Americans have to much student loan debt. What should the country do to fix that problem?
Joining the chorus of those understandably worried about education debt is American Student Assistance, a non-profit loan guarantor. ASA has just published a new report about student loans, “Approaching the Tippling Point,” that is both informative and very wrong. According to ASA:
Student loan repayment problems no longer affect a small minority of student borrowers. Reports show that as many as one in five student loan borrowers over the last 15 years has defaulted….Student loan repayment problems result in ruined credit records, higher interest rates on other consumer credit, and difficulty in obtaining a car loan or mortgage. If left unchecked, student loan delinquency and default can mean garnished wages, withheld tax refunds and even offset of social security benefits.
Although federal student loans offer all sorts of repayment protections for borrowers (deferment, forbearance, income-based repayment, etc.), what the program lacks is proactive communication of these options to borrowers. In fact, an unintentional consequence of the recent student loan reform enacted by Congress was the removal of federal funding for innovative research in proactive borrower communications. The white paper puts forth the case for why policymakers should reinstate and expand the federal investment in higher education debt management programs.
The ASA report makes use of a common problem in the way Americans talk about student loans. Many college graduates, the thinking goes, have too much debt. They’re drowning it in; therefore they need more “financial planning” skills to become more financially responsible and plan for the future.
No, they don’t. They don’t need more “proactive borrower communications” or “debt management programs.” They just need less debt.
All of those repayment protections that exist—deferment, forbearance, and income-based repayment—are not sophisticated investment strategies; they’re tactics indebted people use when they don’t have enough money.
No doubt a little advice about debt management can help individual people avoid getting into really bad credit problems but this sort of solution won’t address the real problem here. People don’t default on their student loans because they just aren’t having productive conversations with their loan holders; they default because they can’t afford to service their loans.
The report recommends “expanding the federal investment in higher education debt management programs.” This is like attempting to address the budget deficit by creating a budget deficit hotline. If we want to use federal money to address education debt, it would be far more effective for policymakers to “expand the federal investment in higher education” itself, not “higher education debt management.”
Read the full ASA report here.