A new white paper calls the federal student loan program “needlessly complex” and lacking an effective safety net for borrowers in financial difficulty. The paper proposes a plan to simplify the system by providing all eligible students with a single $50,000 line of credit, with repayments structured as an income-share agreement (ISA).
For many undergraduates, the repayment terms would be as good as they are today. Students who borrow against their line of credit for graduate and professional degrees, and undergraduates who go on to earn high incomes, will pay more than under the current program because they would lose access to the current system’s overly generous loan-forgiveness terms. The terms of a federal ISA will be easier for student borrowers to understand. Similarly, income-tax-based repayments will make it easier than today’s cumbersome income-based repayment program for borrowers to have their payments set.