Two Conservative Ideas for Fixing Student Loans

The Democrats are in the middle of a presidential primary and the Republicans are not, so lefty ideas about how to fix student debt — i.e., throwing taxpayer money at borrowers — have gotten a lot of media coverage. Less noted have been numerous better ideas emanating from the right.

As I argued at length in a print piece earlier this month, while the “crisis” here is overblown and massive new taxpayer handouts wholly unjustified, the system does need reform. Specifically, we need to do two things: (1) provide worthy students a way to fund their education without crippling their finances, but also without dumping their costs on everyone else; and (2) give colleges incentives to control their costs and stop admitting students who won’t benefit, and who might well drop out and/or end up defaulting on their loans.

Two recent papers from the Manhattan Institute nicely illustrate conservative ways of approaching these issues. And each touts an idea with some support in Congress.

The first, written by Jason Delisle and released today, makes the case for “income-share agreements.” Under these arrangements, a lender pays for a student’s education, and in return the student pays a set percentage of his income for a set number of years. This way, students pay for their education during the years when they’re benefiting from it the most — the years when their earnings are high — and are protected against big bills when they’re struggling.

Delisle’s proposal is to take this as a model for the entire student-loan program. The rule is simple: You can borrow up to $50,000, and for every $10,000 you borrow, you owe 1 percent of your earnings for the next 25 years (unless you first hit the repayment cap of 1.75 times the amount of the loan). If you get married, you pay for your ISA based on half the household income. If you make less than $12,000 or receive the earned-income tax credit, your payments are reduced or eliminated.