There is a difference between a cost and an investment. And as conversation heats up about the increasing cost of higher education and the disturbing numbers related to student debt and default, we, as a country, need to take a hard look at the way we are financing higher education and preparing our workforce for productive careers and fulfilling lives.
Education is the key to preparing our young people to achieve their dreams and contribute to society. But we are making it as difficult as possible for middle and low-income families to invest in their futures.
Student debt now stands at about $1.3 trillion, with the average family owing over $48,000. And student debt is only a portion of the $132,529 in total debt for the average household, according to a report compiled by NerdWallet.com. A significant portion of that total nationwide debt is accumulated as federal money used to underwrite students who entered programs at for-profit education companies – where unfortunately job prospects are bleak and the documented return on investment is marginal at best. In parallel, state support for higher education as a percentage of total cost has been declining sharply. Meanwhile, Pell grants cover a smaller portion of college costs than ever, with total grants going down from $39.1 billion in 2010-11 to $28.2 billion in 2015-16, according to the U.S. Dept. of Education.
Bottom line: American families are feeling the pain. Student loans aren’t forgiven like credit card debt. And relief when things go bad for borrowers is hard to come by. Declare personal bankruptcy, and the clock keeps ticking on student loans. When you can’t make the payments, the penalties and interest mount up. It is not uncommon to hear stories about people who went into default and now owe far more than they borrowed many years after getting a degree. The official default rate is 11.3%, but the real rate is more than 20%, according to a White House report issued in 2016. Some scholars have pegged at even higher than that. This can’t continue.
Now that we are through another election cycle, there will be new policy proposals and, I hope, much discussion about education. At present, however, Congress does not seem poised to budge on the debt issue. Bills proposing to allow students and graduates to refinance loans at lower market rates have been defeated over and over again, possibly because the government generates $1.6 billion a year in profit from federal student loans that Congress is loathe to give up. The idea that the government is generating returns from student lending is not only ill-advised, but a model that no other industrialized country attempts to copy.
But there are measures we can take and innovations we can make that will recast the way we fund and invest in higher-ed. Here are a few that I believe should be on the table for discussion.