This article was written by Adam Cecil of PolicyGenius.
America is in the midst of a student loan crisis. The total outstanding student loan debt has passed the $1 trillion mark, the class of 2014 is the most indebted class ever, and graduates are referring to their student loans as a form of "indentured servitude."
How did we get here? The path is remarkably easy to follow: public colleges, despite hosting the majority of new college students in the last two decades, have seen their public funds diminish steadily over the same time period. In order to make up those losses, public colleges have had to increase the amount they charge for tuition.
While four-year college tuitions increased over 112% between 1990 and 2010, the average family income stagnated and student loans became the de facto way to fund higher education.
The average American college student graduates with $33,000 in student loan debt, a number that has increased 35% since 2005. Meanwhile, in the same timeframe, the average salary for a new graduate has decreased 2.2%.
It doesn't take an economist to understand that this is bad news. Instead of buying houses, starting families, and otherwise contributing to the economy, young people are hunkering down under mountains of student loan debt.
The majority of Americans agree that something needs to be done. Fixing student loans got the highest support of any issue in an NBC poll from last November, with 64% strongly supporting measures to reduce student loan costs and increasing the time available to pay them back. Just last week, President Obama signed a "student aid bill of rights," a collection of policies and projects designed to make paying off student debt easier.
Unfortunately, Obama's bill of rights is more reactive than proactive. It allows borrowers to more easily lodge complaints and discharge student debt through bankruptcy, but it does little to prevent them from getting into that situation in the first place.
Despite the fact that the student loan crisis has been widely talked about since 2010, little has been done to combat the larger issues at hand.
So, what is the solution?
Some writers, like Dale J. Stephens, have called for leaving college behind all-together. Stephens argues that the best learning happens outside of the classroom. His arguments don't address the fact that college graduates earn, on average, $17,000 more per year than those with no college degrees.
What about free college for all? Obama took a tepid step towards this idea when he proposed free community college during the State of the Union this past January. Germany recently made all of their colleges 100% free to all of their students, but their tax burden is almost 50%, a proposal that would be political suicide in the U.S.
Mark Cuban, businessman and star of Shark Tank, suggests capping the amount of money students can borrow through private lenders, forcing colleges to lower their tuition rates or risk their enrollment dropping to unsustainable levels. The result of this plan would be the exacerbation of the "death spiral" that is already closing small liberal arts colleges across the U.S.
If we really want to solve the crisis, we'll have to think bigger and be proactive when it comes to new borrowers. While we may not be able to erase the $1 trillion in outstanding student loan debt, we can reverse the tide, and decrease future graduates' reliance on loans.
Here are three suggestions:
Increase federal and state funding for public colleges.
As federal and state funding for public colleges went down, tuitions rose to cover those costs. Referred to as "the great cost shift" by Demos, a public policy organization, public colleges have failed on their promise to bring affordable higher education to the middle and lower class. We need a massive reinvestment into our public college systems in every state, with the goal being to lower tuition costs, lower the amount of federal loans needed, and eliminate private student loans from public colleges altogether.
Make income-based repayment plans the default.
Obama's 2012 expansion of income-based repayment plans is helpful, but it doesn't address the fact that most borrowers don't know that the plans exist. The best way to make sure that everyone is taking advantage of IBR plans? Make them the default plan for everyone who qualifies. (Check out our article explaining all of the current federal repayment plans.)
Don't start repayment until a graduate is earning over a certain limit.
Right now, borrowers have a six-month grace period after graduation before they have to start repaying student loans, regardless of whether or not they're earning any money. In this economy, there's no guarantee that borrowers will find work immediately after graduation. And putting the added burden of student loans on unemployed graduates just makes it more likely they'll get into deeper debt by missing their payments.
This is hardly a comprehensive list of ideas and proposals for fixing the student debt crisis. States such as Michigan and Oregon are looking at the feasibility of an idea called "Pay It Forward," which would allow students to go to public college for free. After that, each student would pay a percentage of their income back to the state that would both pay back their tuition costs and help pay for future students. Other lawmakers, like U.S. Senator Elizabeth Warren, have proposed laws that would allow all borrowers to refinance their student loans at today's lower interest rates.
If you're interested in learning more about initiatives around student loan reform, check out Student Debt Crisis, a non-profit organization dedicated to raising awareness and campaigning for student loan reform.
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