A college education is expensive.  And necessary for many careers.

Many students, facing faster-than-inflation cost increases and sluggish growth in government loans, take on more and more private debt to finance their education.  The average debt per borrower is now over $25,000 across all types of institutions, up from $19,000 ten years ago.  65% of students who entered Bachelor’s level-granting schools in 2008 graduated with debt.

Those indebted students forgo many of the choices and benefits of a broad education due to an obsession with “will it pay off” thinking.

Meanwhile, too many graduating students focus only on jobs with the highest salary for them to pay off their debts rather than careers that they are passionate about or that we need more of.  For example, there are dire shortages of nurses and teachers.  Many young entrepreneurs are unable to start a business due to debt obligations.

Three problems: 1) excessive debt; 2) obsession with “jobs” while choosing college courses; 3) misallocation of human capital into society’s labor needs.

One solution: student debt repayment should be based on ability to pay instead of absolute amount.

Pay what you can, not what you owe.

How would it work?  All qualified college loans would be repaid using a sliding scale formula.  If you make less than a threshold, depending on your family size, you pay nothing.  Once you are above the threshold (maybe 150% of poverty level), then you pay 10-15% of your income to your debts with a hard cap of around 20%.  Currently, the Obama administration started this for federal grants.  However, the private, for-profit sector still dominates.  Pay what you can plans should cover ALL loans.   Whatever losses it incurs can be absorbed by the federal government.  The upside will be more people finishing college, better educational choices while in college, better job fit after graduation, and all the economic and social benefits of these improvements.

Related articles
Advertisements

About Jordi

I am an assistant professor in the Management School at Bucknell University. I specialize in organization theory, social networks, and studying the network society. I have three children, including twins. They love bouncing on the couch, legos, music, and my waffles. My wife teaches English at the same university. I am interested in most things, but these days, networks, social entrepreneurs, the environment, innovation, and virtual worlds. Finding Hidden Abodes and Shaking Iron Cages since 1972

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s