College Cost and Student Loan Debt

Student loans are a serious long-term obligation, but they are also far and away the smartest debt that a young person can incur. The college degree that you help finance with those loans will increase your lifetime earnings by hundreds of thousands of dollars.
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Whatever their ambitions, whatever their job prospects in the current economy, whatever their pride in completing a college degree, new college graduates across America now face a sobering reality: It's time to start paying off those student loans.

The reality of daunting debt is also on the minds of many who will enter college this fall. They and their parents, with help from college financial aid offices, have to figure out the right combination of loans -- federal and private -- to supplement what they can afford. As families make those decisions, lawmakers in Washington are advancing a number of bills designed to make some future borrowing less expensive. President Barack Obama, who has long personal experience of his own in paying off student loans, has some ideas, too. Unless Congress and the president together take action, the interest rate for new federally subsidized college loans will double on July 1, from 3.4 percent to 6.8 percent.

So student debt is much in the news. The widely accepted figure is that the national total is roughly $1 trillion. That's more than the total owed on credit cards. With student debt at that level, there's no shortage of horror stories. The Consumer Financial Protection Bureau, the regulatory agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, asked the public for comments on what could be done to make student loans more affordable. More than 30,000 people responded, and the bureau has posted many of those comments on its website -- along with its own proposals on the issue. Reading some of those comments can be intimidating for those about to take out a student loan.

In the face of all that concern and all the proposals for dealing with student debt, what's the role of university administrators?

To begin with, we must do everything we can to keep the costs of higher education under control. Showing increasing concern about costs, Congress ordered higher education institutions to publish net price calculators on their websites. We've done that, but that alone is insufficient. Across the country, declining state support of public institutions has increased the difficulty of cost containment. But we continue to work on it. For example, Stony Brook University, the University of North Carolina, and the University of California, Berkeley, all took a close look at operating budgets, searching for greater efficiencies. In the following year, Stony Brook was able to cut operating costs by nearly $12 million. Predictability in tuition costs is also crucial. New York Gov. Andrew M. Cuomo, the State Legislature and the State University of New York recognized that in 2011 with the adoption of a rational tuition plan that allows families to know what tuition costs will be over the next several years. Despite the trends in higher-education costs, state universities still provide high-quality education at reasonable prices.

We also need to make this reality clearer: Student loans are a serious long-term obligation, but they are also far and away the smartest debt that a young person can incur. The college degree that you help finance with those loans will increase your lifetime earnings by hundreds of thousands of dollars. Economists have found that the gap between the earning power of college graduates and that of high school graduates has been growing. There is also evidence that unemployment rates among college graduates are lower than among high school graduates -- even after the recession. Those results represent an excellent return on investment.

So student loans are a smart strategy, if students and parents make the right choices about them. That's another serious obligation for university administrators: We have to provide high-quality advice by experienced financial aid officers, to steer families in the right direction as they put together the package of loans, grants and family contributions to get their young people through the college years with a manageable level of debt.

Finally, as Congress considers the current welter of proposals to avert the sharp interest rate increase that will take place July 1 without congressional action, university administrators and the organizations that represent us should make our views known.

The likeliest outcome seems to be a temporary solution, postponing the interest rate increase for a year or two. That's fine, but it shouldn't end there.

Congress should enact a broad, carefully thought out, long-term approach to student loans as part of its reauthorization of the Higher Education Act. At a minimum, it should continue and simplify income-based repayment plans; continue loan forgiveness for those who have worked for 10 years in public service and made 120 payments on their loans, and tie future interest rates to some rational formula based on what it actually costs the government to administer and subsidize the loans. That's the kind of long-term certainty that families and financial aid offices need.

These loans are not only a good investment in the earning power and job security of the students who use them, but also in the well-being of the whole nation. In addition to better earnings, higher education produces a greater likelihood of behaviors that help everyone in our society -- from more charitable giving to greater civic engagement and higher turnout in elections. Toward that end, there's no reason why Congress can't adopt a smart, bipartisan approach toward making student debt more manageable, more rational, more predictable -- and less scary.

Samuel L. Stanley Jr., M.D.
Stony Brook University

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