On Monday, President Obama announced changes to the student loan program that will allow student borrowers to pay no more than 10 percent of their monthly income in loan payments. Previously, only those who had borrowed after October 2007 were eligible for the deal. Now, the 10 percent minimum will apply to anyone with an outstanding student loan.
In doing so, the president brought renewed attention to a real problem. The cost of higher education is beyond what many Americans of moderate means can afford without incurring significant debt. But he is focusing on the wrong solutions. Worse, he did so without bothering to consider costs.
As U.S. Education Secretary Arne Duncan told the Associated Press, “We actually don’t know the costs yet” of extending the repayment program.
Instead, the president should have emphasized the need for greater accountability for higher education outcomes — an approach his administration also has championed in the recent past. Those who are paying off current loans may indeed need help.
Future borrowers, however, could benefit from having more information in hand. Some academic majors result in jobs that pay annual salaries so low it becomes a lifelong task to repay tuition loans. Expected earnings also differ, depending on the university. This is data that could be compiled fairly easily. Compiling and releasing it would force schools to account for their costs in relation to outcomes.
The administration has much of this information available but is taking too long to compile employment data by university.
Total U.S. student loan debt now stands at more than $1 trillion. The only things Americans borrow more for are mortgages. Students borrow money with the expectation that a college degree will provide them with an income that makes the investment worthwhile. For some, this is realized, but for many it is not.
A National Postsecondary Student Aid study found that in 2012, average student debt for undergraduates was $29,400, and that 70 percent of students believed they needed a loan to make it. That average loan amount is higher than the average expected starting salary of someone with a bachelor’s degree.
Students may make different decisions if they are armed with data about expected earnings relative to the debt they are incurring. They may decide to change majors or to pursue other paths that don’t encumber them for so many years.
As Mark Schneider, a visiting scholar at the American Enterprise Institute, wrote recently, debt that takes a decade or more to retire will make it hard for people “to marry, have children, buy a house or a car, or otherwise launch life as an adult.” This, in turn, is a drag on the overall economy.
Higher education is beginning to feel pressure from alternative low-cost Internet options that can deliver quality instruction. These are bound to grow with time, providing downward pressure on tuition. Greater accountability can provide pressure of its own, however.
The White House’s website talks about providing a scorecard with “clear, concise information on cost, graduation rate, loan default rate, amount borrowed and employment for every degree-granting institution in the country. Much of this is available, but not all. The sooner the government can provide complete information about costs and expected outcomes, the better students will be able to avoid unreasonable debt in the first place.
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