Reactions about loan guarantees were more mixed

Some participants with experience with higher education saw great potential for this type of guarantee to benefit the lives of students more generally. Some participants in Groups 2 and 3 thought that the guaranteed income in the Adrian College example (of $37,000 or more) was unreasonably low, though not all participants who expressed this opinion were uninterested in the program.

As with the job guarantees, some participants in every group viewed a loan repayment guarantee based on postgraduation income as a way of easing fears about continuing their education

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We described ISAs to all participants as programs in which students start making monthly payments after graduation that are set as a fixed percentage of their income, rather than a flat amount based on the total they borrowed. Their payment amount will fluctuate with their income, and they will continue to make payments that way for a predetermined number of years.

We also told students in Group 1 that because the amount they pay is a percentage of their income, students who find high-paying jobs will end up paying back more than students who have lower-paying jobs. Participants in Groups 2 and 3 instead received a concrete example of such a guarantee from Purdue University, in which students meeting certain criteria could get $10,000 to help pay tuition. In exchange, students would agree to pay back 3.38% of their salary for 100 months. Graduates of that program typically earn around $47,000, which means they’d start with making monthly payments of about $132. Of course, borrowers who earned more would have to pay more. And borrowers who earned less would pay back less. The monthly payments would be $197 per month if they were making $70,000 per year, and just $70 if they were making only $25,000 per year.

After this introduction, we gauged the participants’ interest in this kind of guarantee. Participants with any level of posthigh school education were asked if they would have been encouraged to enroll in an institution different from the one(s) they had attended if that institution had offered such a guarantee. Current and recent students who needed to borrow money to finance their education were asked if they would prefer to use a loan-guarantee program or a traditional loan with fixed monthly payments.

Although some participants in each group were interested, others saw this type of program as complicated, unappealing, or inherently unfair. Some participants in each group thought that basing loan repayment on an individual’s income was more desirable than traditional loan repayment, while others expressed a clear preference for having a fixed amount to pay back. Still, some participants in each group thought that a loan guarantee would definitely have encouraged them to make different decisions about their education: participants reported that they would have chosen a different (possibly more prestigious) institution, enrolled in higher education earlier in their lives, or changed their decision not to attend college at all if a loan guarantee had been available.

Some current and recent students immediately balked at the idea that people who earn more after graduation would pay back a higher amount over time. Many participants who were not interested in loan guarantees expressed a strong desire to pay back their debts as quickly as possible.

After gathering participants’ initial thoughts on loan guarantees, we asked two follow-up questions addressing more detailed aspects of such programs, which we will examine in the next section of this report

After asking for participants’ reactions to a basic description of loan-guarantee programs, we asked two follow-up questions to probe deeper about potential payment differentials between lower and higher earners. First, we asked all participants to think about a system in which higher earners pay more and evaluate how they would feel as high earners who ended up paying back more than others who borrowed the same amount and as lower earners who ended up paying less. Then we introduced the idea of repayment caps by saying, Since the payments that students participating in this type of program make are based on their income rather than on how much they borrow, it’s possible that a high-earning graduate could end up having to repay a lot more than what was borrowed in the first place. To prevent that from happening, most programs create a cap on how much students can be required to pay.