Student debt—and colleges that give grants instead of loans
Peter Coy has what seems to me a heartbreaking article in Bloomberg Businessweek on foul play by colleges in loading up their students with mountains of debt, with the most debt on students who can least afford it. From the article:
. . . The poor, who need the boost that a college education can provide, are suffering the most. Strapped colleges know that they can bring in more revenue from one student paying close to the full load than from a dozen low-income students. So some are bribing rich kids to attend with $10,000 a year they don’t need—grant money that otherwise might have gone to the truly needy. That’s just one of the reasons the lowest-income students are more than three times as likely as the highest-income students to be studying for a certificate or an associate’s degree rather than a four-year degree, according to an analysis of data compiled by FinAid’s Kantrowitz. That leads to lower-paying jobs. Equal opportunity in higher education remains more an ideal than a reality. . .
One huge step would be to allow bankruptcy judges to wipe out education debt, as they could until Congress began to tighten restrictions in 1976. Under today’s punitive statute, judges can discharge student loans only in cases of undue hardship, which in many jurisdictions requires proof of “certainty of hopelessness.” (Congratulations, pal, you’re hopeless!) “The law is much too harsh,” says U.S. Bankruptcy Judge A. Jay Cristol in Miami.
Current law gives lenders no incentive to come to terms with overindebted borrowers. The National Consumer Law Center, in a July report, said “pursuing the most vulnerable borrowers until they die” is inefficient and imposes “significant costs to taxpayers.” To help debtors avoid defaulting in the first place, the center advocates placing them automatically in repayment plans that make the payment a percentage of the borrower’s income rather than a certain dollar amount. Under this “income-based repayment,” which the Obama administration has pushed, any outstanding debt is forgiven after 20 or 25 years. . .
The entire article is worth reading.
Melba Newsome has a related article in the same issue on some colleges that build their financial-aid packages on grants instead of loans, so students graduate debt-free. The article focuses mainly on Davidson College in North Carolina, but a number of colleges use this approach:
. . . Davidson is not the only school to remove student loans from its financial aid packages. In 2001, Princeton University became the first to replace loans with grants. Sixty percent of Princeton’s Class of 2013 received financial aid, with an average grant of $36,000. Since then, Harvard, Swarthmore, Stanford, Columbia, and Vanderbilt are among the 75 or so colleges that have reduced, capped, or eliminated loans in financial aid packages for all undergraduate students. On a cost basis, this puts those private institutions on a par with in-state tuition at public colleges and universities. . .