Obama administration

Turning Student Debt Into Opportunity

A college education is expensive.  And necessary for many careers.

Many students, facing faster-than-inflation cost increases and sluggish growth in government loans, take on more and more private debt to finance their education.  The average debt per borrower is now over $25,000 across all types of institutions, up from $19,000 ten years ago.  65% of students who entered Bachelor’s level-granting schools in 2008 graduated with debt.

Those indebted students forgo many of the choices and benefits of a broad education due to an obsession with “will it pay off” thinking.

Meanwhile, too many graduating students focus only on jobs with the highest salary for them to pay off their debts rather than careers that they are passionate about or that we need more of.  For example, there are dire shortages of nurses and teachers.  Many young entrepreneurs are unable to start a business due to debt obligations.

Three problems: 1) excessive debt; 2) obsession with “jobs” while choosing college courses; 3) misallocation of human capital into society’s labor needs.

One solution: student debt repayment should be based on ability to pay instead of absolute amount.

Pay what you can, not what you owe.

How would it work?  All qualified college loans would be repaid using a sliding scale formula.  If you make less than a threshold, depending on your family size, you pay nothing.  Once you are above the threshold (maybe 150% of poverty level), then you pay 10-15% of your income to your debts with a hard cap of around 20%.  Currently, the Obama administration started this for federal grants.  However, the private, for-profit sector still dominates.  Pay what you can plans should cover ALL loans.   Whatever losses it incurs can be absorbed by the federal government.  The upside will be more people finishing college, better educational choices while in college, better job fit after graduation, and all the economic and social benefits of these improvements.

Related articles

• One Nation Under Debt With Endless Debt Slavery For All (activistpost.com)
• Three Reasons to Avoid Private Student Loans (lexingtonlaw.com)
• Can Forgiving Student Debt Help Fix the Economy? (bigthink.com)
• Troubling Reports on College Students and Debt (pubcit.typepad.com)
• Rep. Virginia Foxx On People With Student Loans: ‘I Have Very Little Tolerance’ For Them (thinkprogress.org)