By Angela Wills
An analysis performed by the Brookings Institution has determined that the student loan proposal of Jeb Bush should be strongly reconsidered.
The higher education plan proposed by Bush drew very little notice in the height of a campaign that has been built on personalities more than it has the details of policy. However, his proposed reforms to the federal student loan program deserves a serious look over, no matter the outcome of his presidential bid. Bush’s plan offers a solution to many of the issues of the current loan system and improves on the leading proposed solutions by permitting individuals to pay for their college education according to how much they spend and their earnings following college graduation.
The Bush plan replaces student loans with a line of credit in the amount of $50,000 that is paid back based strictly on income. Students would be responsible for paying 1% of their earnings for 25 years for each $10,000 that they access to fund their college educations. No interest is added and total payments cap at 1.75 times the original amount that is borrowed. This plan reflects a major change from current plans that are income driven, which are challenging to navigate and require that participants file paperwork annually and anytime their income changes. Because of this, every year, hundreds of thousands of students find themselves in default of their loans.
This report takes a close look at how the Bush plan would affect undergraduate students with various levels of borrowing and income, as compared to both the revised pay as you earn and the standard 10-year repayment schedule, or REPAYE, income-driven repayment plan. Specifically, the comparison is made between the total repayment amounts of hypothetical borrowers with different incomes and amounts borrowed under each of the three plans.
The analysis results in two main findings.
First, the total amount to be repaid increases significantly better with income under the Bush plan than it does under REPAYE. This is because borrowers pay a constant share of their income under the Bush plan. Low and high income borrowers actually pay less under the Bush plan than they would pay under the REPAYE plan.
Secondly, the plan proposed by Bush creates a stronger connection between borrowing and repayment amounts than REPAYE. Under the plan proposed by Bush, borrowing more means paying more because the percentage of income paid is directly linked to the amount borrowed. However, under REPAYE, that is only the case until approximately $30,000, above which additional borrowing leads to no additional payments because the percentage of the income paid is unrelated to borrowing and there is a forgiveness of the additional borrowing.