About the Author 2

Contents 3

Executive Summary 4

Introduction 5

Should We Have Student Loans At All? 5

Past and Present 6

The Plans 7

The Effect of Parameters on Borrowers 8

1. Student Loan Accounting 9

2. Problem Definition 12

Mistargeted Subsidies 12

Imaginary Loan Balances 12

High Effective Marginal Tax Rates 13

Excessive Fiscal Costs 14

3. Model Introduction 15

Key Assumptions 15

Income and Career Trajectory 15

Macroeconomic Series 15

Interest Rate Mechanics 16

Loan Balance Mechanics 16

Valuations and Discount Rates 16

What the Model Does Not Capture 17

4. Recommendations for Plan 2 18

Lower Interest Rate 18

Lower Repayment Rate and Lower Repayment Threshold 19

Longer Write-Off Period 19

Combined Package 20

5. Recommendations for a New System 21

Institutional Underwriting 21

Employer Participation 22

Price Signals 22

Conclusion 24