The national narrative around college loans often centers on the debt burden. It’s one we’ve heard all before: The six-figure sums still owed, the houses that people can’t afford to buy because their monthly loan payments are so high and the overall drag on the economy stemming from an outstanding loan balance of $1.7 trillion.
But while many advocates for students bemoan the college loan situation, they’re missing the point. The loans themselves aren’t the problem. It’s really a repayment crisis, and colleges and universities must play a role in solving it.
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Say a student leaves college with an engineering degree and $30,000 in debt, roughly the average amount owed by today’s graduates who borrow money to pay for college. That debt load is manageable because engineers right out of college can expect to make about $70,000 annually and six figures soon enough.
But someone with a degree in the arts, social work or early childhood education and the same amount of debt faces a longer road to repayment. Degree-holders who land jobs in these particular fields report annual median earnings of about $45,000 or less. Prospects are even worse for someone who quits school before getting a degree.
Colleges complicate this issue by charging the same amount for each degree. In the process, they often fail to help their own students think about their education as an investment worth repaying. There needs to be a fairer and more transparent system that rethinks and makes explicit the cost of education in terms of the return it brings.
Every other consumer product is priced in a similar way. Lenders routinely use credit scores to determine whether to offer someone a mortgage or a vehicle loan and to establish interest rates for charge cards and other credit products. Credit scores can help ascertain the likelihood that a borrower will be able to repay a loan in the short and intermediate term.
This approach could also inspire a new way of thinking about paying for education and training, especially because roughly two-thirds of undergraduates are borrowing money for schools. Institutions need to ask themselves these two questions: Will a student be able to graduate and secure a job that allows them to repay their loan?
It’s like a new car that gets totaled on the drive home: Insurance doesn’t cover the entire loss, and now the vehicle’s owner must repay the outstanding loan balance despite not having a convenient way to get to work. It’s a vicious cycle. There are increasing amounts of data and college rankings that show net prices and earnings premiums for institutions and degree programs. These returns on education investment are valuable information for anyone considering college.
To be sure, colleges cannot control the salaries their graduates command in the labor market, but they do have some say over the tuition and fees they charge and the financial aid they offer their students. If institutions can lower net prices for students in low-earning degree fields by increasing aid or decreasing prices, they set their graduates up for a greater likelihood of not just completing college, but ultimately repaying the costs incurred.
That’s not to say that one student is more or less valuable than another. But when colleges spend roughly the same to educate each student and students earn wildly different amounts in their first jobs, it gives institutions something to think long and hard about.
At the very least, colleges must create transparency in pricing and outcomes so students and families can make more informed decisions at the beginning of the college journey. This will require institutions to be more forthcoming about earnings and other outcomes data they hold so closely. Ultimately, the key to solving the student debt crisis will require not just a once-in-a-generation forgiveness on student loan balances, but a broad-based rethinking of the way colleges and other education providers set prices in the first place.
