Susan Dynarski published an essay recently in the Business section of the Sunday Times
with the provocative title of "America Can Fix Its Student Loan Crisis. Ask Australia
." Her prescription is simplistic, dangerous, and ineffective.
Essentially, Dynarski recommends putting American student borrowers into income-based, long-term repayment plans. She doesn't say how long, but she wrote approvingly of the English system--which, she attests, gives students 30 years to pay off their loans.
She also recommends putting student borrowers into a payroll withholding system whereby
debtors have their monthly loan payments deducted from their paychecks based on a percentage of their income. When borrowers' incomes go up, their payments would be larger; if their incomes go down, their payments would be reduced as well.
Dynarski's proposal is very close to what the Obama administration is already doing--pushing millions of student borrowers into income-based repayment plans that stretch out over 20 or 25 years.
Dynarski says long-term student-loan repayment plans make sense because college graduates benefit from their college experience over their entire lives. "A core principle of finance is that the length of debt payments should align with the life of the asset," she writes didactically. "We pay for cars over five years and homes over 30 years because homes last a lot longer than cars." Likewise, Dynarski reasons, "[a]n education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term."
Dynarski urges the United States to follow the example of those savvy Europeans, who give students longer to pay off their student loans than we do here in the U.S. "All the international student loan experts I have spoken with are shocked by how little time American students are given to pay off their student loans," she informs us. Shocked!
Dynarski's simplistic proposal is based on erroneous premises. First of all, contrary to Dynarski's view, many student borrowers do not have college experiences that benefit them over a lifetime. Students who borrow to attend for-profit colleges and have substandard experiences don't receive a lifetime of benefits. Perhaps that is why almost half of a recent cohort of students
who attended for-profit colleges defaulted within five years. People who drop out of college before graduating don't receive a lifetime of benefits either, although they may acquire a lifetime of debt.
And many people who borrow money to obtain liberal arts degrees are not receiving much benefit. I for one received almost no benefit from the sociology degree I obtained from Oklahoma State University many years ago. But at least I didn't borrow money to pay for it.
People who borrow $100,000 or more to get degrees in sociology, history, women's studies, religious studies, etc. generally are paying far more than their degrees are worth. In fact, 45 percent of recent graduates
take jobs that don't even require a college degree. And in the workplace as a whole, about a third of college graduates are in jobs that don't require a college education.
Moreover, Dynarski's comparison between American college financing and Europe is not very useful. As she herself points out, higher education in many European countries is free, and most European countries have a bigger social safety net for their citizens than the U.S. does. It is one thing to pay on student loans for 20 years if health care is free and an old-age pension is assured. It is quite another thing for people to pay on their student loans over a majority of their working lives while saving for retirement and paying for health insurance.
If we think about Dynarski's proposal for just a few moments, we can see how ineffective it is for solving the student loan crisis. American higher education is the most expensive in the world, and stretching out students' loan repayments for 25 or 30 years will do nothing to get those costs under control. In fact, the reason so many higher education insiders favor long-term income-based repayment plans is because it enables them to continue jacking up tuition prices.
And Dynarski's plan takes no account of accruing interest. Borrowers who make small monthly loan payments due to their low salaries won't be paying off interest as it accrues. Most Americans who enter these plans will never pay off their loan balances even if they faithfully make their monthly loan payments for 300 consecutive months. Isn't it also a core principle of finance that people should actually pay off their loans?
Finally, Dynarkski's proposal is simply dangerous to the long-term well being of Americans who go to college. Basically, she is proposing a special tax that everyone who borrows to attend college must pay over the majority of their working lives. Student loan payments will just be another deduction from people's paychecks--like federal income tax withholding and Social Security contributions.
Essentially, Dynarski is proposing a modern-day sharecropper system very much like the one that prevailed in the American South prior to World War II. The sharecropper system of the 1930s required tenant farmers to pay a portion of their crops to Southern plantation owners; the modern system forces college students to pay a portion of their future wages to the government over a majority of their working lives.
Both sharecropper systems are unjust: and Dynarski, by pitching the new sharecropper system in the Business section of the New York Times
, has become an apologist for exploitation.
Mathew Boesler. More College Grads Finding Work, But Not in the Best Jobs
. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs
Susan Dynarski. American Can Fix Its Student Loan Crisis. Ask Australia
. New York Times
, July 10, 2016. Business Section, p. 6.