Making higher education truly affordable
Hillary Clinton’s recently announced $350 billion plan to offer free tuition for public colleges and universities has merit, but does not apply across the board and would require additional appropriations from Congress.
Clinton and all the 2016 presidential candidates should absolutely be focused on this issue, but from a wider perspective. We must look for alternatives to tuitions reaching as high as $250,000 and $1.2 trillion in outstanding student loan debt in the U.S.
First, the U.S. Justice Department ought to reverse its stand, and allow colleges and universities to set a reasonable gross price. The DOJ believes the concept constitutes collusion that would drive the price up.
On the contrary, in today’s scenario, schools are forced to set a higher tuition price and discount it with scholarships and other financial aid.
But this is a vicious cycle. If we truly want to lower the price, we should lower our discount rates to get a more realistic cost structure. This needs to be done in concert with many other institutions so the new pricing becomes the norm and no institution has to go it alone.
Plans for paying back student loans should vary according to a new graduate’s income. An income-contingent student loan payment plan would do away with the set rate over a set term.
In the new model, young grads who earn a high income would continue to make the same payment over the same amount of time. But others who earn less would have more time to repay their loans with a cap on the amount of interest to be paid. It might take them longer but they will not be squeezed to the point of having no disposable income.
By alleviating the burden on those earning less, we would stimulate the economy and decrease the high default rate. Saint Anselm College has a very low default rate because our graduates have jobs right out of college—a fact of which we are justly proud.
However, this is not the case for many colleges and universities. An income-contingent student loan payment plan would allow more young people to have funds to spend and invest.
We should also adjust the eligibility for student loans so there are more funds available for low-income families. Currently, higher-income families use loans because the rates are very low and they can invest the principal to gain a higher return.
For example, a family might take out a 3 percent loan and invest the principal to earn a compounded return of 8 to 10 percent, even though they could draw tuition funds from their own portfolio to pay tuition.
The federal government, which backs 90 percent of student loans, looks at the number of loans being taken out, but does not ask who must take out a loan. If the number of families able to borrow for college is reduced, more students who truly deserve the funds would be able to obtain student loans.
Finally, there needs to be a crackdown on for-profit institutions that reduce the amount of federal loan money available from traditional nonprofits. The graduation rates at these “colleges” are extremely low (20 to 35 percent), yet their students are taking part in the federal student loan program.
The profit margin for some of the larger entities should be factored into the money supply that is subsidizing their bottom line, and there should be restrictions on the number of for-profits eligible for federal loans.
I know I speak for many of my fellow higher education leaders when I say we do not like to see so many families struggling to pay tuition.
If we could adopt some or all of the proposals above, we’d see real progress toward making college affordable and relieving the pressure on young people who struggle in a competitive job market and rely on their families for support.
We’d like to see these young men and women working hard, but investing in their own futures and the national economy.
Steven R. DiSalvo, Ph.D., is president of Saint Anselm College in New Hampshire.