An International Final Four: Which Country Handles Student Debt Best?

From today’s New York Times:

Although an American college degree remains a good investment on average — the higher earnings for most graduates justify the cost— millions of borrowers are in default on their loans.

Policy analysts generally agree on a need for reform, but not on which path policymakers should take. Can America learn anything from other nations? We gathered experts with a range of perspectives, from America and abroad, and asked them to compare the systems in Australia, Britain, Sweden and the United States.

We chose this grouping of nations because they highlight important differences both in loan repayment systems and in related policies such as tuition and loan limits, not necessarily because they all belong among the best systems in the world. In the spirit of March Madness, we devised a bracket-style tournament, seeding the countries so that those with more similar systems would meet in the semifinals.

Sweden vs. United States

Sweden and the United States differ in whether the monthly loan payment remains the same over time and in the number of years borrowers can repay their loans.

The average American borrower with a bachelor’s degree leaves college with $28,400 in debt. Students can borrow for both tuition and living expenses, although loan limits make it hard for an undergraduate to borrow more than $45,000 over four years.

In Sweden, average debt levels are similar — the equivalent of around $21,000 — even though students borrow only for living expenses (Swedish universities do not charge tuition). Interest rates are also very low; the rate for 2018 is now 0.13.

In the United States, borrowers are required to begin making payments six months after leaving college. By default, payments are set so the whole principal and interest, which is tied to the market rate at the time the loan is made (currently 4.45 percent), will be paid off in equal monthly installments paid over 10 years.

American borrowers can opt into alternative repayment plans, including plans that tie payments to income or that start lower and increase over time. Income-based plans offer forgiveness of any remaining balance after 10 to 25 years, but enrolling in these plans requires making a request to the servicer and filing paperwork annually. If you miss the paperwork, you are put back into a 10-year repayment schedule, but can ask to re-enroll. There are a large number of plans that are hard for borrowers to navigate, especially in times of financial stress.

Swedish borrowers, on the other hand, pay off their loans over a much longer period. Borrowers can be in repayment for up to 25 years, with the typical borrower paying for 22 years.

Read the complete article here.