The idea of income-contingent repayment (ICR) of student loans has been with us for a few decades now.  In 1945, Milton Friedman advocated something like an ICR loan as a way of reducing the risk associated with educational investment.  In 1971, nobel-prize winner, James Tobin, developed an ICR for use at Yale University.  The first national-level ICR was in Australia, which introduced its Higher Education Contribution Scheme in 1988; the idea quickly spread to New Zealand, the UK, and Sweden.  Under President Bill Clinton – who benefitted from one of those Tobin-designed loans while at Yale – ICR was added as one of four repayment options in the US Stafford Loans program.

In Canada, the idea was seriously taken-up in the early 1990s by the Council of Ontario Universities, who proposed pairing a significant increase in tuition fees with the introduction of an ICR student loan system.  The explicit pairing of fee increases with student aid improvements led the Canadian Federation of Students (CFS) to oppose the idea; we ended up getting tuition hikes, but not the ICRs.

The ICR idea now appears to be having a renaissance.  In one form or another, Glen Murray, Justin Trudeau, and Marc Garneau (the latter in some detail – see here) have all come out in favour of improving access to higher education via the introduction of ICR.  This is all well and good, except that no one seems to have noticed that Canada’s loan system is already substantially income-contingent. It’s just that, to keep the CFS fooled, we pretend it isn’t.

The confusion arises because there’s no set definition of ICR.  Australia’s ICR is universally available, has low interest rates, and is collected through the tax system; in the American ICR, none of these are true.  Most of what people think of as the “good bits” of ICR could, in fact, be integrated into a non-ICR system without any difficulty.  Loans don’t have to be income-contingent for Canada Revenue to collect them, and if you want subsidized interest rates, just go ahead and subsidize them.  The only necessary condition for a loan to be considered income-contingent is that repayments vary somewhat with income, which is the main point of the CSLP’s existing Repayment Assistance Program (RAP).

So what do these programs actually amount to?  Trudeau’s program can’t be evaluated as he hasn’t gone beyond mouthing the words “I like ICR”.  Murray’s idea seems to involve eliminating parental income tests on loans (New Brunswick tried that – it didn’t go well).  Garneau’s proposal – by far the best fleshed-out – essentially amounts to raising the RAP threshold, and adding loan interest subsidies. Not terrible ideas, but possibly not the most effective investment in higher education.