05/28/2013 03:42 pm ET Updated Jul 28, 2013

Why the Government Isn't the Only Answer to the Student Debt Crisis

Karen Bass, California congresswoman, has introduced the Student Loan Fairness Act of 2013. As the evidence mounts regarding the negative impact of excessive student debt, more and more members of Congress will want to weigh in on what the government can do to alleviate this problem. Clearly, the government can and should have an important role.

One of the immediate issues is the percentage rate the government charges on college loans. The current interest rate on the subsidized Direct (Stafford) loan is 3.4 percent, and 6.8 percent on the unsubisidized direct loan. If nothing is done legislatively, the subsidized rate will also increase to 6.8 percent. Congresswoman Bass is recommending a short-term fix to keep the current subsidized rate at 3.4 percent, and a long-term study to determine appropriate rates for all college loans. I applaud this approach and suggest that it is a long time in coming.

Today, the consumer loan market does not warrant these high rates. Not only is the 6.8 percent loan well beyond appropriate, the rate on the Parent Loan to Undergraduate Students (PLUS) is also extremely high at 7.9 percent. (The PLUS program is the most utilized borrowing method of parents trying to fund their children's college education.) Often missed in the discussion about college debt is the parent's mounting obligation.

We now know that students are borrowing more than $25,000 on average to fund college, and parents (using the data gathered from PLUS borrowing only) are in debt to the tune of nearly $35,000. This 7.9 percent rate is punishing and should definitely be re-examined.

Congresswoman Bass also suggests a "forgiveness" policy -- here is where I would encourage Congress to act with caution. A forgiveness policy leads to "moral hazards" and reinforces bad decision making. If students believe that they can have the impact of debt minimized at some point -- in that it will be forgiven by the government and the taxpayers will pick up the bill -- students and parents would have less incentive to increase their personal college financial literacy and make more prudent decisions.

This point leads me to the crux of the issue. Although the government can have some positive influence on this issue, the primary reason we have a college debt crisis is that we have done a very poor job of educating families regarding this important financial decision.

Sandy Baum, an economist from Skidmore College, does a study each year for the College Board on Trends in Student Financial Aid. Her latest study suggests that although the sticker price of college has increased substantially over the last 10 years, the same cannot be said for the net price. Of course, net price is a more accurate depiction of what a family actually pays a school after grants and scholarships. Unfortunately, many high school counselors have not been trained well enough to teach families how to find colleges whose net price matches what the family can afford.

There are tools in place today, if properly taught and appropriately executed, that teach families how to find these affordable college options: options that do not necessitate excessive borrowing. Knowledge is power, and those with the knowledge are learning how to utilize these tools. They are finding colleges that fit academically, culturally, socially and also financially--they are the families that borrow reasonable amounts. Sadly, this consumer driven approach to college decision making is only now starting to become embraced. Decades of having families pursue colleges using other methods has become the norm, and changing paradigms is never easy.

Frank Palmasani is the author of "Right College, Right Price," and the creator of financial fit, an online course that teaches families how to find affordable college options and pay for college without excessive debt.