Student loans should come with more strings attached for colleges
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Many new high school graduates will be looking forward to their upcoming college experience. But recent trends show they will also face rising tuition, burgeoning student debt, and a struggle to finish. These are just some of the challenges in today’s higher education system. Not only have college tuition and fees quadrupled since 1975 at public four-year schools (in real terms), but enrolled students often fail to earn a degree. Many of those who did not complete their studies become saddled with debt from an investment that didn’t pan out.

Just 40 percent of first-time, full-time students graduate with a bachelor’s degree within four years. And less than half of new student loan borrowers are able to put a dent into their principal balance within three years of entering repayment. These statistics tell a troubling story: while Americans enjoy broad access to the higher education system, federal policy does too little to ensure that institutions are helping students earn affordable degrees that meet the needs of the job market.

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The federal government provides hundreds of billions of dollars each year in grants and loans to students so they can attend the school of their choice. In 2017 alone, the federal government will have issued more than 17 million new student loans at a face value of over $100 billion. Institutions of higher education accept these dollars with very few strings attached. When a student drops out before completing the degree, the school faces no financial consequence, having already collected the tuition paid for by the loans.

 

Although schools must remain accredited to accept these loans and grants, the bar is set too low. Accreditation is largely a system of peer review, with employees of certain institutions charged with monitoring the quality of other institutions. Critics claim that the process is under-resourced, pointing to the collapse of Corinthian Colleges — the for-profit chain that went bankrupt and was found guilty of defrauding its students to the tune of $1.1 billion.

The vast amount of money that the federal government pumps into the higher education system each year may itself be contributing to rising tuition prices. The Federal Reserve Bank of New York found a positive correlation between universities’ published prices and the maximum loan amount offered by the federal government.

This makes sense intuitively, as institutions have little incentive to rein in prices when easy credit is involved. Although there are other factors at play — such as a slowdown of state investment in higher education — colleges benefit immensely from the current arrangement. Student loans provide billions of dollars in revenues for institutions to ramp up spending on new facilities, amenities, student services, and administrative staff.

Who doesn’t benefit from the status quo? The students — especially those who borrow but leave school before completing the degree. These individuals are at a greater risk of default, as they fail to realize the wage gains associated with a college degree. Student loans are next to impossible to discharge in bankruptcy, and the federal government has the unique ability to garnish defaulters’ tax refunds and even their Social Security checks, which can mean long-term consequences for borrowers’ financial security.

State policymakers are beginning to step up oversight of their higher education systems. Many states are now implementing performance funding approaches, which link state higher education funding to student outcomes — such as the number of graduates produced each year — with the goal of incentivizing institutions to put more resources towards getting students to the finish line. In addition, some state universities and technical college systems are experimenting with innovative solutions to improve student outcomes and drive down costs.

The Wisconsin Technical College System, for example, is engaging regional employers to help design the system’s curricula with a focus on ensuring that students are gaining the skills needed to thrive in the local economy. And some states are reducing costs by making it easier for students to transfer credits from school to school, and by allowing students to earn college credits during high school.

While innovations at the state level are growing, the federal government — as the largest financial stakeholder in America’s higher education system — can and should do more to ensure that institutions are held accountable, at least in part, for poor student outcomes. With reauthorization of the Higher Education Act on the horizon, Congress can address this issue in a bipartisan way.

For example, institutions could be charged a fee based on the portion of their borrowers’ outstanding loan balances that are not being repaid. Or Congress could adjust loan limits to give institutions less influence over tuition prices — though this should be enacted alongside other reforms that preserve access to higher education among low- and middle-income students.

Boosting the quality of college and reducing skyrocketing prices are goals shared by Republicans and Democrats alike. Sensible reform will lead to better outcomes for this year’s incoming college freshmen, and for all the students who follow. A brighter future for our country is at stake.

Jim Douglas is former governor of Vermont and a member of the Bipartisan Policy Center’s Governors Council.

Jason Grumet is co-founder and president of the Bipartisan Policy Center.


The views expressed by contributors are their own and are not the views of The Hill.