The Liberty Hawk

A proposal to offer private student loans on an income-based payment plan, starting a year after graduation.

This is an opinion submission from a reader like you. We consider all submissions.

In 2019, the total student loan debt in the US rose to 1.41 trillion dollars. The number of people affected by this crisis reached 44 million in the same year. Over 60% of those who owe student loan debt owe more than $10,000. This is, by any measure, a crisis.  

The cause of this crisis is debatable. The increasing levels of government-backed loans seem to be a promising culprit. The proposed solutions, however, vary dramatically.  

On the left, the suggested ‘solution’ is a massive government-backed bailout of those in debt. This bailout would be accompanied by attempting to make college tuition-free. On the right, there seems to be little suggestion of a free market solution. This makes the proposals made by people like Elizabeth Warren and Bernie Sanders seem all the more appealing.  

Now is the time for some savvy entrepreneur to enter the market. And, who better to do so than a college student? Enter me. 

Traditional loans from a bank fall apart when used to fund college. The fixed-rate, 5-30 year loan models that lenders use to provide car loans and house mortgages do not model well for a student loan. This is because of a timing issue.  

A car loan is usually small enough to pay for with most any job, and prospective debtors should only take out a house loan once they have a stable income. Student loans, however, come with the worst of both worlds. A student must take out a significant chunk of money to pay for his college. Yet, right now, they have to begin making payments as soon as they have finished schooling, without any regard to career realities.  

Why must this be the case? Just because history has justified fixed-rate interest loans as the most viable option, must this always be necessary? When it comes to something as desired as a college education, there must be a better solution. I believe I have come up with one. Enter, the income-based payment plan. 

Before I lay out my proposal, let me start by stating that I am, in fact, aware that the federal government has something like this already available. The PAYE plans introduced by the Obama Administration, while a step in the right direction, failed to solve the growing student loan crisis and were government-backed instead of being a private solution. My solution differs in some key aspects that, I believe, make it better.  

Here are the main points of my proposal: 

• A truly income-based payment plan: instead of having a fixed or variable payment plan that charges interest, the loan is truly based upon a year-to-year income report. Starting a year after you graduate college, whatever you filed as your official yearly income will be the basis for that year’s minimum payment.  
• No back-end interest charges: instead of the loan charging interest on a monthly or yearly basis, the lender and student would calculate and agree to the added fee before the loan is taken out. There are no surprises down the line.  
• Flexibility in repayment: the student will not be required to begin paying back the loan until a year after he or she graduates from their final year of college. If they lose their job, all they need to do is contact the bank and ask for a pause on their loan clock until they regain employment.  
• Little restriction on how much a student can borrow. This should be accompanied by the obvious exception of only borrowing as much as your schooling is worth. But there are no restrictions on how much a student can borrow, and no major credit requirements, as the future of the loan is solely based upon varying yearly income.  

While this proposal is just a skeleton of a full pitch, I hope that those reading this are inspired to look at these problems, not in terms of what the government can do, but what the private market can offer. I did, and this has been the result. Whatever the future brings, I hope it brings more free-market solutions such as this.  

Do you have a response to this article? Would you like to offer your own take on this topic? Feel free to submit your own article or offer a comment below.

Scott Howard is a constitutionally-minded conservative freelance writer with a focus on fiscal matters and foreign policy. He has been an active contributor to The Liberty Hawk. You can follow him on Twitter: @thenextTedCruz  

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Scott Howard

Scott Howard is a constitutionally-minded conservative freelance writer with a focus on fiscal matters and foreign policy. His Twitter handle is @theNextTedCruz.

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