Debt 101: our system now saddles students with loans that make low-paying but meaningful work impossible. Here's how to fix it

Washington Monthly, March, 1993 by John Heilemann

But, according to Yale's director of financial aid, that program failed because it proved difficult to get hold of the students' tax returns. Having the IRS collect repayments would solve that. As for the costs, it's certainly true that it might take some years before the program broke even. But it is not breaking even now. By letting students pay according to how much they make, an income-contingent plan would probably do as much as the IRS to end defaults. As a National Commission on Responsibilities for Financing Post secondary Education report, which advocates the idea, points out, most graduates who default do so because they just can't make the payments on their salaries. With appropriately tailored repayment schedules, that problem would all but disappear. Yes, some people would pay their loans back very, very slowly, maybe into their fifties and even sixties. But few would fail to pay at all.

Even if income contingent payment plans ended up costing as much (or a bit more) than the current system it would still be worth doing. Why? For a start, there is the matter of fairness. On its face there is something absurd about asking two people with the same amount of student debt, one a social worker and the other a corporate lawyer, to repay the same amount each month.

But, most importantly, such a change would turn student loans back into what they were intended to be: a means of liberating young people. For many poorer students, knowing that those debts will not crush them could mean the difference between going or not going to college. For many others, undergraduates and graduates alike, it would mean opening up a world of options rather than closing them down.

John Heilemann is the acting Washington bureau chief of The Economist.