Much has been written about America’s staggering $1.7 trillion student loan debt but comprehensive solutions have been MIA. Many proposals to forgive debt don’t make sense because they primarily help wealthier borrowers. They also fail to address how some educational institutions have been recklessly exploiting loans as a funding source.
A disproportionate amount of the debt is held by wealthy households which can afford to repay it. Professionals --- such as doctors and lawyers --- often have large debts due to the costs of their educations --- but many also have commensurate incomes to pay these debts.
It’s time to stop the political pandering epitomized by indiscriminately forgiving student loan debt regardless of whether debtors are making $50,000 or $500,000 annually.
And what about the borrowers who worked hard to pay off their debts or who borrowed from other sources (family, credit cards, etc.)? They are ignored by forgiveness proposals. Here are the policies which actually could help permanently solve the problem.
#1 “If you find yourself in a hole, stop digging.” An immediate goal should be to reduce students’ reliance on loans. If future borrowing decreases, it will help stop the problem’s growth.
#2 Educational institutions need to be far more hands-on assisting applicants and matriculated students in taking advantage of available scholarship and other financial aid opportunities. A comprehensive effort to inform and assist every student eligible for various forms of aid --- starting with informing high school juniors --- could provide millions of additional dollars while reducing debt burdens.
#3 Before anyone is allowed to borrow, institutions should be responsible for explaining the financial ramifications of potential debt. Informed borrowers may decide to reduce borrowing as well as create competition among schools by considering less expensive educational alternatives.
#4 Make schools responsible for providing prospective students detailed information regarding what they can expect to earn, based on the specific program a student is considering. When applicants have this information, some of which will be quite discouraging, they may make different choices. This requirement will help address problems created by academic institutions which encourage students to take out loans for degrees which have nominal long-term financial value.
#5 When requiring academic institutions to demonstrate their success rates in producing graduates who can pay their student loans, tougher metrics should be set which, if not met, result in a school being put on federal loan program probation. If a school’s performance does not improve, it could be suspended or even expelled from those programs. This would help address “problem institutions” which exploit loan opportunities for worthless degrees and certifications.
#6 Address the serious issue of students who do not finish their courses of study yet are saddled with loans which they cannot repay without the degrees or certifications they sought. Programs should be created to help them find jobs as well as paths for completing their degrees or certifications.
#7 Make transferring credits from Community Colleges to four-year institutions as easy a process as possible, with preapproval of credit transfers replacing what can be a convoluted, bureaucratic approval process. Starting at a Community College already has found favor with many but its vast potential remains untapped. Students who transfer after two or three years often can save 50% or more of their college costs yet still end up with a degree from a four-year institution.
#8 Allow borrowers to refinance their loans at any time to reduce unreasonable locked-in interest rates which can be quadruple that of market rates. Create more opportunities for refinancing at nominal interest rates.
#9 Allow student loans to be discharged in bankruptcy as a normal debt. Given that individuals and businesses usually can write-off almost anything, it is unfair to make student loans nearly exempt from bankruptcy.
#10 Vastly expand forgiveness programs so graduates can work off their loans in a wider variety of jobs serving the public interest. These opportunities should be plentiful and easily accessed to serve communities which otherwise only can offer low-paying jobs or ones in challenging locations. Institutions and lenders should have greater responsibility for informing borrowers of their options.
#11 Expand existing income-based forgiveness programs. Make them more accessible and permanently eliminate the taxation of forgiven balances. Better inform borrowers about income-based repayment options and simplify them so they are easier to access.
With these changes, a path could be forged to reduce the burden of student loan debt on those who can least afford it while making schools more efficient by becoming less dependent on loan dollars.
Aaron Harber is host of "The Aaron Harber Show" (HarberTV.com/Info + Aaron@HarberTV.com). He is a former Princeton University trustee, was chairman of the Attorney General’s Collection Agency Board in the Colorado Department of Law, and was the founder of the Colorado Accounting Service.