The Corner

Education

An Interesting Idea on Student Debt

Students walk at the University of North Carolina at Chapel Hill, N.C., September 20, 2018. (Jonathan Drake/Reuters)

Marco Rubio wants to eliminate interest for federal student loans through the Leveraging Opportunities for Americans Now (LOAN) Act, according to the subject line of an email his press people sent out to reporters.

Fortunately, this is one of those rare cases where the fine print is much better than the headline.

Interest wouldn’t actually disappear; it would be replaced by a flat financing fee,” generally 25 percent of the loan. Students could still pay off their loans early to reduce the fee, but the fee would not grow over time like interest does.

Wait, I hear you ask, wouldn’t everyone just put off their loans for as long as possible, so they could pay with inflated future dollars? Nope: Everyone would be automatically enrolled in income-based repayment, and would pay at least 10 percent of their income for as long as needed to pay off the principal and the fee. And students who wanted old-school loans could still get those instead.

It’s important to get the math right here, so the government isn’t subsidizing these loans any more than it subsidizes traditional ones. Assuming that, though, this would provide college students an assurance that their loans won’t become overwhelming, without a humongous handout to the upper-middle class.

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