The idea that there is a “student debt crisis” has been repeated so often with so little probing of the real problems that many people have come to believe that borrowing for college is a bad idea. In fact, one of the major causes of the “crisis” is that the federal government provides loans to students to attend colleges from which most students fail to graduate or have low earnings even with a degree. The difficulties this creates for the students involved and the costs it generates for taxpayers could be diminished with appropriate federal policies.
Federal student aid programs have long had rules defining which postsecondary institutions are eligible to offer aid to their students, but those rules have not prevented students from attending and taking out loans for low-quality institutions. In recent decades, the federal government has loaned billions of dollars to students to attend schools that have systematically defrauded their students by failing to provide meaningful educational opportunities.
The Obama administration’s Department of Education forgave millions of dollars in federal students loans to thousands of students who had borrowed to attend Corinthian Colleges and ITT Technical Institute, for-profit institutions that closed when their unethical behavior was exposed.
The Trump administration has moved in the opposite direction. Under Betsy DeVos, the Department of Education has rescinded regulations designed to protect students and taxpayers against irresponsible student loans. A negotiated rulemaking panel recently failed to reach agreement on revising the gainful employment rule, which holds vocational colleges accountable for the adequacy of graduates’ earnings relative to their debt levels. This means the department is now free to redesign the rule as it pleases or to abandon it entirely.
In a recent Urban Institute brief, we suggest evidence-based benchmarks for minimum standards that would protect students from accruing debt for an education that is unlikely to be a good investment. The guidelines we propose are minimum standards—what might be defined as the boundaries of a “red zone”—that could be the basis of a more effective institutional eligibility system. Falling short of these standards signals serious institutional problems and could be the basis for sanctions.
Current regulations exclude schools whose students default on their student loans at a high rate. Default rates, however, are no longer an adequate measure on their own, now that federal income-driven loan repayment plans prevent students from having to make payments they cannot afford. Borrowers with low incomes do not have to be actively repaying their loans to be in good standing. Adding measures of how much students have been able to repay would strengthen the benchmarks for manageable debt.
Avoiding excessive debt should not be the only requirement for institutions to qualify for federal student aid programs. A reasonable share of their enrolling students should graduate and, whether they graduate or not, former students should earn more, on average, than they would have if they had not enrolled.
We recognize that there is not one right way to establish reasonable thresholds for acceptable performance. There is, however, evidence that provides a strong grounding for the standards we propose.
Borrowing for college makes sense because for most students, postsecondary education is an investment that pays off over a lifetime. But too many students borrow to attend colleges and universities that have little chance of improving their opportunities. Until we exclude these schools from the federal student aid programs, we will continue to see too many students for whom education debt is an unmanageable burden with no visible benefit.