Michigan has joined Oregon in proposing a “Pay It Forward” student lending system, writes Susan M. Dynarski. Students would pay no tuition up front and pay back a fixed percentage of their income after college. The idea is flawed but fixable, writes Dynarski.
In both the Michigan and Oregon versions of Pay It Forward, a borrower pays a fixed percentage of income for a fixed number of years. A high earner would pay much more than she borrowed; a low earner would pay much less.
In a Hamilton Project proposal, Dynarski proposes a change in income-based repayment — or Pay It Forward — that would encourage aspiring high earners to participate.
Denominate debt in dollars, and let borrowers pay their debt. If a student borrows $25,000 and (due to pluck and luck) earns enough that she has paid back the principal plus interest after just ten years, she will stop paying into the program. If a borrower instead runs into hard times and still owes money after 25 years, the balance will be forgiven.
In this way, both Pay It Forward and my income-contingent repayment would subsidize low earners without driving away high earners, concludes Dynarski.
Education and the American Dream was the theme of Florida Sen. Marco Rubio’s keynote speech at Making Community Colleges Work, a Next America session sponsored by National Journal at Miami Dade College.
The son of immigrants, Rubio used Pell Grants, student loans, work study and summer jobs to pay for a four-year degree and law school. He started his career as an attorney with $100,000 in student loans.
To find a good-paying job, “it is vital that you get the right degree geared toward the right industry,” Rubio said.
Nationally, majors such as business, liberal arts, and hospitality have underemployment rates at or above 50 percent. There are simply more graduates than jobs in these industries. Meanwhile, engineering, health services and education all have underemployment rates less than 25 percent.
Students and their families need to be equipped with the information necessary to make well-informed decisions about which majors at which institutions are likely to yield the best return on investment. This is why I, along with Senator Ron Wyden, proposed the “Student Right to Know Before You Go Act,” which aims to give students reliable data on how much they can expect to make versus how much they can expect to owe.
Rubio called for making income-based repayment the universal method for student loans. He also proposed an alternative to student loans known as Income Share Agreements.
Let’s say you are a student who needs $10,000 to pay for your last year of school. Instead of taking this money out in the form of a loan, you could apply for a “Student Investment Plan” from an approved and certified private investment group. In short, these investors would pay your $10,000 tuition in return for a percentage of your income for a set period of time after graduation – let’s say, for example, 4 percent a year for 10 years.
This group would look at factors such as your major, the institution you’re attending, your record in school – and use this to make a determination about the likelihood of you finding a good job and paying them back. . . . Your only obligation would be to pay that 4 percent of your income per year for 10 years, regardless of whether that ends up amounting to more or less than $10,000.
Income Share Agreements are a great idea, writes Richard Vedder. Investors “buy equity in students as opposed to lending to them.” The risk shifts from students to investors.
Rubio also called for better career and vocational education in high school, apprenticeships and “more pathways for working parents” at the community college level.
Reforming the “broken accreditation system” would open the door to “new, innovative and more affordable competitors,” he said. He proposed a new accrediting agency for online education. With standardized tests to demonstrate competency, students could learn online or on the job and earn a low-cost job certification or degree.
The cost of not going to college is rising, according to a Pew Research Center analysis. “On virtually every measure of economic well-being and career attainment—from personal earnings to job satisfaction to the share employed full time—young college graduates are outperforming their peers with less education,” the report finds. The gap is widening between four-year college graduates and high school graduates.
Millennial college graduates ages 25 to 32 who are working full time earn about $45,500, while high school-only young adults average $28,000. The $17,500 gap is a record. College-educated Millennials also are more likely to be employed full time (89% vs. 82%) and significantly less likely to be unemployed (3.8% vs. 12.2%).
Median earnings for college graduates haven’t increased much in since 1986, but less-educated workers are doing much worse than in the past.
Young people today are far more likely to be living in poverty, Pew reports. Among those ages 25 to 32, 22% with only a high school diploma are living in poverty, compared with 6% of college-educated young adults.
In contrast, only 7% of Baby Boomers who had only a high school diploma were in poverty in 1979 when they were in their late 20s and early 30s.
Despite rising college costs, 72% of four-year graduates said college has paid off; 17% believe it will pay off in the future. Even among the two-thirds of college-educated Millennials with student loans, 86% say their degrees have been worth it or expect that they will be in the future.
Graduates had some regrets: Many said they wished they’d gained work experience and studied more in college.
Unfortunately, Pew combines Millennials with associate degrees, certificates or “some college” but no credential in one category. There’s a huge gap between people with a few community college courses, those who’ve earned a vocational certificate and those who’ve earned an associate degree in a vocational field. (Associate degrees in general education typically don’t raise earnings significantly unless the student transfers and completes a bachelor’s degree.)
Dirty Jobs’ host Mike Rowe talks to Reason.TV about the “diploma dilemma” and the high cost of college. “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist,” says Rowe. “That’s nuts.”
The rise of MOOCS lead Ed Central’s Top Ten Higher Ed Stories of 2013. “The massive open online courses have huge potential to bring learning to more people, and to do it cheaper.”
Also on the list is U.S. Department of Education approval for Southern New Hampshire University’s College for America, “the first school to award federal aid based on direct assessment of students’ learning.”
President Obama sent higher education stakeholders into a tizzy with his August announcement that the administration would implement a wide-ranging plan to get college costs under control. The centerpiece of the plan would rate colleges on a variety of metrics, and with Congressional approval, tie the ratings to financial aid eligibility.
Congress lowered interest rates on federal student loans and tied the rates to the market.
“Merit aid madness” benefits the wealthiest students.
(Colleges) “increasingly using their institutional financial aid as a competitive tool to reel in the top students, as well as the most affluent, to help them climb up the U.S. News & World Report rankings and maximize their revenue.
Other top stories are questions about the fairness of income-baseded repayment, policy changes for Parent PLUS loans, the rewrite of gainful employment regulations, data transparency and a OECD report “identifying one in six Americans as lacking basic skills necessary for the workforce.”
Ed Central proposes a college scoreboard design.
Collegebound students must dream the affordable dream, writes Michael Alcorn in the Arvada (Colorado) News. A music and fitness instructor, he’s the father of three children, including a daughter in 12th grade who wants to study nursing.
Me, the “life coach” parent, wants her to dream as big as the sky and the stars. . . .
Me, the “teacher” parent, really believes in education and higher education and the value of learning for learning’s sake . . .
But me, the “financial advisor” parent, looks at the average of $26,000 student loan debt for graduates, looks at one in three college graduates living in their parents’ basements, looks at 45-percent dropout rates and 40-percent graduate underemployment . . . This part of me loves the idea of two years of community college to get the general ed. out of the way, transferring all those credits to the great, local private university with the great nursing program, and finding a way to get her into life without crippling debt.
Only 20 percent of jobs require bachelor’s degrees, according to the Department of Labor, writes Alcorn. About 30 percent of adults are college graduates. “One hundred percent of high school students in any suburban school are told . . . they’re a failure if they don’t go to college.”
The three parents in his head keep arguing, but the one who says “debt be damned!” probably isn’t going to win, he concludes.
Helping students avoid default is a new job for community and technical colleges, reports Community College Times. Despite relatively low tuition, more two-year college students are borrowing — and having trouble repaying their loans.
Amy Matteo graduated from Clover Park Technical College (CPTC) in Washington in 2012 with a pharmacy degree. She’d borrowed $20,000 to pay for tuition and expenses. It took her eight months to find a job. After six months, she was laid off.
. . . Matteo began to fall behind on her mortgage payments, and let her student loan repayments slide so she could take care of her housing costs first. Soon, she was on the verge of defaulting on her student loan, as email reminders about missing her $245-a-month loan payments piled up.
At that point, officials from CPTC contacted Matteo and urged her to take advantage of SALT, a third-party financial literacy program the college had just joined. Through SALT, Matteo was able to put her loan payments on pause until she can find a job.
The average two-year cohort default rate for community colleges was 15 percent in 2011, according to the National Association of Student Financial Aid Administrators (NASFAA). That compares to 9.6 percent for all colleges and universities.
SALT, developed by a nonprofit called American Student Assistance, is being used by more than 240 higher education institutions, including 94 community and technical colleges.
SALT is very interactive, with online videos, apps and “money 101” courses to help with budgeting, as well as the basics on student loans, “speaking the language our students speak,” said CPTC spokesperson Tawny Dotson. It provides immediate access to information in a variety of formats—such as downloadable PDFs, email or phone calls.
There is no charge to students who take advantage of SALT’s services, such as financial counseling and debt management. SALT can help them combine loan repayments from different services or change the repayment schedule but it can’t renegotiate interest rates.
Many Clover Park Tech students are “first-time college students, and they are not very well educated in money matters,” said Wendy Joseph, financial aid director.
Many community college dropouts don’t understand that they have to repay loans even if they left school without a degree, said NASFAA Policy Director Megan McClean. Many don’t know default could ruin their credit rating or lead to garnishment of wages.
Redesign Pell Grants, stretch out income-based loan repayment and simplify college cost estimates urged outside experts at a Hamilton Project forum today.
Pell Grants should provide guidance and support services tailored to recipients’ needs, write Sandy Baum of George Washington University and Judith Scott-Clayton of the Community College Research Center at Teachers’ College, Columbia.
They also propose dramatically simplifying eligibility and the application process and strengthening incentives for students to move quickly to a degree.
Income-based repayment should extend beyond the first 10 years after college, propose Susan Dynarski and Daniel Kreisman of the University of Michigan. Payments would rise and fall with a borrower’s income.
This model could prove less costly for taxpayers than the current system and it could even be less expensive; the proposal would reduce defaults and cut the cost of loan servicing, as well as eliminate what would become redundant policies, such as the student-loan interest deduction and the in-school interest subsidy. For the very small percentage of borrowers who take on significant student debt, the authors propose improving bankruptcy protection as well as tightening regulation of the private lenders who own most of these very large loans.
A better college cost calculator would help students from lower- and middle-income families to make informed college choices, writes Wellesley’s Phillip Levine. His Quick College Cost Estimator uses six basic financial inputs.
President Obama’s plan to rate colleges is “yet another mistaken attempt . . . to alleviate some of the symptoms of a problem without actually addressing the underlying disease,” writes Erika Johnsen. The other part of the plan – promoting income-based repayment – will make the disease worse.
The “easy, cheap and indiscriminate availability of student loans ” juices demand and helps universities raise their prices, writes Johnsen. The Obama administration keeps sending out “signals about how ‘easy’ it will be to repay these huge loans after you graduate with a little help from Your Friend, The Federal Government.”
Student loan default rates continue to rise, reports the U.S. Department of Education. After two years, 10 percent of former students are in default; that rises to 14.7 percent after three years.
“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. The department will expand outreach to explain loan repayment options.
Community colleges have the highest two-year default rate — 15 percent — of any higher education sector. After three years, the community college default rate tops 20 percent, nearly as high as the rate for two-year for-profit programs.
The official default rate understates borrowers’ pain, says Rory O’Sullivan,policy and research director at Young Invincibles, a Washington nonprofit group. The rate, which includes graduates and dropouts, shows the share of borrowers who haven’t made required payments for at least 270 days. It doesn’t include borrowers who are putting off payments through “forbearance” and those on federal income-based repayment programs. “It’s financial disaster for borrowers,” said O’Sullivan. “Defaults can dramatically affect their credit rating and make it harder to borrow in the future.”
Nearly a half-million student borrowers are in default within two years and 600,000 within three years, notes the National Association of Student Financial Aid Administrators.
Eight institutions with high default rates could lose eligibility in federal student aid programs.