The Student Loan Mire

Brian McNicoll

11/9/2011 12:01:00 AM - Brian McNicoll

For a couple of weeks, the narrative of Occupy Wall Street coverage was that, beyond the opportunity to decry greed, no one could be clear what the protesters wanted. Then, of course, a list appeared.

Most of the demands were ridiculous –living wage everywhere, equal rights amendments for gays and women, $1 trillion for infrastructure, another $1 trillion for environmental projects, etc., ad absurdum. But one struck me as curious – that we forgive all college loans.

I don’t agree we should forgive college loans, but I do believe it’s time to rethink the whole premise of government aid and college.

College loans entrap young adults in thousands of dollars of debt from which there is no escape. Just as recent grads are trying to cut the cord from their parents and start their own lives, they find themselves crushed under payments that total hundreds or even thousands of dollars per month.

Their first jobs out of college usually are their lowest-paying, but many of their expenses – car note, car insurance, deposits on apartments, etc. – are the highest they’ll ever face. The result – years of the frustration of hand-to-mouth existence after earning a degree they were assured was a passport to financial security – has led thousands to Zuccotti Park and elsewhere.

What to do?

A helpful first step would be to phase out college loans. Start with the outright grants and proceed from there to the loan guarantees. End the entire program over a 5-year period or less. Others have suggested it will take as much as 10 years, but five is enough. Five years means nobody who has not signed up to rely on college loans or government grants to fund their higher education will be asked to abandon that plan.

We spend nearly $50 billion in direct federal aid to education in this country, and more than 90 percent of it goes to student grants and college loans. Congress cut the interest rates in 2007, then increased the borrowing limits the following year. Getting out from under those obligations alone could put us hundreds of billions of dollars closer to addressing our budget gap in a decade or less.

Academics who have studied this issue say this could yield a number of benefits.

It would reduce the cost of college. According to a study from the Cato Institute, for every dollar federal aid increased from 1977-2004, tuition at public four-year universities increased 97 cents. Correlation is not causation, but a link that strong is hard to deny.

From 1986 to 2006, college tuition rose 68 percent. Did enrollment collapse? Why no. It increased 48 percent. What’s more, more of those students have required remedial courses and more failed to graduate within six years than any group before them.

Eliminating federal aid would not harm deserving students. Philanthropies donate millions now to help underprivileged students and probably would do more if government got out of the way. And to earn those scholarships, students would have to prove they are strong, disciplined and dedicated to a specific plan to turn their education into further success.

But it would force colleges to be more responsive to their students. In recent years, colleges have realized there is just as much if not more money in catering not only to serious students who want to pursue serious courses of study but to others who don’t have a plan but feel the need to meet family and community expectations by attending college.

College is more than a trade school for those who seek work in the professions. There is room in this world – indeed, the world requires it – for a Pondering Class. But it is unlikely removing college loans will stop ponderers from pondering, nor prospective engineers from pursuing their chosen profession. For the engineers, colleges will remain a necessary passport to professional success and probably the best investment they’ll ever make. And for the truly dedicated ponderer, opportunities will continue to exist.

Along those lines, this also would force a rethink of who goes to college. Even today, less than a third of American adults have even a Bachelors degree, and degree holders constitute a majority in only two areas of employment – the professions and management. Moreover, for many of the jobs of the future, training will be so position-specific that a Bachelors degree won’t be necessary or even helpful.

The Cato study cited Peter Wood, a professor at Boston University, who said federal subsidies “are seen by colleges and universities as money that is there for the taking … tuition is set high enough to capture those funds and whatever else we think can be extracted from parents.”

Let colleges turn their extraction efforts exclusively to parents. It would do all of us – parents, students, taxpayers, even the colleges – a lot of good.