Much has been written about student loans in the popular press and the dangers student debt poses to our society. Has this topic been overblown, given that a recent article in Forbes stated that 70 percent of millennials think the student loan debt crisis poses a greater threat to the United States than North Korea? What is truth versus hyperbole?
The fact is that aggregate student debt, at about $1.4 trillion, with more than 40 million borrowers, is now larger than aggregate credit card debt. And yes, the average student loan debt in 2016 exceeded $37,000, with some students owing more than $100,000.
But how did we end up in this situation and what can we do about it? The basic reasons are the continuing higher-than-inflation cost of tuition; the failure of undergraduate students to graduate in four years; and the lack of high-earning employment opportunities in the post-Great Recession economy.
Moreover, unlike most consumer debt, student loan debt is excluded under the U.S. bankruptcy law. With a change in the US Bankruptcy Code in 1978, the ability to discharge education loans was limited, and additional changes in the law have further narrowed this option. Moreover, the Consumer Financial Protection Bureau found that many loan servicers give student loan borrowers incorrect or insufficient information about public-service loan forgiveness.
And the situation could get worse. In a recent blog, The Institute for College Access & Success criticized the Trump Administration’s budget proposal: “At a time where there is growing public concern about rising student debt and broad consensus on the importance of higher education and post-secondary training to the U.S. economy, we need to be doing more, not less, to keep college within reach for all Americans.” And the Administration is also looking at moving the responsibility for student loans from the Education Department to the Treasury Department, while cutting the 2018 budget of the Education Department by nearly 50 percent. These actions may add even more uncertainty to a complex government and private financial aid system.
As president of a small, private, non-profit university, these trends are of pressing concern. Woodbury University today provides financial aid to more than 84 percent of our students. Our university’s primary focus is professional, practice-based education that leads to well-paying jobs, coupled with a guarantee that a student can graduate in four years (or five years for Architecture) if the student commits to an academic plan https://woodbury.edu/4x-freshman-guarantee/. One of our points of pride is that, within six months of graduating, more than 90 percent of our alumni have jobs related to their field of study.
As noted in my HuffPost blog of July 7, 2016, one solution is improving the graduation rate. To elaborate: Graduating in four years and getting into the job market immediately has a big impact on the rate of return on the investment (ROI) in education. According to Payscale.com, our students make on average $48,000 right out of college, so over a period of six years the cost after financial aid (without taking into account the effect of taxes) is our average discounted tuition of $27,000 per year multiplied by 4 years ($108,000), minus $48,000 in earnings for 2 years ($96,000) - or about $12,000 net cost. By comparison, the average time to graduation at a public university is six years (mainly due to overcrowding and the inability to get into required courses), so the net cost at a public university at, say, $8,000 per year for six years, is $48,000. Put differently, a student who graduates two years earlier earns about $96,000, whereas the average student debt upon graduation is about $37,000.
The real issue in higher education is not so much the level of student debt, or the “rack rate” or “sticker price,” but the value of that education in terms of the ROI after taking financial aid and graduation rate into account. Money Magazine ranks Woodbury University 15th in the nation as the “College that Adds the Most Value.” Likewise, The Economist ranks Woodbury in the top 4 percent of colleges and universities “Based on Economic Value.”
We live in a global innovation economy and our universities are ranked among the best in the world. We need to be careful not to make student loan debt an even bigger issue and not reduce funding to our universities that deliver value and thereby drive this innovation economy. A recent “60 Minutes” segment on artificial intelligence emphasizes the fact that we are entering a new era of innovation and that the core values of teaching and research must be preserved.
Let’s find a way to reduce student debt and not destroy the innovative engine that is our university system. It is at the core of our nation’s transformative process.
David Steele-Figueredo, Ph.D., is President of Woodbury University in Burbank, Calif.