Income-based Student Loan System

September 01, 2013

Funding: Lumina Foundation

This project explored ways to improve U.S. income-based student loan programs. The project reviewed leading international income-contingent models (e.g., Australia) and relevant research on student loan defaults, postsecondary education returns, behavioral economics and financial risk management. It resulted in a "white paper" published by the Lumina Foundation and a forthcoming journal article. These publications make the case for a more comprehensive, income-based loan system, one designed to improve affordability and increase value so that more students can borrow appropriately and repay their loans without financial hardship. In this system, student loan decisions and policies are tied to expected or actual income throughout the loan cycle -- from student guidance and loan origination to loan management while in college and final repayment after completing a college program. The project has implications for federal student loan policy reforms including variable loan caps and risk sharing between students, institutions and federal loan systems.