With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.
The debate reflects the growing concern over the debt burden many take on to get a college education. About two-thirds of bachelor's degree recipients borrow money to attend college, and collectively, student debt has topped $1 trillion. In the past three decades college tuition has consistently increased much faster than both inflation and incomes.
Some believe the student debt crisis reflects larger, troubling trends in higher education -- among them excessive spending by colleges and universities, which drives up tuition, and declining government support for public universities as state and local governments face budget crises.
The average college senior in the U.S. now carries $25,000 in student loan debt at graduation. Those figures rise when graduate degrees are figured into the equation. The reality is that as college tuition has consistently outpaced the ability of people to pay out of pocket, debt has been the safety valve of our higher education system. It is what has allowed everything to keep running because people know they have to go to college -- they don't feel they have any choice -- so they just continue to borrow and borrow and borrow. And those debts will follow students around for decades.
Democrat or Republican, liberal or conservative, if you want a quality college education, there's a good chance you're going to spend most of your 20s in a state of indentured servitude to a lender or an employer you hate but can't quit, because the loan bills will follow you to the end of time.
To change things, colleges need to rein in spending -- and perhaps modify their educational models.
Despite fundamentally different approaches to student aid policy, Obama and Romney seem to agree on two things. First, that students and parents need better consumer information about the cost of higher education and student aid so they can make more informed decisions when choosing a school and determining how to pay for it. This is an area where Democrats and Republicans in Congress also seem to agree. Second, they both would like to provide incentives for higher education institutions to keep tuition and fees from increasing.
It is also important to remember that a president's influence on student aid policy is limited because Congress sets annual funding levels and passes legislation that has the greatest impact on award levels and eligibility criteria. Despite these limitations, the president can influence student aid policy using the authority and influence of his position and the regulatory process.
Much like the mortgage brokers who promised pain-free borrowing to homeowners just a few years back, many colleges don't offer warnings about student debt in the glossy brochures and pitch letters mailed to prospective students. Instead, reading from the same handbook as for-profit colleges, they urge students not to worry about the costs. That's because most students don't pay full price.
Obama and Romney also seem to agree that students and parents need better information about the cost of college. Obama has launched an initiative to create a "College Scorecard," a one-page profile of each school, providing specific metrics like earnings information, default rates, repayment rates and employment rates.
Romney's position on consumer disclosures is nuanced. His education plan states that students should make decisions with full understanding of data points such as completion and persistence, loan repayment rates, and future earnings. However, he also stresses that despite requirements that colleges and universities report volumes of data to the U.S. Department of Education, there is no simple way for students to access that data and interpret its implications.
But even with more information, students and their parents seem willing to pay the ever-escalating price of a college degree, which remains the key rung up the ladder of economic mobility.
The Obama administration has also taken steps to ensure students and parents have the information they need to make responsible borrowing decisions. The U.S. Department of Education recently launched the online Financial Awareness Counseling Tool (FACT) to help students manage their debt and help financial aid professionals monitor their students. In addition, the Consumer Financial Protection Bureau (CFPB) has launched several initiatives aimed at helping private student loan borrowers.
Economists do not predict a collapse of the student loan system, which would, in essence, mean wholesale default. And if there were one, it would be unlikely to ripple through the economy with the same devastating impact as the mortgage crash. Though now larger than credit card and other consumer debt, the student loan balance remains smaller than the mortgage market, and the federal government, meaning banks wouldn't be affected as much, issues most student loans.
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