Dive Brief:
- While income-based repayment plans for student loans are helpful, Josh Freedman argues the current system is flawed.
- For example, if the government is on the hook for paying loans that students cannot pay, schools can raise tuition to new heights and charge students a fortune, knowing that in the end the government will come through with the money.
- Income-based repayment plans also suffer from an "adverse selection" problem because those graduates with lower salaries are most likely to enroll — and most likely to default, making it a potentially expensive program to operate.
Dive Insight:
Freedman also argues that loans in general undermine a healthy higher education system: "Loans are subsidies to help individuals pay for college, not to help pay for college more broadly. ... As colleges shift more to individualized funding mechanisms to be covered by individual loans, the system loses broad political support and becomes ‘every man for himself’ – a sure recipe for defeat of a robust college and university system."
