Affordable At Last, a new Education Sector report, calls for linking all student loans to borrowers’ income. This would “end all federal student-loan defaults forever,” writes Erin Dillon.
President Obama has issued an executive order making the current income-based repayment plan more generous: Borrowers would pay 10 percent of discretionary income for up to 20 years, then be forgiven the remainder of the loan, if any. That’s a good step, writes Kevin Carey, but the U.S. needs a simpler, British-style repayment plan.
One recent study found that the majority of American borrowers—56 percent—struggled with loan payments in the first five years after college. In Britain, by contrast, 98 percent of borrowers are meeting their obligations.
Few borrowers here use income-based repayment, dubbed Pay As You Earn by President Obama. “The program is administratively complicated, involving income-eligibility caps and requiring students to reapply every year,” writes Carey. Ed Sector envisions graduates repaying their loans as part of paying income tax.
However, making it easier for students to repay loans won’t help unless the administration takes steps to control ever-increasing college costs, writes Carey.
. . . people require a college degree in order to pursue a decent career. Unemployment rates during the great recession have been catastrophic for the uneducated even as graduates have mostly kept their jobs. So students and parents have little choice: pay what colleges choose to charge you, and if you don’t have the money in the bank, take out a loan.
To be sure, some students make bad choices, borrowing too much money to attend second-rate colleges or pursue majors with little value in the job market. But that just points to the folly of building a higher education system that depends on wise financial-decision making by 18-year olds, and makes learning for the sake of learning a luxury that only the wealthy can afford. Colleges that allow students to take such loans and happily cash their checks, meanwhile, deserve a measure of moral condemnation.
While community colleges provide a low-cost option, but most students never earn a degree, “in part because state governments brutally shortchange the two-year sector, giving them pennies on the dollar compared to flagship universities where the privileged send their children to school.”
While the Obama admnistration has taken over student lending, gone after for-profit colleges and pumped more money into Pell Grants, the administration hasn’t taken action to control “the rapidly escalating price of higher education.”
Without such reforms, all that new financial aid money will disappear like water tossed into the ocean. Far more must be done to create innovative new low-cost higher education models that can compete with traditional institutions on price and quality at the same time. At the same time, the prestige-obsessed market dynamics of higher education need to be altered by giving students and parents much more information than currently exists about which colleges actually provide a high quality education at a reasonable price.
It won’t be easy, Carey writes. “If legislators can get away with balancing budgets on the backs of low- and middle-income college students, they will.”