The heavy burden of college aid
Return on investment is a clear measure of what you get for your money. Incredibly, the federal government doesn’t apply that simple concept to the $137 billion a year it spends on college financial aid.
It keeps writing checks for grants, loans and work-study with no consideration for how well the schools where that money is spent perform on important measures, such as how many of their students graduate and how many default on student loans. That needs to change. To get the best return for its massive spending on higher education, the federal government should focus on ensuring more students graduate.
American families are carrying $1.2 trillion in student debt, more than they owe on credit cards or auto loans. That’s a heavy burden for those who graduate, but it can be crushing for those who don’t.
The reason is simple: college pays. Graduates are more likely to be employed. Degrees in science, technology, engineering and math pay better than others; $65,000 a year on average for 2008 graduates, according to the National Center for Education. But among millennials ages 25 to 32 with full-time jobs those with bachelor’s degrees, irrespective of the field of study, had a median income of $45,500, those with some college $30,000, and those with only a high school diploma $28,000, according to a recent Pew Research Center survey.
So it’s no surprise that borrowers who dropped out are more likely to default on their loans — four times more likely according to the Education Trust, a privately funded advocacy organization.
With a default rate of 10.2 percent for all borrowers, the federal government loses billions of dollars every year on bad debt. Washington has taken some important steps to make it easier for former students to repay their college loans. Congress recently reduced the interest rate on most new student loans, and the administration has capped monthly payments at 10 percent of income for millions of borrowers, with loan forgiveness after 20 years.
To save taxpayer dollars and spare more borrowers a crippling hit to their creditworthiness, federal policy should center on increasing the chances that borrowers will actually graduate from college.
President Barack Obama has taken a key step in that direction. His administration made a college scorecard available online that provides data on individual schools, such as the cost of attendance, the percentage of students who graduate within six years, the typical amount students borrowed for undergraduate study and the loan default rate. That’s useful information for students and their families looking for the best return on college spending. But Congress should make it even more useful by tying the availability of federal financial aid to a school’s graduation and loan default rates.
Right now federal dollars go indiscriminately to schools that graduate almost all their students, those that graduate almost none, and diploma mills where students take on huge debt only to leave with degrees that are all but worthless.
Congress should set minimum performance standards for graduation and default rates. Schools that don’t meet them should be given a reasonable amount of time to improve. If they don’t, Washington should shut off the financial aid spigot.