Diary

Addressing College Debt- Part 6: Dealing with Current Debt

The previous articles in this series dealt with reforms that should be instituted to reign in college costs going forward.  Unfortunately, despite the proposals of people like [mc_name name=’Sen. Elizabeth Warren (D-MA)’ chamber=’senate’ mcid=’W000817′ ], Bernie Sanders and Hillary Clinton, we cannot go into the past and rewrite history.  We must intelligently handle the $1.1 trillion dollar elephant in the room- current student debt.  The Left works under the assumption that the problem exists on a one-way street: banks took advantage of college students.  They ignore the fact that these students and their families willingly entered into these contractual loan agreements with banks and the federal government.  But, in that same regard banks that made risky investment decisions should bear some of the costs.  The last thing this country needs or can endure financially is a federal bail out of student debt loans.

Obama has proposed the gainful employment rules that target for-profit diploma mills.  That is all well and good, but again it does not address the current debt.  However, some of the criteria used can be utilized to infer a degree of “educational fraud.”  Such fraud should be grounds for “breaking the contract” from the graduate side of the equation.  The mechanics of how we go about that, however, is tricky and the devil is in the details.  However, we can establish baselines and then pinpoint graduates who fall below those baselines from particular colleges or areas of study.  This could also be adapted into a risk-assessment tool.

How would it work?  Suppose we set a baseline of 60% “gainful employment” in an area for which the degree was granted.  Gainful employment would mean that they are paid at the prevailing wage in that area and geographic location.  Suppose a college grants 100 degrees in social work each year and all the graduates remain in the geographic area.  The prevailing wage for an entry level social worker with a BA is $35,000.  If less than 60% of those graduates are working in an unrelated, or related field for less than $35,000, then the college did not do a good job in (1) conferring that many degrees, (2) preparing students for that field, (3) assisting in post-graduate job placement, and a variety of other possible factors.  Some of the blame lies with the student and some lies with the college.  Why not split the difference and make sure colleges have some skin in the game?

Under this system, the graduate making the $35,000 or more, up to to predetermined ceiling, would be allowed to renegotiate the terms of the loan to lower the interest rate or extend the time of the payment, or both.  A similar program worked with the housing crisis and it would work here.  For the graduate with debt making below the $35,000 in their degree field, or making less than $35,000 in an unrelated field (retail, for example), 50% of the outstanding loan could be either discharged through bankruptcy (which would require a change to current federal laws), or forgiven.  The remaining 50% of the outstanding loan would be born by the institution (college) as a form of penalty.

Furthermore, not every graduate is in default or even delinquent.  If a graduate is making a certain percentage above the median income for their geographic area, they should be able to pay off that loan as stipulated in the loan agreement contract.  In that regard, the government should grant lending institutions the tools needed to ensure repayment of the loan including garnishment of wages.  It makes no sense, for example, for a college graduate with a degree in geology making $100,000 a year with an oil company NOT to pay off $50,000 in college loans over a proscribed period of time.  It makes great sense for a geology major making $45,000 a year to renegotiate the terms of the loan.

Blanket forgiveness of loans- the Left’s cure all- is inherently unfair to those who have diligently worked to pay off their loans.  It is like amnesty for illegal immigrants.  Why not stop coming over the border illegally knowing the government will one day grant you amnesty?  To the student, why pay off a loan when one day the government will step in and forgive the loan?

The one thing the government can do is encourage graduates to enter in-demand job fields in which their degree will be of benefit.  They can even, if need be, establish quid pro quo relationships: you work here in this job for a specified number of years at this rate of pay and we will step in and pay a percentage of your outstanding loan.  This can be fiscally achieved by elimination of the PLUS loan program and those funds diverted towards these ends.

There are a number of workable solutions and programs where the onus of responsibility would not fall disproportionately on one party or the other.  At least some of the existing debt would be lowered and alleviated through bankruptcy.  Even in the proposal discussed above, lenders would be getting at least something back which is considerably better than nothing otherwise.  Penalizing colleges would not only offset any governmental costs, but would be a deterrent going forward and a stern message.

Should we feel sympathy for the graduate with a degree in Women’s Studies who racks up $50,000 in debt and suddenly finds that a Women’s Studies degree is rather worthless in the real world?  Or should we feel sympathy for the graduate in biology or teaching who racks up $50,000 in debt to find themselves, despite their efforts, selling towels at the local Bed, Bath and Beyond?  The Left wants us to feel blanket sympathy.  The Far Right wants us to feel no sympathy at all.  The answer lies somewhere right of center.