The Pew Foundation's most interesting finding--picked up by the media--was this: Almost one out of four student-loan debtors default on their loans within five years. But this should not be a shocker. Looney and Yannelis reached basically the same finding five years ago in their report for the Brookings Institution. These researchers reported that the five-year default rate for the 2009 cohort of borrowers was 28 percent (p. 49, Table 8).
And the Pew study probably understates the crisis. The report itself acknowledged that for-profit colleges were underrepresented in its study (p. 5), and we know that almost half of the students who attend for-profit colleges default within five years.
Most importantly, the Pew study did not address the "challenge" faced by more than 7 million college borrowers who are in income-based, long-term repayment plans (IBRPs). IBRP participants are not paying off their student loans even though they are in approved repayment programs. Why? Because people in IBRPs aren't making monthly payments large enough to pay down loan accruing interest, and this interest is capitalized and rolled into their loans' principal.
As much as it pains me to say this, Education Secretary Betsy DeVos gave a clearer picture of the student-loan crisis than the Pew Foundation. A year ago, DeVos publicly acknowledged that only one out of four student borrowers are paying down principal and interest on their loans and that 43 percent of student loans are "in distress."
For me, the most disappointing thing about the Pew report was its tepid, turgid, and tedious recommendations for addressing the student-loan crisis, which I will quote:
- Identify at-risk borrowers before they are in distress . . .
- Provide [loan] servicers with resources and comprehensive guidance . . .
- Eliminate barriers to enrollment in affordable repayment plans, such as program complexity . . .
Note that the Pew Foundation said nothing about bankruptcy relief for distressed college borrowers, tax penalties for borrowers who complete their IBRPs, or the government's shameful practice of garnishing elderly defaulters' Social Security checks. Moreover, Pew said nothing about the Education Department's almost criminal administration of the Public Service Loan Forgiveness program. And we didn't read anything about the out-of-control cost of higher education.
Let's face it. College leaders, the federal government, and so-called policy organizations like the Pew Foundation refuse to acknowledge that the federal student-loan program is destroying the lives of millions of Americans. Instead, they are content to tinker with a system that is designed to shovel money to our bloated and corrupt universities.
America's colleges are addicted to federal money. Like a drug addict hooked on Oxycontin, they must get their regular fixes of federal cash. After all, they've got to fund the princely salaries of college administrators and lazy, torpid professors.
Like first-class passengers on the Titanic who were sipping champagne when their ship hit an iceberg, the higher education industry thinks the flow of student-loan money will go on forever. But a crash is coming.
Unfortunately, the people who created the student-loan crisis will be the ones floating away in the lifeboats--living off their cushy pensions and obscene retirement packages. The people who were exploited by the federal student-loan program, like the third-class passengers on the Titanic, will go down with the ship.
|Lifeboats reserved for college presidents and DOE senior administrators|