Student loans are not going away, despite calls by Occupy protesters in recent weeks to have the federal government finance public colleges entirely and write off all student debt.
So rather than debate the impossible, we should instead discuss better ways of financing a college degree.
The higher-ed establishment in Washington spends most of its time trying to protect the status quo on student-aid programs, all the while arguing for more money to help pay higher tuition prices. But if we're headed for an age of at least some austerity in the federal government, then the higher-ed associations are going to need a new playbook.
They won't lack for ideas. Overhauling the student-aid system won't be easy, but many agree that we should be getting better results on access and outcomes for the money being spent.
Where to start? Here are just a few proposals I have read in reports or heard in panel discussions and other conversations recently. Weigh in with your thoughts, or propose your own solutions:
1. Allow colleges to limit loan eligibility.
Right now, colleges are allowed to cap a student's loan eligibility only on a case-by-case basis. They can't, for example, limit how much students may borrow by major, even though we know that earnings by major vary greatly. Some believe the current policy encourages excessive borrowing and permits some students to "cash out" at low-cost institutions where they borrow well above the price of tuition. This fall, the Education Department invited colleges to test alternative ways of administering federal student aid, including an experiment that would let institutions reduce students' annual loan eligibility by at least $2,000. I hope the experiment will work and every institution will be allowed to limit students' borrowing in the future.
2. Set differential tuition and aid based on potential earnings.
There are plenty of cross-subsidies at a college. Cash-rich academic programs pay for low-demand, high-cost programs. Such subsidies exist because most colleges charge a single price no matter the academic program. It's a similar story on student aid. Wealthy students subsidize financially needy students. On some campuses, programs where seats are difficult to fill have higher tuition-discount rates, another subsidy paid for by students in popular programs who don't get as much aid.
Such a system takes into account students' current financial situation but doesn't consider their future earnings. A financially needy English major is treated the same as a low-income finance major, although it's likely that the latter will earn a lot more over a lifetime. What if the English major were given fewer loans than the finance major? Such a system might also encourage students to consider majors that they were interested in pursuing despite worries about paying back student loans. There are, of course, consequences to such a change. One downside is that it could discourage students from majoring in high-demand fields that pay well simply because they would need to take on more loans.
Martin Kinard, a former admissions director at the University of New England, is a proponent of that idea. He believes it could stem the exodus of potential applicants from liberal-arts programs at expensive private colleges. "Students think they can get the same liberal-arts education at a public college for half the cost," says Kinard. "Private colleges are losing these students."
3. Link aid to measures of student success, such as graduation rates.
In 2009, according to estimates from Tom Mortenson of the Pell Institute for the Study of Opportunity in Higher Education, nearly 60 percent of high-school graduates from the bottom income quartile entered college. But that income quartile represented only 7.3 percent of degrees awarded that year.
Simply put, not enough low-income students are graduating from college. Part of the problem is that too many financially needy students attend colleges with low graduation rates, in part because those institutions have lower sticker prices.
Andrew P. Kelly, a research fellow at the American Enterprise Institute, suggests that more should be done to educate needy students and their parents about the net price of colleges. His research shows that low-income families don't know as much as wealthier parents about the difference between sticker price and net price.
If low-income families knew more about the net price of a college, Kelly maintains they would be better able to balance cost with the likelihood of success. Rather than just go to the cheapest college, they might pick a slightly more expensive one with a higher graduation rate.
The burden to ensure success shouldn't fall only to students, however. Colleges that fail to graduate a reasonable number of low-income students, whether those on Pell Grants or with sizable loan burdens, should be banned from the federal student-aid programs.
4. Do away with defaults.
In recent weeks I've heard a number of student-aid experts talk about the idea of moving to a broader income-contingent repayment system for student loans in the United States, much like Britain or Australia. The plans all differ slightly. Some would move everyone to the system, while others would convert to it only if the borrower stopped making payments. But in all cases, the concept of default would be erased from our vocabulary.
5. Encourage savings.
Earlier this year The Chronicle teamed up with the Pew Research Center to survey presidents and the public on their views of higher education. When we asked parents if they expected their children to go to college, they overwhelmingly said yes. But when we asked them if they had started saving for college, the answers varied widely.
In the long run, it's less expensive to save for college than to borrow, so we should be doing more to encourage savings. Some cities and states provide seed money when parents open a new 529 college-savings plan before a child's first birthday. Other places provide matching grants to low-income families.
Mark Kantrowitz, publisher of FinAid, a Web site offering student-aid advice and tools, believes there are way too many savings plans for college and retirement. He advocates replacing all of them with two plans for saving for certain "life-cycle expenses" (retirement, college, medical, etc.). One plan would use before-tax dollars and one would use after-tax dollars. The annual contribution limits should be increased. So if your child doesn't go to college, you would have more money for retirement, instead of having to navigate a maze of programs.
Follow Jeff Selingo on Twitter: www.twitter.com/jselingo
I would rework college.
Most students should do their first 2 years at local community / regional colleges. This is also where they would get remedial work, if needed.
The universities and primary colleges would take specialized 4 year students who can't get their material at the community / regional schools, and handle the junior and senior year majors.
I attended a two year college and I did a lot of research on two year college. There were a lot of articles bemoaning the low graduation rates but at the same time, research has shown that many people who attend two year colleges are only going for a few classes or they may decide to drop out once they feel they've taken enough classes to help them along at work. Financial issues are also a factor- a lot of students at two year college tend to drop out because they can't afford to pay for it.
Students should look at what their job prospects will be once they leave college and what their annual salary will end up being. I just don't understand people who major in Art History or Anthropology (or any other degree with low job prospects and low annual salary) with $100,000 worth of debt.
Couple that with the fact that the US, through bad trade policies mostly, has deindustrialized. The message during this process was that the service and or information economy would create new jobs. These jobs required degreed workers. Yet as another article today notes employers would rather create a morass of contract temp work than real jobs.
Increase cost of education, lower entrance qualifications, fewer real jobs.................. It would seem that the issue is not student loans.
The system needs reform. Truly the sports and band programs are out of control in most state institutions as evidenced by the recent news. The idea of a for profit educational institution, designed to make income at the expense of a students dreams is clearly a fraud. As tax payers we should be demanding accountability within the entire system, from Kindergarten to the university level. If we as a nation continue to kick that old can down the road, we will continue to reap poor quality and scandal.
Why is it that big banks can borrow money from our government at essentially ZERO interest, but a poor student is forced to borrow from shysters at eight per cent?
Investing in our future, our young people, is vital to our nation's success. Actually I think college ought to be free. but if that can't be the case, then we shouldn't force our students to pay more than tuition to be able to attend schools of higher education. We should be lending them that money at zero interest
I presume you are comparing overnight collateralized loans with 0% chance of default vs 10 year loans with infinitely higher default rates. Yeah you failed math class in high school.
"Actually I think college ought to be free."
It will take slavery and expropriation of capital to attain what you just stated.
Here's how they can go away and help restart the economy.
The unFederal Reserve has done three rounds of QE (quantitative easing; pushing money out to their friends) totaling more or less 7.7 trillion dollars. Giving money to banksters has only made the economy worse, not better. They are now talking about QE 4.
Instead of giving the money to people to use it to purchase and privilege and not rebuilding the economy, QE 4 should be used to repay student loans. Young people buy things because they need everything. They will start shopping and stimulate the economy and create jobs.
We only have 1/3 of the currency in circulation that we had before the willful destruction of the economy in 2008. Paying off the loans will still leave us down a 1/3. It's not going to be inflationary or devalue the currency.
We should be paying for tuition anyway. Most developed nations do. It's consistent with democratic values; the greatest good for the greatest number. It's common sense to provide the best possible opportunities for the those who will inherit the nation and shape the future.
1. No loans for student X to go to institution Y unless the student's grades and test scores suggest a 75% or higher probability of graduating at that institution within 5 years. If the probability is low, the student can go to community college, get great grades and reapply. Why loan money that is not going to be paid back?
2. Lower tuition or lower interest rates for degrees in the fields judged to be necessary for competitiveness: engineering, manufacturing technology, science, etc. Why spend billions subsidizing people to obtain degrees in fields that are already way over-supplied.
These policies will send to the students and their parents a signal that the media and the guidance councilors do not appear to be successfully communicating: their decisions matter for the individual and for our nation!
I do not want to deal with this sick system and sent my kid overseas. Excellent education, cheaper than public school here in US. Shame
These tuitions were based on a mentality to MAX OUT student financial aid. Once the aid (largely loans public and private) were no longer available, they dropped tuition.
A different price per major sounds innovative, but we already have that.
I am a video major, so I pay extra lab fees which pays for the video edit lab and staff, cameras, studio, green screen etc...and so do other majors with labs (science/med/art)
How much extra?
I pay at least a few hundred per class, which in some cases doubles my cost per credit hour.
You might think that tuition would go down during a recession (almost all other consumer products have) and government assistance like the pell grant and work study would go up, but it is the opposite.
Michigan cut state contribution to higher ed by 15% causing my tuition to increase $305, which I consider to be an education tax.
And the fed dumped the summer pell grant program, which I was fortunate to receive, but no more.
I guess encouraging students to take summer classes and graduating sooner was not a good idea.
Tuition has for years increase far greater than inflation.
Maybe we can start with having tuition match inflation.