In theory, the Pay As You Earn program, or PAYE, which Mr. Obama expanded in his order on Monday, should hold payments to 10 percent of income. But because payments don’t adjust automatically, they can actually consume a much larger share of a borrower’s earnings in a given year.

It’s crucial that payment adjustments be automatic for the borrower. In fact, “Automatic for the Borrower” is a proposal released in March by a network of nonprofit groups. I’ve also written a brief on this idea for the Hamilton Project, a Brookings Institution initiative. Australia, Britain and New Zealand have developed automatic, income-based loan payment programs.

How would such a system work in the United States? Invisibly. We don’t do much paperwork to pay our Social Security contributions: We fill out an initial W-4 form and our employer handles the rest. Loan payments can be handled the same way.

But the administrative details matter, and PAYE imposes substantial burdens on borrowers. They must work through their loan servicer to apply to the program, and the results have been discouraging, with the Consumer Financial Protection Bureau showing that servicers are dragging their feet. The number of borrowers in flexible repayment plans is much lower than the number in distress and default, which shows that the current system isn’t working to insure borrowers against risk.

Even if we can get more distressed borrowers into PAYE, the program does not provide effective protection against earnings risk. Why? Relief comes too late; it’s as if unemployment benefits arrive a year after someone becomes unemployed. In PAYE, loan payments are calculated as 10 percent of the previous year’s disposable income. But income can change significantly — and often — over the course of a year. For those patching together several part-time jobs, hours and earnings can bounce around weekly. In PAYE, and all the other income-based repayment programs, every change to earnings requires a new application to adjust the loan payment. The program is simply not built to deal with the earnings instability that is typical for young workers, particularly those graduating into a tough economy.

Some will argue that an automatically adjusting system creates a temptation for students to work in low-paying jobs, to avoid paying their loans. “Moral hazard,” the mirror image of insurance, arises when we reduce the pain caused by adverse events like injury and low earnings. Insurance may cause people to do less to avoid these events — by driving more carelessly, or not searching for a well-paying job.