Student loan crisis is oversold

The student loan crisis is media and political hype, argues Sandy Baum, a senior fellow at the Urban Institute and author of Student Debt: Rhetoric and Realities of Higher Education.

Federal Reserve Bank of New York


Courtesy of Federal Reserve Bank of New York

The 23-year-old graduate with heavy debt and a job at Starbucks is “rare,” Baum tells Claudio Sanchez at NPR. Most people who earn bachelor’s degrees will do fine.

But many go to college, borrow and leave with a low-value credential or no degree at all. “They tend to be older. They tend to come from disadvantaged, middle-income families and they’re struggling,” says Baum. But “not because they owe a lot of money.”

Flunking out of college doesn’t raise earnings. Many defaulters didn’t borrow very much, but they can’t handle the payments.

Baum’s book calls “free college” and “debt-free college” proposals “simplistic.”

It’s not realistic to say we’re going to pay people to go to college [for free]. Someone has to pay. We can have everyone pay much higher taxes. But short of that, it’s not clear how we would pay.

. . . Some schools don’t serve students well. Some students aren’t prepared to succeed no matter where they go to college. We just tell everybody: “Go to college. Borrow the money. It will be fine.”

We don’t give people very much advice and guidance about where … when to go to college, how to pay for it, what to study.

There’s plenty to worry about, Baum says.

. . . we should worry about the single mother of two, going back to school in her late 20s to try to get some training to help her get a job and support her children. We need to worry about supporting her and directing her in a way that will allow her to succeed. . . . We should worry a lot less about 18-year-olds going off to college and borrowing $20,000, $25,000, for a bachelor’s degree.

Student loan debt now totals $1.3 trillion. About half of that is held by 25 percent of graduates. Most borrowed for medical, law or business school, which means they’re high earners, says Baum.

Think before you go to college

Think before you go to college, says blogger/professor Glenn Reynolds in a Reason TV interview. What are you going to study? Will you be able to repay student loans? His book, The New School, predicts “the information age will save American education from itself.”

Colleges limit borrowing, cut defaults

Under pressure to cut student loan defaults, colleges are refusing to accept unsubsidized federal loans that require students to begin making interest payments immediately. Florida’s Broward College won’t accept private loans. Would-be borrowers have to attend a money-management workshop. Defaults are down.

Some colleges get break on default penalties

Fourteen historically black colleges were at risk of losing access to federal student aid because of high default rates on student loans. At the last minute, the U.S. Education Department changed the method used to calculate default rates: 20 for-profit colleges and one public adult education program remain on the list of colleges facing sanctions.

When students default, colleges pay

If too many students default on their loans, colleges risk losing access to federal student aid. That’s motivated community colleges to develop default management plans. But denying federal loans to high-risk students isn’t an option.

Bad credit? Proposal eases student loan rules

People who’ve fallen behind on their debts will be able to take out federal Parent PLUS college loans under a proposed regulation relaxing credit requirements. Borrowers don’t have to show their income, employment status or ability to repay the loan.

Default penalties worry community colleges

Community colleges could be penalized for high default rates on student loans — even if few students are borrowing. Colleges could lose eligibility for all federal student aid programs if the default rate exceeds 30 percent for three consecutive years.

Completion, default rates can be misleading

Commonly used college quality measures, such as graduation rates and loan defaults, are inadequate and sometimes misleading.

No federal loans for 1 million students

Nearly one million community college students nationwide — about 8.5 percent of the total —can’t take out federal student loans because their college doesn’t participate in the program, according to a report by The Institute For College Access and Success (TICAS).

Colleges complain they’re not allowed to limit “overborrowing” and risk losing eligibility for all federal aid — including Pell Grants — if default rates go too high.

CC defaults soar, despite low debt

Default rates are high for community college students, even though tuition is low and most loans are small. That’s because many borrowers don’t complete a degree — and some who do have low earnings.