One need only check the news, or a Democratic presidential debate, to know student-loan debt is being billed as a national crisis.
Certainly, some Americans are struggling under the weight of their college debt, but they represent a minority even of those with student loans. The twin proposals of wiping away all student debt and making college “free” fail to acknowledge the problem is much narrower.
“I think these are terrible ideas,” says higher-education expert Jenna Robinson, “because they don’t address the real problems, they don’t focus only on the people who are struggling, and they throw the baby out with the bathwater.”
Robinson, who leads the James G. Martin Center for Academic Renewal in Raleigh, North Carolina, was in Atlanta this past week to offer alternatives to across-the-board debt forgiveness. As her comments suggest, the first step is to recognize what the problem is, and what it isn’t.
She starts with the fact only 65 percent of those graduating from college (public or non-profit private) in 2018 had student loans. In Georgia, it was only 57 percent, and their total student debt was a few hundred dollars below the national average of $29,200.
“That’s a fantastic accomplishment for Georgia,” she says.
What’s more, not all of those with debt are having trouble repaying it. Robinson says only 15 percent of those with loans surpassing $30,000 are defaulting – but about one-third of those with less than $5,000 are doing so within four years of leaving school.
It’s not the amount borrowed that gets people in trouble, but whether they graduated.
Among borrowers in default, almost two-thirds had no degree and a quarter earned only a certificate, not a four-year degree.
“This is by far the biggest reason people default,” Robinson says. And it leads her to a different conclusion than we hear from politicians.
“If I have to point my finger at the biggest culprit … it’s colleges and universities themselves,” she says. “They have – by extending federal money to everyone, and not following up, and not following through – created this problem. And so far they have seen no repercussions.”
While students could and should be better at recognizing the burdens they are taking on, and examining the likelihood they’ll benefit by attending a particular college or pursuing a particular degree, Robinson says the schools themselves aren’t holding up their end of the bargain.
“They benefit from opening their doors to students whom they know won’t succeed, or are unlikely to succeed,” she says.
That is, admittedly, painting with a broad brush. But then, so is saying all student debt should be forgiven (in the hopes of tempting a broad section of the electorate). What are some more targeted ways to address student debt and the rising number of defaults?
First, Robinson suggests something that may seem a bit counter-intuitive: returning to the pre-1995 policy of allowing students to discharge student loans in bankruptcy. The point is not to make it easier for students to walk away from their obligations; this would “have to be accompanied by a suitable waiting period,” she says.
Today, lenders have little incentive to evaluate students’ prospects of repayment before offering them loans. “If they have better incentives,” she says, “they’ll be less likely to make loans to 18-year-olds who are prone to making bad decisions.”
She would also end “parent-plus loans,” which allow parents to borrow beyond the limits imposed on students themselves, among other items. One that deserves special mention is requiring colleges to have some skin in the game: If their former students were to default, they’d be on the hook for some portion of the debt – perhaps 20 percent.
This, she says, “would align universities’ incentives with students’ best interests; right now they’re not aligned.”
Fixing these misalignments – rather than creating more perverse incentives by putting taxpayers on the hook for all costs – is the way forward.
• Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation: www.georgiapolicy.org.