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May 29 2012

Are Federal Loans Financing Bad Higher Ed Habits?

Vicki E. Alger

An editorial in today’s Boston Globe described the plight of a young college student having to leave school owing around $100,000 in loans. It continued, noting:

Nearly 30 percent of college students who took out loans dropped out of school, up from less than a quarter of students a decade ago, according to an analysis of government data earlier this year by think tank Education Sector. College dropouts are also among the most likely to default on their loans, falling behind at a rate four times that of graduates. That is raising new questions about the wisdom of decades of public policy that focused on increasing access to higher learning but paid less attention to what happens once students arrive on campus. And some education experts have begun to argue that starting college — and going into debt to pay for it — without a clear plan for a diploma is a recipe for disaster.

Planning certainly is key to graduating without crushing debt. Andrew Rotherham, however, warned in his recent School of Thought column that students should not “skip college based on the hysteria.” Like the Globe editorial, Rotherham highlighted a recent New York Times article that led with another student owing $100,000 in loans. “But the article subsequently noted that just 3 percent of student borrowers owe more than $100,000; only 10 percent owe more than $54,000,” Rotherham explained, adding that  the “median debt for the two-thirds of U.S. college students who borrow to finance their education is only $12,800.  That’s actually less than the difference in annual earnings between those with a college degree and those with only a high school education…”

He likened the current situation to “higher education bubble. It will correct, as all bubbles do, probably as a result of an improving job market but also as new providers of competency-based credentials gain credibility.” In the meantime, students aren’t the only ones who should plan for the future. Rotherham concluded:


The availability of loans has spared higher education from pressure to cut costs or become more efficient and has also made it easy for state legislatures to cut spending on higher education and shift those costs to students through loans. In other words, loans have become something of a third-party payment system to finance bad habits throughout higher education policy. … At some point, a more ambitious overhaul of federal financial aid programs is needed to better target aid for those who most need it and to reduce perverse incentives for colleges and universities, which currently get rewarded for enrolling students but not for graduating them, or teaching them anything or controlling costs along the way.

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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