This week President Obama has gotten aggressive on student debt. He signed an executive order lowering monthly payments for up to 5 million student loan borrowers, and he backed Senator Warren’s plan to help people struggling with private student loans.
All these steps were taken with one ambitious goal in mind: making college more affordable. In his most recent executive order, President Obama stated that:
“College is slipping out of reach. Over the past three decades, the average tuition at a public four-year college has more than tripled, while a typical family’s income has increased only modestly. More students than ever are relying on loans to pay for college. Today, 71 percent of those earning a bachelor’s degree graduate with debt, which averages $29,400.”
He went on to discuss his administration’s objective to make college more affordable and student loans more manageable. Unfortunately for future college students and the 40 million plus people with student loans, these goals are not being met.
College is unreasonably expensive
Helping people gain access to a college education is a noble, if not critical, goal. There is no debating the value of a good education for both the individual and society as a whole.
Unfortunately, as noted by President Obama, the cost of an education has tripled in the past three decades. He argued in a recent Q and A on student debt that it was largely attributable State reductions in college support. While this issue may be a contributing factor, it is hardly the only reason for escalating costs.
The growth of student loan availability has made it easy for most 18-year-olds to foot the bill for their education. Graduate school has become similarly easy to fund. Yet the ease of paying for college on the front end, has led to many unintended consequences.
With nearly anyone able to get a loan to pay for school, colleges have been able to increase prices without any drop off in enrollment numbers. In terms of economics, the ease of student loan acquisition has artificially flooded the market with buyers (students) who are willing and able to pay nearly any price for school.
This ease of funding an education has shifted the market. Potential students are not looking at the price of school – they want impressive facilities, renowned faculties, and a beautiful campus. Guidance counselors, administrators, banks, and the federal government have all reinforced this approach by perpetuating the view that anyone can go to any college because of access to student loans.
Only recently has attention shifted to the burden of student debt and the dangers of an expensive college. The problem is that this message is largely not being received by those who need it most – future students. Tell someone who is 18 or 19 about the huge mistake you made, and they will point out all the reasons why things will be different for them. And while the big spending doesn’t haunt every student, history shows that it will catch up with many.
Earlier today a visitor to this site left a comment on an article written to aid students dealing with private loans. This visitor wrote that, “I owe 80k in student loans, and 65k of which is private… it was the biggest mistake of my life. I drown in monthly payments that are over 700.00 a month.” Evidence of the student debt crisis is evident both anecdotally, and on a large scale, where student debt hinders the economy as a whole. Yet students continue to sign up for student loans, either believing that the numbers will not catch up with them or ignorant to the reality of student debt.
Obama’s major proposals don’t address these issues
Lowering IBR payments from 15% to 10% is a much needed band-aid for many people who are struggling with student debt. However it is just that – a band-aid. It may make dealing with the debt slightly easier, but lowering payments doesn’t make college any more affordable.
As for Senator Warren’s recently failed plan to allow students to refinance private loans into federal loans, not only was it dead on arrival, but it also would have been at best a temporary fix to a much larger problem. Whether the $1.2 trillion in student debt is federal or private, it is still a debt that many simply cannot afford. The only thing that changes because of this bill is that Democrats can justifiably complain about Republican’s inaction on student debt and Republican’s can justifiably complain that Democrat’s main goal was to score political points.
Unfortunately, for the 40 million with student loans, there seems to be no sign of an end to the Washington gridlock.
We have a generation of graduates with debt they cannot afford and with each year that passes their numbers grow. Incremental changes to payment plans and playing politics will not make a difference. Too many people are hurting, and the solution won’t be easy.