“Pay-As-You-Earn” Student Loan Program: Are You Ready for the Future?

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Walter Steele

What’s becoming more and more clear is that the price of a college education is showing no signs of decreasing. Students are finding themselves in untenable tension between needing a degree for a well-paying career, but then finding that they need that well-paying career solely to pay for the education they needed in the first place.

Students shouldn’t be going to college to get a job to pay for going to college.

Which is why this U.S. Department of Education news piece is so interesting: What if students were allowed to pay as they earn?

For one thing, this program could actually be a benefit to those of us who collect on student loan debt. This becomes, in a sense, a default aversion strategy that would prevent students who later on may have the ability to repay from sliding into delinquency and default.

Those accounts in delinquency and default are significantly more challenging — if not impossible — to collect that late in the game. Not to mention the expense.

Of course, it might also increase the volume of loan debt that is ultimately forgiven. Anyone care to hazard the effect this could have on our industry?

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Posted in Debt Collection, Every Contact an Opportunity, Opinion, Student Loan Collections, The Economy .

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  • avatar Joe Potter says:

    I think it’s a good idea to look at programs to help students manage the load of debt they acquire at college. On the surface, a pay as you earn program could work but here’s how it should be implemented; Student would be responsible to pay a small payment each month towards their student debt from the start of their education. Forcing many to acquire part time jobs during school and perhaps lessening the time they have to party. This would keep them fully aware of the amount of debt they are taking on to get their education and build good payment habits early thus reducing the probability of going delinquent or defaulting in the future.

    Once they’ve graduated, the payment option should be scaled in proportion to their earning ability over time based on their field of student or career choice, allowing them to focus their early career years on establishing themselves both in their career and in their community, not on being broke after their loan payments. As they do this, their earnings rise and their ability to repay will increase so too should their student loan payments but never more than “X”% of their income. (10-15-20-25%??)

    While there is no doubt more students being responsible will have an effect on the student loan receivables industry, I don’t see it as significant given the continued increase in volume and the never ending inability of anyone to wrangle in the cost of education. I expect that to continue to climb in the years ahead. Besides, shouldn’t finding ways to help kids afford a quality education and be able to afford to repay it and not end up in default be OUR GOAL anyway despite what we do for a living? It’s simply the RIGHT THING TO DO!

    As for forgiving the student of the debt after x number of years, as a tax payer I fundamentally disagree with this entirely. A debt is a debt and the owner of that debt should be held accountable and required to pay. Even if that payment is $20 for the rest of their life, it should be paid.

    I think we have a responsibility to use our experience and our knowledge to help the policy makers have access to viable ideas to consider while trying to help young adults continue to have a path to an education and attack a trillion dollar problem that is only going to grow. Let’s move towards leaving a legacy with our knowledge and help solve a very significant problem!

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