Income Contingent Loans

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Income Contingent Loans Can Solve the Student Loan Debt Crisis

Students in the US are currently drowning in student loan debt. One recent study found that the majority of American borrowers, 56% of them struggle with paying their student loan payments in the first five years after college.(Paragraph 12) Finding a solution to the problem will help millions of students. This US should adopt income contingent loans to solve the student loan debt crisis.

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Imagine yourself being fresh out of college, wondering what you are going to do next. What would your plan be? In America young adults have fewer opportunities to land a good paying job without an education. Students believe that after graduating college that they will land an awesome paying job and things will be great.

This is usually not the case, entry level paying jobs pay much less than what students expect. Students then end up in defaulting in their student loans. In Britain, by contrast, 98% of their borrowers are meeting their obligations (Paragraph 12) to their income contingent loans. These loans are simple for students. The payments are at a fixed percentage of the borrowers income, The IRS then automatically deducts payments from the students paychecks. Since income contingent loans go by the students income the students with lower paying jobs below poverty level end up paying little to nothing. Students with higher paying jobs and up paying more to paying off their loans quicker. After 20 to 30 years of a loan not being paid the student loan is forgiven.

In Britain and Australia they have proven that income contingent loans have worked for their students for many years. This idea was proposed by and noble prize winning economist Milton Friedman back in 1955. One might wonder why they don’t already exists. Historically, administrative complications had been the major culprit. Until last year, the federal government managed most student loans by paying private banks to act as Linders and then guaranteeing their losses. (Paragraph 8) The problem arises when students sign on the dotted line,

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