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Other Models to Deal with Student Debt

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Of course the United States could borrow the Australian model of dealing with student debt and tag it to income without any real expectation that the borrower is going to pay it all back in a relatively short time. We don’t have to punish our students with crippling debt and then only give them 10 years to pay it back.

In Australia, income inequality is much higher than in Sweden. Yet while students borrow about as much as they do in the United States (30,000 Australian dollars, or about $22,000), 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.

But in the standard American plan, payments don’t vary over time. Borrowers face the same payments when they first get out of college as they will years later, when their earnings are higher and more stable.

Just like Social Security contributions, student loan payments in Australia are automatically withheld from pay. Some critics argue that payroll withholding gives student loans primacy over other expenses: Why should a student loan get paid before more basic needs — food, rent — are met?

But prioritizing basic needs is exactly what the Australian system does. The idea is that no one facing economic hardship should have to choose between paying student debt and paying for basic necessities. When earnings drop, loan payments drop immediately, allowing borrowers to devote their reduced budgets to essential needs. Borrowers don’t have to fill out an application, or even make a phone call, to get the payments stopped.

In the United States, student loan bills keep coming, no matter how small the paycheck. It’s up to borrowers to apply for a reprieve if their financial situation worsens. Getting on an income-based repayment plan depends on working with a loan servicer to complete a 12-page application. As shown by the Consumer Financial Protection Bureau, this is often a bumpy process that can take months. In the meantime, the bills keep coming — and millions of borrowers end up in default.

Payroll withholding is the only way to provide an immediate link between fluctuations in earnings and loan payments. Any other system delays the protections that low-income borrowers desperately need.

But if we were going to borrow ideas from Australia, we would do so with guns. Luckily, we are Americans and we don’t borrow from countries lesser than us. Why would the greatest nation in human history to do so? America! Love It or Leave It! Or anyway, leave it if you can afford a plane ticket after you pay $800 a month in student loan debt.

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