow through with that idea. At present, student loan debt in the U.S. is a dizzying $1.48 trillion spread across 44 million Americans (“U.S. Students”). Something must be done about this widespread and expanding problem. The Federal Government currently originates all student loans, so the power to revolutionize the system lies within their reach (Carey). Thus, in order to lighten the stifling burden placed upon graduates by their student loans, the Government should institute an automatic, income-contingent loan repayment system.

Currently, the method through which loans are repaid is flawed. It involves a set timetable for repayment and a government-mandated fixed interest rate. This system crushes students who desire to pursue noble yet lesser-paid professions such as teaching or social work, since they cannot keep up with their loan installments (Carey). As one study found, even students entering traditionally higher paying professions will likely still face hardships early in their careers, since 56 percent of American students struggle with loan payment during the five years following college (Carey). In addition to the economic difficulties, the current system is complex and cumbersome which leads to logistical trials for students. Kevin Carey points out that some students miss payments simply because they failed to send the “right check to the right place at the right time.” Clearly, the student loan system needs to be revised. Fortunately, a concise and effective solution exists: income-contingent loan repayment. With this program, instead of paying a certain amount towards their loan per month, graduates will pay a percentage of their salary towards their loan. This amount will be automatically removed from the students’ paychecks by the IRS in a similar fashion to income taxes (Carey).

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Loan defaults will cease to exist since payment will always be manageable and students simply pay an amount proportional to their earnings. Income-contingent loan settlement is the clear choice to rectify the broken student loan system. Income-based loans are not just theoretically solid, they are also completely feasible. Because the Federal government has jurisdiction over all student loans, automatic payroll deduction can conceivably be instituted by the IRS. A similar concept was enacted by Britain and Australia and has been working effectively, thus proving the possible validity of an income-contingent program here in the U.S. An incredible 98 percent of Britain’s students are meeting their loan obligations during the first five post-graduation years, compared to 44 percent of students in America (Carey). The fact that income-based loans have been shown to work in other countries, coupled with the foreseeable path to enactment, results in a definitive case for the U.S. to adopt them. Adding to the income-contingent loan system’s already compelling resume are its numerous benefits. The years following graduation are the hardest to repay loans.

However, this proposed solution will significantly reduce the burden experienced by graduates throughout that time. Whatever revenue students make, their loan installment will always remain at a reasonable amount for them to manage. Graduates will never be overwhelmed by large installments that break their budget or cause them to default. Simplicity is another major plus for this system. Because withdrawal is done automatically from their paychecks, students will not be forced to stressfully research payment deadlines and addresses to send checks. Additionally, those in fields that pay their employees less will not be overwhelmed by unmanageable debt solely because of their career choice. Repayment based on income ensures no one will fall behind and everyone will possess the ability to pay off their accounts. Naturally, with an issue as important as student debt there are differing opinions, ideas, and proposals. A forerunner in the student loan debate is the concept of student loan forgiveness. Proponents of this proposal suggest complete student debt cancelation. They contend that through debt forgiveness the $1.5 trillion in lost revenue the government would soak up would actually boost the economy via an increase in consumer spending. In the words of Astra Taylor, a supporter of student debt cancellation and co-founder of the Debt Collective, “[m]oney not spent paying off loans would be spent elsewhere.”

However, past government programs have shown that this idea may be flawed. As shown through the failure of stimulus packages that were distributed due to the housing crisis of 2008, “giving people more money to spend will not bring recovery” (Vedder). Economist Justin Wolfers strongly agrees that loan forgiveness will not aid the economy. He somewhat harshly states, “this is the worst idea ever” (qtd. in Vedder). Transitioning from an economic perspective to a purely personal point of reference, it would be extremely unfair to those who worked hard for many years to settle their debt if their peers were rewarded for not paying theirs. Additionally, there would be no reason to even take on a loan if students knew they were not going to be held accountable for paying it off. According to Adolphsen, students should not be rewarded for avoidable financial decisions that left them in debt. Nobody was forced to attend a certain college, borrow a large sum of money, or pursue a lower-paying degree at a high-cost college (Adolphsen).

Thus, while there are alternative proposals to an income-based loan system, most just attempt to pardon the loan or create free college and none of them allow students to feasibly repay the debt they incurred in workable portions. It should be noted that there exists a program related the income-contingent proposal previously explained that is already in motion, having been established under the Obama administration. Although this program contains some key elements of an income-contingent system, it still leaves much to be desired and is, “administratively complicated, involving income-eligibility caps and requiring students to reapply every year” (Carey). This plan lacks a strength of the loan proposal described herein: simplicity. In the end, the student loan system in the U.S. is far from adequate. Fortunately for us, many shortcomings in today’s structure will be solved by a program based on income-contingent loan repayment. It is effective. Proven to work in Britain and Australia, this policy should garner bi-partisan support in government (Carey). It is feasible. The IRS has the ability to withdraw your payment straight from your paycheck. It is manageable. Students are prevented from being drowned in debt straight out of college. Finally, this program is simple. Touting worry-free withdrawal, graduates will not have to stress about overdue balances. So yes, it is our debt, but thankfully, this system of income-contingent repayment will finally establish a feasible avenue through which to settle our loans.

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Income-contingent Loan Repayment: A Solution to the Student Debt Dilemma. (2021, Dec 16). Retrieved from