Student loan debt isn’t just a problem for new college graduates – the financial burden creates several long-term ramifications that prevent many borrowers from achieving their full potential, according to panelists at an event hosted by New America.
The education think tank on Wednesday hosted a discussion around the idea of a new book, “The Real College Debt Crisis: How Student Borrowing Threatens Financial Well-Being and Erodes the American Dream.” Mark Huelsman of Demos and Kevin Carey, director of New America’s Education Policy Program, joined the book’s authors William Elliott III and Melinda Lewis in a discussion about how to address the underlying issues with student loan debt and the cost of college, rather than just treating symptoms of the problems. Danielle Douglas-Gabriel, a reporter for The Washington Post, moderated the discussion.
“Most people go to college with that mindset of eventually being able to get a job and work,” Elliott said. “It really is about this idea that we should be able to use our efferent ability to achieve desired outcomes. This has made us think about student debt in a slightly different way, possibly.”
The increasing cost of college has caused some to question whether it’s a worthwhile return on investment. Elliott said people continue to ask whether a student who takes out loans to finance their education is better off than a similar individual who chooses not to go to college. Likewise, do individuals with student debt who put in the same amount of effort as those without debt – and similar abilities – achieve similar outcomes?
“That’s a fundamental problem in America because we need to believe that our efferent ability takes us to where we need to go,” Elliott said. “Student debt is not simply about whether people are defaulting. That’s not the only problem they face. It’s also about whether or not they can build assets over the long term.”
Huelsman and Carey noted that student debt – even if not in large amounts – can be problematic particularly for low-income students who might drop out, never reaping the benefits of a college degree. Those students are the most at-risk to become delinquent on their loan repayments or enter into default, Huelsman said.
“There’s a fundamental difference,” Huelsman said, between student debt taken on by low-income individuals and debt taken on by those from middle- and upper-income families.
Rather than solely focusing on rethinking student debt, Elliott and Lewis said policymakers and higher education institutions need to change how they think about financial aid more broadly.
“We need financing mechanisms for higher education that are consistent with the responsibilities with which we have invested our education system, which is to be a really viable ladder to make the American dream within the grasp of every child,” Lewis said.
Children’s savings accounts – which many states have begun implementing or have plans to do so through new legislation – are becoming an increasingly popular way to address attainment and achievement gaps among different student populations as concerns over paying for college grow, Lewis said.
Savings accounts also help in creating a shift in mindset, Huelsman said.
“You say, ‘We’re going to make an investment in you, and therefore, you’re going to be able to go to college,’” he said. “The nice thing about savings accounts … is the existence of that initial promise has its own intrinsic benefits.”
But increasing the use of children’s savings accounts doesn’t do away with the fact that there are other factors contributing to the rise in college costs, Elliott said. Colleges, too, need to work to keep costs down, he said.
The idea of giving colleges some “skin in the game” – through institutional risk-sharing or performance-based funding – has come up in discussions among lawmakers as Congress works to reauthorize the Higher Education Act.
Carey said that while tying funding to performance can be complicated – and could have perverse effects in some situations – proposals that require colleges to pay back a percentage of outstanding loans if their graduates default could be beneficial.
In the end, though, Elliott says that while they might be part of the short-term solution, those proposals attack the wrong problem by focusing on “maintaining a system that stinks in the first place.”
“It might be needed, but it’s not really the end solution to things,” he said.
NASFAA Policy Intern Angel Flores contributed to this report.
Publication Date: 7/16/2015