This September, the NY Times ran a front page article in their Sunday paper on college student loan defaults and the organizations that attempt to collect on defaulted loans. Look, if you take out a loan, my expectation is that it gets paid back. But what to do in the case of exigent circumstances? (And what exactly qualifies as exigent--that's a whole other blog post.) My focal point today--how hard is it becoming to watch students fall deeper under water?
When credit card debt becomes beyond-overwhelming, bankruptcy offers a solution. But the majority of student loans cannot be erased by bankruptcy. And it has become increasingly difficult to watch our college educated fall behind in repayment of loan debt, plus interest. The college-bound go to school to help improve their lot in life, and watching them try and climb out of a sink hole of college debt doesn't strike me as the best way to build our economy. Though for some companies, the more students that default, the better for that company's bottom line. (Sound familiar mortgage lenders?)
The Times article shines a spotlight on those companies who are profiting from student loan default. With 5.9 million people in default, someone has to service the lenders. The Department of Education paid $1.4 billion to collection agencies last fiscal year alone. According to one founder of a debt collection agency, the DOE contract has become "THE most sought after contract" within the industry.
The same Times article notes the monetary amount of defaulted loans is believed to be "greater than the yearly tuition bill for all students at public two-year and four-year colleges and universities." This strikes me as obscene! (Though I would like to see some more data supporting the claim). But the idea that the amount of money in student loan defaults could pay for every student attending community college and state school is crazy. The for-profit institutions (who tend to serve an under-represented student population), seem over-represented in the list of schools with the highest default numbers. Granted they often have higher enrollment rates and more challenging struggles with retention and persistence (in part due to their online programs), but when our under-represented college population-- who is already most at-risk--is in such high default, it does not bode well for our economic future.
The US government has noted that student borrowers need to be made more aware of their college loan options. The article notes that "the companies hired to administer federal student loans are not paid enough for lengthy conversations to walk borrowers through payment options," according to critics. In fact, one program, called "income-based repayment," where students pay a percentage of their income toward loan debt, seems underutilized. Further, because letting students go into default brings in so much revenue, third party collectors have little incentive to help the government with their programs to educate borrowers in this regard.
What can we do to help solve these problems? To start we can make a college education more affordable in this country. Additionally, we should do a better job at matching students to the right education for them. This also means keeping the standards high at our public institutions. We all know you get what you pay for, but in the case of higher education, much more is at stake. We can't treat college as we would a flat screen TV. By keeping tuition at an affordable rate, one that does not egregiously outpace inflation, and by reducing the cost of course materials, such as textbooks, we can improve persistence rates and contribute to a better opportunity for students to graduate, find a good job and pay back their student loans.