(NOTE: This is the forth in a ten part series on student loans, check back every Tuesday for the next installment – Jason)
We’ve all heard the stories or seen the headlines: “23 Year Old Pays Off Student Loan With Google Pay Per Click”. How about “22 Year Old Woman Auctions Off Her Virginity to Pay Masters Degree.” Some ideas leave you awestruck, some ideas leave you dumbstruck. It does, however, bring to light the ever growing cost of higher education and the need for creative and aggressive solutions to keep the poverty stricken student from becoming a poverty stricken graduate.
There is a major battle waging in the post graduate circuit. On one hand, government and communities are in desperate need of the careers and services grads can offer. The pay is not the greatest, but the opportunities are abundant. There is no community that is not in need of more teachers, doctors, nurses, pharmacists and so on. Furthermore, charitable and non-profit organizations still need accountants, coordinators, business managers, legal practitioners and so on. Let’s not forget, affordable daycare, affordable housing, affordable transportation…well, you can see all the careers that are available. Add to that the desire to make the world a better place, and it’s puzzling how all these posts remain empty.
The problem: student loans. The moral intention of students to change the world and bring about equality to all is noble, yet, unfortunately not affordable when you are facing down the burden of debt from your schooling. This circumstance forces students away from low paying jobs where they are desperately needed. In short, it’s all about the paycheque being high enough to pay off that student loan.
Several years ago, a thoughtful and interesting suggestion came to the surface. A bold solution to both the professional shortage and the student loan dilemma. Instead of having set payments for student loans based on the amount borrowed, why not make payments based on post graduate income? This idea is not without merit and the benefits to every spectrum is viable.
• Students would have an easily budgeted payment plan, with a percentage of income going directly to student debt.
• The default rate on student loans would be greatly reduced.
• All student loans repayments would be on a level playing field.
• Automatic payroll deductions for loan payments would allow students to increase the amount of payment, therefore paying down loan faster.
• Students would feel less pressure to pursue only high end salaries, and more likely to start careers closer to home or in underserved communities.
• Communties would benefit from more students beginning their careers where they are needed the most.
• Student loans will do their job; allowing people to enter careers, not force them into bankruptcy.
After many years of controversy and debate, inome based student loan payments are finally coming to light. In the United States, federal student loans are now eligible for income based repayment (IBR). Based on earnings factored against the poverty level, low income graduates can make payments according to their annual salary. After 25 years of payments, the balance (if any) will be forgiven. Direct Loan borrowers who choose to work in public schools or with non-profit organizations will have their student loans forgiven after only ten years.
In Canada, the Debt Reduction in Repayment (DRR) program allows low income students to reduce their student loan principle up to three times to a maximum of $26000. Eligibility is based on family income and it’s geared to assist low income graduates based on the current poverty levels. Since this action lowers the actual loan amount permanently, it also lowers the required minimum payments.
While neither of these programs cover the entire student loan struggle, it is a start for those in serious financial turmoil. It would be nice to see the entire student loan payment system overhauled and all payments be income based. Higher wage earners would pay more, while lower wage earners would catch a break. Not only would it enable students to pay off their student loans more efficiently, it would increase vital services where it is needed and allow students to control their career choices, and look for jobs that will make a difference, and not just a paycheque.