There’s a lot we don’t know about President Biden yet advance plan for student loan forgiveness. One thing is certain though: while it will benefit millions of borrowers, it will not fix our failing student loan system. We need to help those struggling with student debt, but offering limited forgiveness today will not help all current or future borrowers.
To avoid plunging the students of today and tomorrow into the same quagmire, we must modernize the federal student loan program. Congress, state legislatures, federal agencies, loan officers, colleges and universities have all contributed to the current mess, and all must now help clean it up.
Congress must act
A big part of the problem is that student loans cost more than they should. Congress sets student loan interest rates in law, and current levels are far higher than what it costs the Treasury to borrow. The goal of federal student loans is to provide access to education, and their price should be as affordable as possible.
Borrowers need to be in a system that minimizes costs, protects them from harm, is simple to understand and easy to use. When students enter refund, they are faced with up to seven refund plans and up to 13 cancellation and postponement options. Congress should reduce the confusing number of repayment plans and provide borrowers with an income-based default repayment plan that matches payments to income, ensuring borrowers don’t pay more than they can reasonably afford.
Interest that accrues on loans should be capped, so that we no longer see borrowers making their payments faithfully, but falling further and further behind. Congress must make existing pardon programs, such as Cancellation of civil service loans, easier to access and work better. Finally, for borrowers who are truly unable to repay their loans, Congress must restore the ability to discharge student debt through bankruptcy.
Loan servicers need to be more efficient
The labyrinthine student loan operation is run by an understaffed Department of Education, which outsources the work of service these loans for-profit companies chosen primarily because they are cheap, not because they do their job well and efficiently.
The Ministry of Education should strengthen its administrative and technical capacity by prioritizing customer service at the same time and weed out underperforming service agents.
State legislatures must step up
More than 70% of the approximately 20 million students in the country attend public institutions of higher education. But in recent decades, many state legislatures have largely shied away from their responsibility to provide adequate funding to public universities in their state.
State divestment is a major driver of rising tuition fees at public colleges and universities — and one of the main reasons many students have been forced to borrow more to pay for their college education.
Colleges and universities must do their part
Institutions own part of this problem and must address it, providing students and families with transparency and predictability when making decisions.
First and foremost, college leaders should look at every program they offer and ask themselves if they are preparing students for success. If not, these programs should be revised or removed.
Colleges and universities should consider ways to explain their fees to current and prospective students, using financial aid award letters that are transparent and easy to understand. The National Association of Student Financial Aid Administrators has already proposed a model to follow, and implementing it requires nothing but campus leadership.
Another model to consider are institutions that freeze tuition fees for several years in a row and offer price guarantees. This may not be suitable for all campuses, but every institution would be well served by exploring ideas like this.
Other tools, such as Congress giving schools the ability to limit how much students can borrow and requiring borrowers to receive counseling about the debt they incur, would help limit the risk to students. Doing this correctly will be tricky, but giving colleges and universities the flexibility to tailor the amounts students can borrow based on likely outcomes would help ensure students don’t borrow too much. And in order to speed up time to some extent and reduce costs, schools should ensure that students do not face unnecessary obstacles when seeking to transfer credits earned elsewhere.
There is no magic formula. Congress, the Department of Education and loan officers, state legislatures and institutions need to roll up their sleeves now and work together to find ways to make the student loan program more borrower-friendly while protecting taxpayers, and implement it as soon as possible.
Ted Mitchell is president of the American Council on Education (AS).
