By Andrew Ceonzo & David Kafafian
As we inaugurate the 46th President, 45 million Americans owe over $1.6 trillion in student debt, second only to mortgages in terms of total consumer indebtedness. Specifically, over the last fifteen years, we’ve seen student loan balances balloon by $1.25 trillion as US education policies promoted higher education with little regard for cost and value. At the same time, student debt has yielded significantly different outcomes for students across America. While most students will still find the benefits of attaining a post-secondary degree to be meaningful, they may still struggle to repay hefty loans if they do not secure an economically stable career. Hence it is a national imperative to implement solutions to help alleviate this burgeoning personal and national financial crisis.
We believe there are three broad categories of reforms involving both public and private actors that can help create a more student-friendly financing regime, while also expanding access to higher education. The first category of interventions seeks to provide students with better information before enrollment so that they can make more informed choices about their likelihood of financial success in a given school or program of study. While there are some existing resources, such as the College Scorecard from the Department of Education, the information available varies in depth and availability from institution to institution, frequently preventing students from making meaningful comparisons. The second category of solutions aims to incentivize improved program performance, with an emphasis on both in-school offerings and post-graduation outcomes. While the Obama administration took some steps to increase accountability, such as introducing the Gainful Employment metrics that presented debt-to-income ratios of a program’s graduates, future efforts should focus on aligning the incentives of institutions and students such that schools have more “skin in the game” with regard to student outcomes. The third area of reform focuses on providing students with more manageable payment options. These innovations can take a variety of forms, with opportunities for sponsorship by both private parties and public institutions. One such payment option that seeks to address multiple issues underlying multiple categories is outcomes-driven funding options, such as income share agreements (ISAs).
Taken together, this three-pronged approach would provide students with the necessary resources to become more informed consumers prior to embarking on their program of higher education, while also incentivizing schools to provide tangibly better courses of study with more direct ties to the labor market. Thereafter, simplified, and more widely available outcomes-driven funding options will maximize successful repayment outcomes and minimize adverse credit incidents. In aggregate, these reforms would provide the holistic approach needed to meaningfully address the burgeoning student loan crisis, while continuing to encourage the pursuit of higher education and workforce development.