For instance, the federal government offers loans to students at low-quality institutions even when we know those schools don’t boost their earnings and that those borrowers won’t be able to repay their loans
In addition, it is important to recognize that federal policies already provide significant debt relief if a borrower’s institution closes, if they are defrauded by their institution, if they become disabled, or if they work in public service. That can be fixed administratively.
Most problems that student borrowers face are predictable based on the institution or program they attend, the cost of the program, and their economic circumstances at enrollment. 22
The federal government makes Parent PLUS loans to the poorest families when we know they will almost surely default and have their wages and social security benefits garnished and their tax refunds confiscated, as $4.5 billion were in 2019. The federal government saddles millions of students with loans to enroll in online programs, which seem to have offered no labor market value. 23 It’s no surprise that such loans lead to economic catastrophe for the affected borrowers.
It’s important to solve the problems in federal lending programs not only to help the millions currently burdened by student loan debt, but also because each year the federal government lends an additional $100 billion in new loans to Americans
Federal lending programs also allow many institutions, particularly those with graduate and professional degree programs, to charge astronomical prices and still attract student enrollment. There is little doubt that overpriced and low-quality institutions would be significant beneficiaries of widespread loan relief as it would justify their decisions to increase costs and eliminate the complaints of their students without requiring them to do anything about tuition or educational quality. In the absence of legislative reform, loan relief would give postsecondary institutions stronger incentives to increase prices and ignore the poor outcomes of their students.
Indeed, we are experiencing this crisis now largely because of changes in federal government policies that gutted accountability rules, expanded lending to online programs, and raised and then eliminated limits on the amounts parents and graduate students can borrow, which encouraged lower-quality institutions to increase enrollment, tuition, and the debts of their students. 24 At the same time, states pulled back from funding public colleges and federal grant aid fell behind the rising cost of college, shifting enrollment toward lower-quality schools. The evidence shows that the poor outcomes of students at those institutions are largely not explained by factors like family income, age, race, academic preparation, or other student characteristics but by the quality of the schools themselves. For instance, after controlling for such attributes, students that attend for-profit institutions are roughly 50 percent more likely to default on a student loan than students who attend public community colleges. 25
Screening out the worst programs and providing better financial incentives for schools to improve quality and control costs would alleviate the worst outcomes, and still provide access to high-quality education for students from all backgrounds. In the past, the accountability rules imposed in the early 1990s shut down many low-quality schools and led their students to enroll at better-performing programs, where students borrowed https://getbadcreditloan.com/payday-loans-ar/crossett/ less, and default rates erica, there are thousands of institutions that regularly provide upward economic mobility to their students-including low-income, first generation, and minority students. 27 Federal programs could do more to enroll students in such programs and help them to succeed.
Having established criteria that defined which institutions and programs should be eligible for federal aid and in what amount, and which students should be supported with federal grants instead of loans, Congress could use that as a template for targeting relief to existing borrowers who could not have benefited from those changes.
Even if Congress enacted significant new spending to reduce or eliminate undergraduate tuition at public colleges, most of that borrowing would continue to be used to finance living expenses, tuition at private universities, and for graduate and professional degree programs. That means we can’t throw the whole system out-we’re going to need it. And thus we need to fix it.