Saturday, July 06, 2013

Washington Post and Student Loan Interest: "Don't Punish Our Gravy Train"

The editorial board for Kaplan, Inc. the Washington Post is extremely concerned about the increase in student loan interest rates:
With the student debt crisis already hurting the economy and hobbling the young, the last thing the country needs is a federal policy that makes college even more costly. But that’s what the country got earlier this week when Congress allowed the interest rate on the subsidized federal loans to double from 3.4 percent to 6.8 percent.
When the Washington Post discusses government expenditure and subsidies, particularly anything it deems to fall into the category of the "entitlement", you typically get hand-wringing about how unaffordable that type of spending is, and how important it is to cut subsidies to make one program or another more affordable. It's difficult to look at the Post's complaints without wondering, why is its stance so far apart from its positions on other social spending programs, or coming up any answer but, "because of Kaplan."

The Post, not unreasonably, presents an argument that I guess we're not supposed to notice would also apply to programs like Medicare and Social Security:
Those who want to keep the rates affordable understand that college educations benefit the work force and the country as a whole. Those who would increase the burden on borrowers see a college education as an asset that benefits the individual alone. That’s a dangerous idea, at a time when this country is steadily losing ground to its increasingly better prepared competitors abroad.
But even if - perhaps especially if - you accept that education is necessary to sustain and build upon the success of a nation, and that it's thus important for college to be affordable and accessible, we should be having a larger conversation about funding.
  • Are there better ways to subsidize higher education? Why loans, for example, and not increased direct subsidies to colleges? Why not grants?

  • Do subsidies cause students to borrow more money than they need? College does not necessarily have to involve penury, but even the once relatively austere dorm life is increasingly turning into a luxury experience - with much of that money coming from loans. Easy borrowing contributes to the manner in which colleges compete to maintain and expand enrollment, driving up costs in a manner that does nothing to improve the quality of education they offer.

  • Do easily obtained, subsidized loans, combined with a philosophy of "college for everyone" and the opportunity to postpone engagement with the adult world, encourage people to pursue college degrees that they have little interest in obtaining?

  • Should student loans take into consideration probable future income? Should there be some form of wake-up call, "The typical graduate with your major earns approximately 1/3 of the salary you will need in order to comfortably repay your student loans"?

  • Should we also revisit dischargeability of student loans in bankruptcy? Society already, in essence, bears the risk of default for much student borrowing by virtue of loan guarantees - so why do we privilege private lenders and maintain what can be crippling debt loads on students for whom the dream of college does not work out?

  • Should we revisit how student loans are guaranteed, so that colleges bear some responsibility when their graduates have a higher-than-expected rate of default?

The traditional four year college is evolving into an institution that prepares students for graduate degrees. While there are four year programs that prepare students for a specific career field, the day is long gone where a business would look at a bachelor's degree as a meaningful job qualification. It may be among the minimum qualifications, but it doesn't distinguish one applicant from the many others who meet the minimum qualifications for the job. Unless your bachelor's degree is from one of a handful of "brand name" colleges, it seems to be less and less important to your job prospects that you have anything but the diploma, and even in the brand name context an undergraduate degree has diminished relevance.

I would not mind seeing some introspection from the Post, an acknowledgment of its ownership of Kaplan and an acknowledgment of the many shortcomings of for-profit education. Many students with high school diplomas need some form of education or certification before they're going to be able to compete for jobs that offer a career path. Many of those students lack the interest or aptitude for a bachelor's degree plus graduate school, or for a path like engineering, or would benefit from taking a bit of time between high school and college to determine their own wants and needs. How do we subsidize appropriate options for those students without creating a cash cow for diploma mills, or vocational training programs that (even if good) don't do a good job of aligning students with the realities or expectations of the job market?

The Post seems happy to conclude, "Keep interest rates highly subsidized during college, then raise them (up to a cap) after college",1 a philosophy that doesn't actually address any of the issues facing students other than making it less visibly painful to borrow and spend while enrolled in school. That is probably a solution that works for Kaplan. I'm just not sure that it's the right answer for students or for the rest of society.
1. The actual proposal they describe, and implicitly endorse,
The government could tie [student loan] rates to its borrowing costs, keeping the rate low while the student is in school. When the loan enters repayment, the rates could be allowed to rise by a set amount but would never exceed a cap, which would protect families from interest spikes.

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