Students have been hearing it non-stop for months – they are facing a mountain of debt upon graduation. However, taking a closer look at recent developments reveals that there are a lot of things that colleges can do to help out. Now’s the time to have colleges reappraise some of their practices to try to remedy the problems associated with student loan debt. Here’s a view of four approaches that colleges can take.
Control reckless, for-profit colleges
The for-profit college industry is getting 90% of its revenue from federal student financial aid programs by targeting low-income learners who are more likely to default on their loans. When these students default, taxpayers are left holding the bill and colleges get richer. The Department of Education has voiced concerns but needs to hold these colleges to higher standards.
Control costs and fix the problem
The cost of college has tripled in real terms over the past 30 years, and colleges know that whatever they charge, students will pay for as long as they feel that degrees are a necessity. To do this, they take out loans. The underlying reality, however, is extraneous spending, and this needs to be cut down right away.
Colleges need to bear risk for defaults
As they get paid up-front, colleges don’t have enough at stake in the process. Federal law does penalize colleges with unusually high loan default rates, but the penalties are so lenient that colleges in effect have carte blanche to put tax dollars at risk. If colleges had to reimburse taxpayers on loan defaults, they might take a more measured approach before offering aid packages. Congress should change the law by perhaps convincing colleges to lower their costs and hence fix the problem.
Colleges need to review all lending
Too many students are accumulating too much of the wrong type of debt. In 2008, over a quarter of private loan borrowers didn’t avail of federal loans and almost two-thirds of borrowers didn’t exhaust their federal loan options. If all lenders were required to have colleges certify a private loan before disbursing it, schools would know who is getting these loans and could adequately counsel them.
Image by Andres Rueda