A College degree is valuable both to individuals and to society. On that, there is widespread agreement. But if people can't afford to pay for it, what's the point? That's why we must address this critical issue.
There are many long term options to improve affordability that we should pursue, including: controlling delivery costs through innovation, reducing student lost wages by accelerating graduate entry into the workforce, and creating seamless cost effective lifelong learning by improving cooperation between colleges.But all of these options would likely take from several years to a decade or more to have substantive impact. So is there a viable short-term option to improving affordability? Yes. We can improve federal student loan financing. Now.
About 60% of post-secondary students today borrow to fund their education, and student loan debt burdens are already a challenge for many attending private non-profit and for-profit institutions. And, with the economic pressures on state budgets, tuitions at public institutions will have to increase, just to maintain already strained capacity -- or more students will be turned away. So, students at public institutions will have to borrow more and will confront increasing affordability challenges.
Federal student loan programs have some special repayment options, such as income based repayment and extended repayment, to improve affordability for certain borrowers. But as helpful as these are, they are likely to only help a minority of borrowers. That's not enough to meet current and coming affordability challenges. We need to reduce monthly payments for all students, and we can. Given that education provides a lifelong benefit, we should finance it accordingly: let's extend all federal direct student loans so they are repayable over 20 years instead of the current standard 10 year term. Loan size limits should remain unchanged - so there is no "ballooning" borrowing. This change would cut the standard loan payment of students by about 35% -- a significant broad-based increase in affordability.
We could use the tax system to collect added annual loan principal repayments from anyone whose payments fell below a minimum percentage of their income. That would prepay the debt for those whose incomes can better support a faster loan repayment. Others who simply want to avoid extra interest could also voluntarily prepay.
This approach would likely reduce loan default rates across most institutions because, among other factors, according to the US Department of Education there is a correlation between default rates and loan size. This implies a correlation to payment amount. This reduction in default rates would likely be greatest at career colleges, where default rates tend to be higher largely because their enrollment has a greater percentage of high risk students than that of other institutions. In addition, career colleges do not receive direct taxpayer subsidies, so their students take on more debt to fund their educations. Reducing the monthly payment burden would help these students, and all students, remain in good standing. Fewer defaults benefits taxpayers and students.
True, extending loan repayment terms would increase taxpayer cost - but probably marginally. And it's clear that the federal direct student loan program is a good investment in supporting higher education access; the Congressional Budget Office estimates that it will cost the federal government about 12 cents for every dollar it lends. The bottom line? Extending repayment terms would cost taxpayers much less and be more achievable than increasing direct subsidies to public universities or community colleges.
Everyone doesn't need a college degree. But for those who want a degree and have the drive and commitment needed to graduate, or who want a shorter term post-secondary diploma, affordability should not be what keeps them away. That's just not in our nation's best interest.
John F. Kennedy said, "Our progress as a nation will only be as swift as our progress in Education." To maximize the pace of our nation's progress, we must maintain a variety of educational options and make all of those more affordable in a way that is fair both to students and taxpayers. Improving financing in a way that benefits a majority of students is the fastest, most realistic route to ensure a more affordable and broadly accessible higher education system.
Randy Proto is the President and CEO of the American Institutes school group, which specializes in health care career education and serves over 2,000 students annually. It includes the American Institute College of Health Professions, American Institute and American Institute School of Health Careers located in Florida, and the Fox Institute schools in Connecticut and New Jersey.
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Policymakers and the public are fixated on keeping college costs down, which is a worthy policy discussion, but what student borrowers could really benefit from - and what could be provided right now, as opposed to years in the future- is counseling on repayment options from an unbiased source. (Full disclosure: I work for a nonprofit that provides counseling of this nature.)
Oh really? So where will all that extra interest that students will be paying go? To "increased taxpayer costs"?