Student Loans: What should the government do?
The student loan problem seems clear enough on the surface: students are incurring oversized student debt, and they are defaulting on that debt and threatening their ability to access future credit. The approaches to the student loan debt collection are fraught with problems, including improper recovery tactics and informational asymmetry regarding repayment options. Most importantly current government policy conversations neglect key issues that contribute to the debt mess, leading to proffered solutions that also miss their mark.
The reported student debt loans represent averages, yet the amounts owed can differ dramatically from student to student. That is why solutions like the mandated debt calculator on college websites or the current College Scorecard do not resolve the issues; the disclosure of genetic information does not impact student choice meaningfully.
Many of the problematic student loans are held by individuals who left college before graduation, meaning they have incurred "debt without a diploma." This reality distorts default statistics, making their indicia of school quality misleading. The cost of education is not necessarily commensurate with the quality of the education received, meaning some students pay more and get less, and we do not have an adequate system for measuring educational quality other than accreditation, which is a deeply flawed process (Haste).
Students and their families are woefully unaware of the myriad repayment options, and therefore forgo existing benefits or are taken advantage of by loan servicers. This occurs because we de-link conversations of “front-end” costs of higher education from “back-end” repayment options and opportunities; students and their families are scared off by the front end without knowing that there is meaningful back-end relief (Miller).
Given these, it becomes clearer why some of the current government reform suggestions are misguided. Two illustrations:
First, evaluating colleges on a rating system based on the earning levels of their graduates assumes the overwhelming majority of students graduate and that the employment chosen will be high-paying. But we know that not to be true, and for good reason: some students proudly enter public service or other low-paying but publicly beneficial employment. And, in today’s economy, not all students can find employment directly correlated to their field of study (Chingos).
We also know that those from high-income families have greater networking opportunities, given family connections. Yes, some schools offer degrees with little or no value, but the solution to student loan indebtedness does not rest on an earnings threshold (Ismail).
Second, looking at loan default rates as a measure of the success of a college misses that many colleges welcome students from lower income quartiles, and these students have less collegiate success – understandably, although obviously many are working...