As part of his summer bus tour, President Obama will be making speeches this week that will include proposals for tackling the problem of college affordability. As the New York Times reports, ahead of those speeches he told supporters in an email, “To create a better bargain for the middle class, we have to fundamentally rethink about how higher education is paid for in this country. We’ve got to shake up the current system.”
The value of a college degree is clear: University graduates make 85 percent more than high school graduates on average and have just a 3.8 percent unemployment rate, compared to 7.6 percent for those with high school degrees. The factors behind the sharp increases in college tuition and mounting load of student debt are complex. But tinkering with student loan rates, while important, doesn’t actually change the way Americans pay for higher education. There are some ideas, however, for how to radically transform the way Americans pay for college. Here are four that stand a chance of truly shaking up the system:
1. Allow graduates to discharge student loans in bankruptcy: While nearly all forms of debt can be discharged in bankruptcy proceedings, letting a borrower start anew financially, rules put into place by Congress in the 1970s make it nearly impossible to do so with student loans. Joe Valenti and David Bergeron of the Center for American Progress have proposed changing this system by allowing loans with unbearable repayment conditions or taken out to attend schools with poor track records on graduates finding employment to be eliminated in bankruptcy. This would not only combat the sky-high default rate and give graduates a way to build back their finances, it would incentivize lenders to offer better terms and schools to improve the employment prospects for students.
2. Encourage and finance college savings accounts: The Assets and Education Initiative at the University of Kansas has proposed a plan that would automatically enroll every child in a college savings account at birth, publicly finance initial deposits, and provide public matching funds to help families pay for college costs. This would allow many more families to pay for the costs out of pocket and rely less on student loans that have to be paid back with interest. But doing so wouldn’t just make college more affordable — it would make it vastly more accessible to many people. The report notes that while just 45 percent of high school students without college savings ever enroll, nearly three-quarters of those with savings do. Meanwhile, just seven percent of those without savings will graduate compared to a third of those who have them. Even college savings of less than $500 means low- and moderate-income students will be three times as likely to enroll and four times as likely to graduate.
3. Cover the cost of tuition with an income-based payment plan post-graduation: In July, Oregon passed a bill that allows students to attend a community college or public university at no cost if they agree to pay a certain portion of their income after they graduate. One model proposed that for 20 years after graduation, community college students would have to pay 1.5 percent of their incomes and four-year public university students would pay 3 percent. Those are much more favorable terms than what many go through with student loans. And while income-based repayment plans exist for student loans, the Consumer Financial Protection Bureau has found that few are making use of them.
4. Make college free: It may sound like a radical idea, but it wouldn’t have to be a huge expense. The Roosevelt Institute’s Mike Konczal ran the numbers and found that the government already spends $22.75 billion through tax breaks and incentives that are aimed at making student loans or the cost of college more manageable. The government also spends $104 billion on student loans. The cost of providing free public higher education has been estimated to come to $127 billion — not far from what it’s already shelling out. Not only would this create an entirely affordable and accessible option for all students, but private universities would likely be pressured to reduce costs to better compete with the free option.