A Better Way to Deal with Student Loan Debt

My Georgetown colleague Jake Brooks and I have an op-ed in Politico about the best way to address the student loan debt problem. We argue that existing proposals for outright student debt relief, whether $10k, $50k, or everything, are problematic, at least standing on their own, particularly because they fail to address the student loan problem going forward. Instead, we see income-driven repayment (IDR) plans as a key part of addressing the problem. 

Income-driven repayment plans for federal student loans require borrowers to make means-based payments for 20 or 25 years, with any remaining balance forgiven thereafter. Bankruptcy folks might see a glimmer of chapter 13 in IDR plans—the borrower pays what he can for a period of years and any remaining balance is then discharged.

While most federal borrowers are eligible for income-driven repayment plans, many are not in them as IDR is not the default option and requires annual recertification. There's also a host of implementation problems with the current IDR program. Nonetheless, Jake and I see it as the right conceptual model for a system that lacks any sort of front-end underwriting or ability-to-repay requirement: IDR functions as a back-end ability-to-repay safeguard. 

IDR is not a solve-all solution. As we see it, a reformed income-driven repayment system is the best approach going forward and also for recent borrowers; for borrowers who have been paying for years, however, some graduated level of forgiveness is appropriate.

Now, some Slips readers might ask "what about bankruptcy"?  We don't discuss it at all. IDR doesn't require bankruptcy to be successful. While I support broadening the dischargeability of student loans, bankruptcy should not be the primary safety valve in our student loan system, and if we get IDR right, it won't be needed in most cases.