Income Contingent Student Loan Repayment Schemes

Education Shouldn’t Be a Debt Sentence!

According to documents obtained under the Access to Information Act, the federal government is considering the implementation of income-contingent student loan repayment.

Income Contingent Repayment (ICR) schemes are pitched as a flexible and fair student-aid plan allowing student loan recipients to pay off their loans as their income allows.

Even policy analysts involved in designing and administering ICR models concede this point. According to the federal government:

“. . . ICR loans would solve the problem of university and college under-funding by allowing institutions to increase tuition fees to cover a greater portion or even all of its costs. Fees would be unregulated, and institutions would charge whatever the market would bear. Needy students and those with cash flow problems would pay the increased fees with the help of ICR loans.”

The Government of Australia describes its ICR in these terms: “The purpose…is to raise revenue from the recipients of higher education for return to the system as part of…funding of higher education; it is not a form of student assistance.”

ICR = Wealthy Pay Less Than Poor

Graduates with lower levels of income would repay their loans over a longer period of time, while those in high-paying jobs could repay their loans quickly and pay less interest. Those who could afford to pay their tuition fees up front would avoid the high interest rate payment after graduation, and end up paying less for post-secondary education. For example, in Australia if a student can afford to pay their income contingent loan at the beginning of every academic year, they receive a 25% discount.

Lifelong Debt Sentence

ICR would disproportionately hurt women because it would take them, on average, considerably longer to pay back their interest-bearing loans. Because many women leave the workforce due to pregnancy and still earn less than men on average, repayment difficulties would be more pronounced. Under one model considered in Canada in 1994, 43% of women would not be capable of paying off their debt after 25 years of repayment.

Canada Student Loan Repayment by Principle and Repayment Period

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