HILLARY CLINTON’S plan to alleviate student debt has merit, but additional measures are needed to solve the college debt crisis.
To start with, the issue of spiraling pricing — a 46 percent rise in average tuition from 2001 to 2012, according to the Federal Reserve Bank of New York — can only be addressed if college administrators are allowed to speak to our peer institutions about setting a reasonable gross price. But that would require an exemption from antitrust laws. The Department of Justice is opposed to such an idea, believing it constitutes collusion that would drive up prices.
In fact, we want to bring prices down by lowering our discount rates to arrive at a more realistic cost structure. But if one college does this by itself, that could hurt, not help, in the marketplace. A lone institution with a reduced price would appear to be out of line with current market conditions, possibly making it appear there was something wrong with the school. (This has been attempted by colleges in the past and it hasn’t worked.) If there was a reset on the average price point, everyone’s price would come down and costs would fall within a certain range across the board.
Student loan programs also need to change. We should adopt income-contingent student-loan payment plans. Currently, federal loans have set rates and payback periods. Young grads who are high-income investment bankers make the same monthly payments over the same amount of time as lower-income teachers. Instead, graduates should pay a percentage of their income over variable periods, with a cap on the amount of interest paid.
It may take the teacher longer to pay off loans, but he or she will not be squeezed to the point of having no disposable income. The investment banker could settle loans more quickly. This model could help stimulate the economy by leaving more young people with more money to spend and invest. It would also decrease the current high default rate on educational loans.
Further, not everyone who takes out a loan needs to do so. Some higher income families sign up for loans because the rates are very low, which means they can make money by investing the borrowed amount. For example, a family might take out a loan at 3 percent, invest the principal, and earn a compounded return of 8 to 10 percent.
The federal government, which backs 90 percents of student loans, does not ask who truly needs a loan. If the number of families able to borrow for college at those low rates were reduced, more students who are deserving would be able to obtain loans.
Also, many of the country’s for-profit institutions are taking federal loan money away from traditional nonprofits. Their graduation rates are abysmal — in the 20 to 35 percent range — yet their students borrow to pay the company providing “education.” There should be restrictions on the number of for-profits eligible for federal loans, with safeguards based on graduation rates — among other factors — so subpar for-profit colleges are not taking money away from institutions that graduate students and send them on into the workforce.
Academic administrators don’t like to see families struggling to meet college costs. We know the sacrifices that students, parents, and grandparents are making. If we could adopt some or all of these proposals, great progress could be made toward making college more affordable.
Steven R. DiSalvo is president of Saint Anselm College.