Student loan debt is now multi-generational and threatens the entire financial ecosystem. Students, young professionals, parents, and, now, even grandparents are wrestling with student loans. Totaling nearly $1.5 trillion for 44 million borrowers, student loan debt impacts retirement, home buying, saving for 529 plans, and other financial decisions – major and routine — in a world that promises continued financial uncertainty.
We simply cannot place this challenge into our collective rear view mirror. Instead, we need policy solutions for the here and now. All of us — colleges, lenders, employers, borrowers, and Congress – urgently need to work together and put “skin in the game.”
{mosads}Much has changed in the decade since Higher Education Act (HEA) was last reauthorized, from technology and an explosion of online classes to lending markets and Gen Z’ers, who account for a quarter of our population. Why, then, is Congress stuck in the past, addressing problems that plagued a former generation with ill-fitting policy prescriptions? This approach risks solving the wrong problem with the wrong solution, while wasting an opportunity to develop long-term answers that unleash the best of both public and private sector thinking.
To start, Congress should pass a handful of targeted bipartisan fixes before election day that directly address student loan debt, provide incentives to colleges and universities to be more accountable to students, and create an environment for employers to engage more fully to address the skills chasm. While moving a comprehensive HEA reauthorization is unlikely to happen this year, even in this polarized political environment, Congress should try to solve some discrete issues.
Here are a few solutions and tools that would tap the best of both the public and private sectors:
First, consider a risk-reward solution for all stakeholders: students, colleges, employers, and lenders. For example, incentivize colleges to graduate students in four or five years, not six or longer, and reward students for completing on time. The current focus of measuring student success — default rates – only tells us who is repaying their loans. We need better, more thoughtful measurements to gauge student learning, success and outcomes.
Second, allow the private sector to participate in the federal student loan space through a risk-sharing partnership. The private sector is already engaged, but largely for those with good credit scores, who have jobs, and/or have obtained a degree from a top college or recognized program. This impacts the overall credit quality of the taxpayer funded federal loan portfolio. A better model could have the Direct Loan program work with private sector lenders through pilot programs and share risks and rewards without sacrificing benefits or exposing students to predatory lending. Doing so could reduce costs for the federal government and provide more choice to students.
Third, as Sen. Lamar Alexander (R-Tenn.) has discussed, ensure that all higher education institutions are accountable to their students and committed to their completion and success. Relatedly, American companies struggle today to fill jobs with workers who have the rights skills and knowledge. Congress should support workforce development programs built by employers, schools, and students that include fiscal incentives. These programs can aim to incentivize employers and lenders to provide better financial support to students during and after college in exchange for improved oversight and tracking of school investment and student success. This combination would ensure more successful outcomes that meet student and employer needs.
Finally, Congress and the U.S. Department of Education need to pursue a “moon shot” in deliberating evidence-based reforms. We cannot afford to settle for “fixing a broken system.” Pilot programs are needed to identify best practices. The federal government should actively pursue partnerships with foundations, private sector companies including employers and lenders, schools and students to identify innovative approaches before making sweeping policy changes.
While the answers may not always be easy, the solutions should never be complicated. There will always be new technologies and new ways to support student success; originate, service, and collect loans more efficiently; and ensure institutions are delivering on their promises to students – the true beneficiaries. But these innovations are meaningless if they aren’t harnessed by policymakers, by the private sector, and by the educational ecosystem at large.
And, they are of little value if they are not used to solve the problems of students.
Rajan is CEO of Ceannate Corp, a leading business process outsourcing firm focused entirely on the students and institutions in the post-secondary education sector.