Student loans are based on a simple idea: that a graduate's future flow of earnings will more than cover the costs of doing a degree. But with unemployment rates in parts of the rich world at post-war highs, that may no longer hold true for many people and the consequences will be felt by everyone. All over the world student indebtedness is causing problems—witness this month's violent protests in Chile. In Britain, according to a recent parliamentary report, rising university fees mean that student debt is likely to treble to ￡70 billion by 2017. But, partly because higher education is so expensive, the scale of the problem is far greater in America. 1 When the next official estimates of outstanding student debt there are published, it is expected to be close to $1 trillion, higher than credit-card borrowing. Credit quality in other classes of consumer debt has been improving; delinquency rates on student loans are rising. Student-loan systems in America and elsewhere are often badly designed for an extended period of high unemployment. 2 In contrast to the housing crash, the risk from student debt is not of a sudden explosion in losses but of gradual financial pressure. One option is to change the bankruptcy laws. In America, Britain and elsewhere, these treat student debt as a special case: unlike other forms of debt, it cannot be wiped out. 3 If student debt is not to bind existing graduates and put off future ones, the rules could be changed so that it is dischargeable in bankruptcy. Yet the reasoning behind the current bankruptcy provisions is logical enough: education is an asset that cannot be repossessed and that keeps on benefiting the individual through his or her lifetime. Some worry that graduates would rush to declare bankruptcy, handing losses to taxpayers. So a second option is preferable. Many countries, America included, have designed student debt primarily as a mortgage-like obligation: it is repaid to a fixed schedule. 4 Other places, like Britain and Australia, make student-loan repayments dependent on reaching an income threshold so that the prospect of taking on debt is more acceptable to people from poorer backgrounds. That approach makes sense, especially when jobs are scarce. 5 The president this week proposed to limit loan payments for some struggling American graduates to 10% of disposable income and forgive outstanding debt after 20 years. Income-based repayment ought to become the norm.