Here’s One Way to Cut Student Debt

Just stop offering the loans.

President Barack Obama has a plan to rate colleges based on things like tuition, graduation rates, debt and earnings of graduates, and the percentage of poor students in the colleges. Eventually he intends that the federal government will distribute federal money at least partially based on this information.

One of the concerns some in higher education have raised about this is that there are different ways colleges can react to a system that gives them higher ratings for higher graduation and lower debt.

One college has an interesting tactic to helping graduates avoid debt: Just don’t give them the loans. And scare them to death when talking about loans. As this piece at NPR puts it:

To get a student loan at Broward College, one of Florida’s largest community colleges, you first have to sit through a two-hour financial lesson with Kent Dunston. Broward College, in Fort Lauderdale, Fla., launched this class six years ago, just one effort aimed at preventing students from taking on so much debt that default on their loans. And, starting this year, the school began trying something else: barring students from borrowing more than they need.

And, perhaps more importantly, it also made specific changes in its actual loans:

The school stopped accepting unsubsidized loans — those are the more expensive federal loans that require students to begin making interest payments right away.

Broward, along with 28 other community, four-year and online colleges around the country, is trying the subsidized-loan-only approach as part of an experiment with the federal government to cut down on student debt. Subsidized loans can wait until after a student graduates for payment.

Now, a better strategy would just be to make the college affordable to working class students, virtually the entire population of Broward College. (It now costs about $2,400 a year to attend.) Many exclusive colleges have decided just not to offer loans at all to working class students. They don’t provide loans for anyone with an annual household income under 70,000 a year, or so, and basically offer a full scholarship.

But for colleges with less money the solution might be simpler. And that’s because the mere fact that a college offers a loan makes it sort of look to students like that loan is a good idea, even if it’s really a terrible one.

And if you don’t offer the loans, they’ll find another way to attend school. It’s not a wonderful solution, and it’s not necessarily financially easy to attend the school, but at least this helps move kids in the right direction.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer