The Biden administration’s recent decision regarding student loan repayment relief is welcome news to many borrowers. Yet, amid the fierce debate over whether millions of Americans should have their debt reduced or forgiven, we must not lose sight of what should be our overarching goal: more college access for more students who want a degree.
Members of the higher education community owe it to students to help them better understand their options for paying for college, including prudent borrowing. Of course, scholarships — including Pell Grants — are the most desirable form of financial aid. But to the extent that a student’s educational expenses exceed their resources, student loans can be a sound investment tool.
A bachelor’s degree is the single most significant step a person can take to improve their economic standing and potential for building wealth. Yet, despite what we know about the compounding, long-term value of education, I frequently hear pundits and students claim that borrowing for school is a bad idea.
I suspect this is because our public discourse about student loans has been distorted by a number of factors, including predatory lending practices, poor outcomes associated with unaccredited programs, simplified analyses that obscure the difference between undergraduate and graduate/professional school debt burdens and a fundamental lack of understanding of how student financial aid works.
A bachelor’s degree is the single most significant step a person can take to improve their economic standing and potential for building wealth. Yet, despite what we know about the compounding, long-term value of education, I frequently hear pundits and students claim that borrowing for school is a bad idea.
That’s unfortunate because the truth is nuanced. The average student loan debt for a bachelor’s degree in the U.S. is nearly $29,000. That may sound like a lot, but it’s less than a new car loan. And, while consumer goods like cars lose value over time, an education cannot be taken away — it grows in value, as evidenced by the increased earning potential of degree holders.
We do young people a disservice when we characterize student loans as intrinsically harmful, because that narrative is discouraging students from attending college. If they can’t afford the entire cost, we must do a better job explaining to them and to their families that borrowing a reasonable amount from a reputable lender can be one path to get on the road to economic mobility.
I speak from experience. Like other low-income students admitted to an accredited nonprofit college or university (whether public or private), I qualified for a variety of financial aid mechanisms. As a “free-lunch” kid, I got an excellent undergraduate education because I received a federal Pell Grant, a state grant and several private scholarships and had a work-study job in the university dining hall — in addition to taking out federally subsidized student loans.
Although that was more than 30 years ago, this cobbling together of public and private resources to afford college is still a reality for many students today.
Without student loans, I would not have gotten access to the extraordinary education I received and the many doors of opportunity it opened for me. The loans — when combined with the other funds — were an effective financial tool, just like a home loan is a tool for buying a house when you cannot afford to pay cash.
Related: Decoding the price of college: Complexity of figuring out costs holds students back
Today in the U.S., fewer than 40 percent of adults have a college degree. Many policymakers and educators worry that number will shrink if current trends hold. We know that, in 2022, fewer students enrolled in college than in recent years.
There are a number of reasons for the decline, reflected in lower numbers of college applications. Fear of debt is one factor. But I suspect that fear is caused by a lack of knowledge. For example, students may not understand that — unlike consumer debt — federally subsidized student loans do not accrue interest while you are in school at least half-time, nor during deferment periods.
And, because their interest rates are very low (4.99 percent as of late August), federal student loans are relatively inexpensive, much more affordable than car loans, home mortgages and credit card interest.
How can we help to reduce confusion? High schools could do more to demystify the process. Colleges and universities can be clearer about the full costs of attendance and how to afford them. And students who are unfamiliar with higher education can benefit from programs that explain both the application and financing processes, such as those provided by College Possible, College Track and TeenSharp (I am on the advisory board for TeenSharp and the board of College Possible).
A bachelor’s degree is the single most significant step a person from a low-resource family can take to improve their economic standing and potential for building wealth. More students need access to college, and that requires investment in their talent.
Institutions must invest through their need-based aid programs. The public must invest through federal and state grant programs. And students must have the full range of tools to invest in their own futures — including low-interest student loans. All these things happened for me decades ago, and I am grateful to have had the opportunity.
Suzanne M. Rivera is the president of Macalester College in Minnesota. She was previously vice president for Research and Technology Management at Case Western Reserve University in Ohio and has held numerous leadership roles in a variety of professional societies and governmental advisory bodies.
This story about student loan debt was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.
Undergraduate borrowing and “access” to college is not really the problem at all. Dependent undergraduate federal loans are capped at $31,000 and they are capped at $57,500 for independent students.
However, today anyone with a pulse can enroll and stay enrolled in college for a lifetime due to the number of open access and online institutions, along with the limitless nature of graduate and PLUS loans. You can borrow not just for tuition but for all of your “room and board,” whether that has anything to do with the school or not. Room and board, a.k.a indirect costs accounts for at least 2/3 of all borrowing at most graduate institutions. This is regardless of school quality, earnings potential, degree type or course delivery. Schools are not allowed to cap borrowing at just tuition and fees, even if they know the additional borrowing is completely irresponsible or if students are clearly using loans as a substitute for income and have no intention to repay their loans (some actually plan NOT to pay, thanks to programs like PSLF).
Then, when you cannot actually repay that, loan payments are capped at 10 percent of discretionary income, so if your income is low enough you pay nothing, but those zero dollar “payments” still count towards eventual loan cancellation.
So in summary, the issue is not access to college, the affordability of loan payments or even the “cost” of college in terms of tuition and fees, but just plain bad lending. If we responsibility restricted the lending (the amounts, to whom, the allowable costs and which schools), most of the problems will go away. Saying that doing so limits “access” is really saying you want it both ways – unlimited lending AND not expecting the borrowers to actually repay most of it.