The fundamental problem with student loans is that education is an intangible asset. Unlike a loan to buy a home or a car, there’s nothing that the lender can repossess if things go sideways. Financing education, both at the individual level and societal level, is always going to be a difficult problem, contentious and fraught. That being said, there’s some low hanging fruit.
1. Streamline the collection of student debt by creating a system of payroll deductions—maybe even add it to W4′s. It’s all going to the U.S. Treasury anyway.
2. Cap payments at a fixed percentage of the borrower’s federal tax liability, say 20%. Thus if you pay $10 in taxes in a given pay period, at most $2 would go toward your loan.
3. Prorate PSLF instead of making it all-or-nothing—if you work half a year for a qualifying employer, you’d get 5% of your principal written off.
4. Federal student loans are unique compared to other loans in that they’re completely forgiven when the borrower dies. That’s nice, but it also means that a significant portion of the high interest rates is likely due to default risk. Borrowers should be allowed to get a reduced rate if they buy credit life insurance, making the government (that is, the lender) the beneficiary.
The fundamental problem with student loans is that education is an intangible asset. Unlike a loan to buy a home or a car, there’s nothing that the lender can repossess if things go sideways. Financing education, both at the individual level and societal level, is always going to be a difficult problem, contentious and fraught. That being said, there’s some low hanging fruit.
1. Streamline the collection of student debt by creating a system of payroll deductions—maybe even add it to W4′s. It’s all going to the U.S. Treasury anyway.
2. Cap payments at a fixed percentage of the borrower’s federal tax liability, say 20%. Thus if you pay $10 in taxes in a given pay period, at most $2 would go toward your loan.
3. Prorate PSLF instead of making it all-or-nothing—if you work half a year for a qualifying employer, you’d get 5% of your principal written off.
4. Federal student loans are unique compared to other loans in that they’re completely forgiven when the borrower dies. That’s nice, but it also means that a significant portion of the high interest rates is likely due to default risk. Borrowers should be allowed to get a reduced rate if they buy credit life insurance, making the government (that is, the lender) the beneficiary.