Cut college costs to fix student debt crisis

Indiana has cut student borrowing with a simple financial literacy technique: It sends students a letter detailing their debt and their future monthly payments. After those notices began going out, borrowing at Indiana University dropped 18 percent.

America’s younger generation is staggering under student debt loads that will alter the way they participate in traditional American society as they age. Total student debt now stands at $1.4 trillion, more than outstanding vehicle loans and credit card obligations, and second only to mortgages.

On average, college students are accumulating debt at a rate of $8,250 for every year they are in school. Coming out of college already burdened with loans that promise to consume a large chunk of their earnings for decades ahead, the graduates are likely to encounter difficulties when they finance homes. They are also more likely to put off starting families.

The crisis has escalated since 2003, when outstanding student loans totaled $240 billion. Driving the skyrocketing debt is soaring college tuition, and the two share a symbiotic relationship.

Justin Haskins of the Heartland Institute writes that since the federal government first expanded its role in student lending under former President Bill Clinton in 1993, college costs have risen by 190 percent. Just since 2008, average tuition has risen by 25 percent.

As the government took over responsibility for student lending — former President Barack Obama drove private lenders nearly out of the market — conditions for getting loans eased, and were unlinked from financial need.

The federal government basically guarantees that any student, regardless of income, can have access to any college or university, public or private, without regard to whether the student can afford the tuition cost without hefty loans. This has encouraged students to choose schools they might have otherwise passed on, covering the costs with massive loans.

But more significantly, it has freed universities to raise tuition at will, knowing students can get loans to cover the rising costs. As a result, universities have sidestepped the fiscal reckoning of most other institutions and remain aloof to hard financial realities.

A first step to reversing the debt trend is to return lending to the private marketplace. Private lenders would put in place more realistic screening for issuing loans and be more attuned to the borrower’s ability to repay the money.

Obama-era policies limited repayment to 10 percent of a graduate’s annual income, with up to 25 years to repay the loan. But that ensures the student debt will be around their necks until they reach middle age. Trump is promising to shorten the payback period to 15 years by requiring payments of 12.5 percent of income.

A better approach is to avoid the debt in the first place. Indiana has cut student borrowing with a simple financial literacy technique: It sends students a letter detailing their debt and their future monthly payments. After those notices began going out, borrowing at Indiana University dropped 18 percent.

A study by NERA Consulting found that two-thirds of student borrowers were surprised by the details of their obligation, and didn’t fully understand the terms of their loans. Fair lending practices are essential when dealing with young borrowers.

But of course the real solution is to hold tuition costs in check. And that starts with bringing greater accountability to universities, particularly in the public realm.

Academic integrity is not compromised by expecting highly paid professors to teach a full class load, nor by asking college deans to trim the excesses from their budgets. Graduates should leave college full of bright dreams for the future, not with nightmarish debt loads.

— THE DETROIT NEWS