The blog of the Urban Institute
January 23, 2017

The student loan scandal doesn’t mean there’s a student loan crisis

January 24, 2017

During Betsy DeVos’s confirmation hearing, Elizabeth Warren challenged the secretary of education nominee to protect student borrowers from fraud and abuse. The next day, the Consumer Financial Protection Bureau and the attorneys general of Illinois and Washington  filed lawsuits against student loan servicer Navient, alleging that the company misled borrowers, mishandled payments, and drove up repayment costs.

These suits are not the first brought against companies that service US Department of Education loans, and reining in these abuses—should they prove true—should be a high priority for the new secretary of education. But we should not conflate alleged corruption with a student loan “crisis,” with student debt “crushing a generation.” There are severe problems in the system that must be remedied, but these problems do not mean it is unjust or inefficient for students to borrow to fund a portion of their education or for the federal government to be the source of their loans.

Too many students are borrowing too much to enroll in postsecondary programs from which they have virtually no chance of graduating and which, even if they do graduate, are unlikely to propel them into satisfying and remunerative careers.

 And despite impressive progress in developing programs that limit monthly loan payments to an affordable percentage of borrowers’ incomes, the repayment system remains complex and replete with bureaucratic hurdles for those struggling to manage their financial responsibilities.

But higher education is an investment that pays off well for society and for most students. In 2015, 25- to 34-year-olds with a bachelor’s degree earned $22,900—or 84 percent—more than high school graduates of the same age. Sixty-one percent of students who earned a bachelor’s degree from a public or private nonprofit college in 2015 graduated with debt, and among those students, the average cumulative debt was $28,100.

The availability of student loans makes it possible for many people who could not otherwise continue their education after high school to invest in themselves and their futures. Although state and federal governments should increase funding for institutions and student grant aid to make college more attainable for low- and middle-income students, student loans will remain an important part of the equation. Well-designed repayment plans can protect borrowers from unforeseen hardships.

Abuse of borrowers who are struggling to repay their loans, irresponsible account management, and failure to provide accurate information and constructive guidance are serious problems and—if confirmed—constitute a scandal. If found to have violated the public trust, the perpetrators should be punished. The federal government—led by DeVos and the president who nominated her—should ensure that these patterns change. But we should not confound the mismanagement of the system with the merits of providing funds that create educational opportunity for so many students.

Natasha Sumabat adjusts her cap in her Westwood apartment on May 17, 2012. The 22–-year-old plans to move back home with her family in Artesia after graduation and help out for a while at her family's flower shop. She has nearly $29,000 in student loans. Moving back home she will be able to save money and help pay back the loan. Photo by Gary Friedman/Los Angeles Times via Getty Images.



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