Despite the daily national controversy surrounding the burden of student debt on our society, few believe we can actually get rid of it. Although they are extremely important to colleges as a source of revenue, 76 colleges nationwidehave already taken steps to rid their campuses of student loans. One by one, the rest of our colleges need the will and a plan to do the same.
The amount of student loans borrowed has reached $1.5 trillion, two-and-a-half times what it was a decade ago. A slur of studies show the many ways debt is burdening our younger generations, and until recently, the will to reduce our dependence to student loans was not there.
After all, student loans are free money for colleges. The institution receives the dollars and the students take on the debt. Colleges’ financial model was built on the assumption that they can keep raising tuition with students willing to take on more debt to pay for it. However, this has started to backfire, leaving colleges with empty seats.
Before Mount Ida closed, the average student debt of its 2016 graduates topped out at nearly $45,000. That is fifty percent more than the national average of $30,000. As tuition increases, fewer students are able to justify the value of a degree, and colleges now fear declining enrollment numbers as yawning gaps between what they charge and what families can afford grow larger each year. Predictions of more colleges closing are pressuring these higher education institutions to rethink their financial model. Ending reliance on student loans is a clear path forward.
Elite private schools like Dartmouth College are among the 76 colleges reducing student loans. But public universities such as Michigan State University and University of Vermont have also followed suit. Some have succeeded in completely eliminating loans from their financial aid packages and others have adopted partial no loan policies for low-income students.
More colleges can follow in their footsteps, but first they must believe it is possible. Then, they need to stop increasing loans. A college can easily do this because it assigns the debt to each student. Next, a college needs to assess its financial ability to replace student debt with other streams of income. Can it grow its endowment, reduce its costs, or slow down its building program? Some colleges can do this next year, others in five years, more in ten years. The important thing is to stop rowing toward the waterfall and start rowing the other way.
Predictions of more colleges closing are pressuring these higher education institutions to rethink their financial model. Ending reliance on student loans is a clear path forward.
The financial and reputational benefits colleges can reap from this financial strategy are substantial. Reducing student debt would add stability to finances and curb the instinct to raise tuition every year. No doubt, it would also bolster recruitment in a competitive market. It would cause a virtuous cycle as colleges compete over lowering debt rather than luxurious dorms or cafeterias. It would also allow traditional colleges to better compete against for-profit colleges, which have siphoned away millions of students and which are addicted to student loans.
State and federal governments should support replacing student loans with other financial aid options. Many argue that this would be too expensive, but taxpayers should know that they are already on the hook for an increasingly expensive student loan program.
The majority of borrowers are either unable to repay their loans or, for those who have correctly navigated the system, are set to have the debt forgiven. We would all benefit from replacing this hidden grant with a transparent grant that would be more targeted. The time is ripe for a grand partnership if politicians see colleges putting their own resources on the line and match their efforts by increasing public funding for colleges.
None of this will happen unless students grab the microphone. Those ashamed or bewildered over how they took on so much student debt must find a way to turn shame into action. We must press colleges and the government to start rowing the other way. Otherwise we will all meet at the bottom of the waterfall—at least those that survive.