Times Reports on Student Loan Alternatives

This weekend, the Times ran a pair of pieces that laid out other ways to handle student loans.  In America Can Fix Its Student Loan Crisis. Just Ask Australia, Susan Dynarski wrote about how other countries deal with student loans. Here's an excerpt:

[T]here is no student debt crisis in Sweden, because payments are spread out over 25 years. They also start out low, rising slowly over time. In the United States, the typical repayment period is just 10 years.

All the international student loan experts I have spoken with are shocked by how little time American students are given to pay their loans. In Germany, students pay their loans over 20 years; in England, it’s 30 years.

This makes sense. A core principle of finance is that the length of debt payments should align with the life of the asset. We pay for cars over five years and homes over 30 years because homes last a lot longer than cars. An education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term.

* * *

[In Australia,] the system works smoothly because borrowers pay nothing until their earnings reach about $40,000. Above that threshold, borrowers pay 4 percent of their income until the debt is paid off. Payments rise and fall automatically with earnings, just as our Social Security payments do.

And yesterday, Ron Lieber wrote about Governor Jeb Bush's student loan proposal:

[S]tudents get a single line of credit and take what they need each semester. For every $10,000 you borrow, you turn over an additional percentage point of your income each year for 25 years. It’s prorated to the exact amount of what you borrow, so that if you have a debt of $28,000 you would be paying 2.8 percent of your income. The payoff term runs out in less than 25 years if your total payments hit 1.75 times the amount you originally borrowed.

I don't know if these are the solution, but our current system requires scrutiny to make sure it's the best we can do.


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