The Solution to the Student Debt Crisis

Image via Student Loan Insider

Marco Rubio may have figured out how to solve the student loan crisis during his 2016 presidential campaign.

Student debt has become a rite of passage of sorts, but it’s anything but right. Young people have struggled with paying for college for decades. However, we have never seen the mountains of debt students are acquiring today. American millennials are now burdened by a total of 1.2 trillion dollars in debt. This obscene amount is caused by the 29,000 dollars, on average, students take out in loans to finance a four-year education.

Unable to pay these loans back out of college, many young people are forced to postpone marriage, having kids, and purchasing a home. Thus, our society is now consumed by twenty-two-year-olds who opt to live with their parents. One of the key factors leading to this crisis has been the rising cost of a college education. In 2001 the average cost of one year of college was $7,200. In 2013 this number had hit $10,800.

What’s at the root of this upsurge in the cost of college? The astounding fact that 95 percent of American parents believe their child should go to college. An almost universal demand for a college education has left many universities increasing tuition to promote rapid expansion. The notion that these many students should pursue a higher education is the result of an entirely different phenomenon.

For years, politicians and cultural leaders have promoted and encouraged young Americans to attend universities in large numbers. Fundamentally, this sounds like a good idea; however many of these college students are acquiring degrees in fields without a demand for workers. The end result? Many college graduates have amassed debt while also failing to get a job that will enable them to pay off these debts.

With that said, the issues resulting from the student debt crisis appear to be threefold:

  1. Prospective college students are uneducated about the benefits of their college degree and how to pay for it.
  2. Recent college graduates are burdened by student loans and are not afforded the flexibility necessary to participate in the marketplace.
  3. 7 percent of students default on their loans and must take money out of their retirement to pay back the loans.

A plan proposed by Florida Senator Marco Rubio (R) during his 2016 Presidential campaign should be revisited to resolve this crisis. His plan aimed to achieve five things:

  1. Introduce a simplified version of the federal financial aid application (FAFSA)

Any individual familiar with the financial aid process has encountered the FAFSA. This massive application is confusing and overly complicated. By simplifying it, the federal government could save money in administration fees and improve the user experience for students and their parents.

  1. Create a database of information for prospective college students and their families about their potential education

The second point has its origins in The Student Right to Know Before You Go Act, which was sponsored by Rubio and Senator Ron Wyden (D-Ore). The bill made its rounds in Congress in 2013 and 2015 and never really gained traction. However, its support of an informative database for high schoolers interested in college could prove pivotal in changing the cultural perception of the benefits of a college education. In concept, the database could provide students with statistic-based costs and benefits of attending a particular college or entering a given field.

  1. Replace the current student loan structure with an Income-Based Repayment system

An Income-Based Repayment system is simple. Under this structure, college graduates would contribute a percentage of their income to paying back their student loans. If a student makes 150 percent of the poverty line, no income would be contributed to paying back loans. Upon a rise in income, student loan payments would resume. This would help students who are unemployed transition into better-paying jobs to afford their loans.

  1. Expand non-traditional education opportunities by reforming the accreditation process

Expanding non-traditional forms of education has been a hallmark of Republican education reform in recent years. Under this plan, the accreditation process would be reformed to increase the number of trade schools to better meet the demands of various trades across the country.

  1. And most importantly, introduce student investment plans, that allow private companies to invest in the education of college students

This is the most unique aspect of Senator Rubio’s plan, and it is likely the strongest one for resolving the present student debt crisis. Under student investment plans, private industries would be given the opportunity to invest money in the education of various students. Many companies often have a stake in ensuring the success of future talent for their respective fields. Through this plan, college students would receive a set amount of money from an investor and would repay them through an Income-Based Repayment system upon graduation. By avoiding the fixed repayment structure of current student loans, this plan puts the risk on the investor rather than the student. If a student becomes mightily successful out of college, then the investor is likely to get a return. However, if the student fails to secure a decent job, the investor may break even or lose money. Overall, this allows students to be more flexible out of college and potentially take greater risks such as starting a business or investing in the stock market.

If the Republican party is serious about winning over young people, comprehensive higher education reform is an absolute must. Senator Bernie Sanders plan to provide college for free to young people, while completely impractical, was massively popular. If conservatives adopted a realistic policy such as the one recommended by Senator Rubio, young people – one of the least conservative demographics – would begin to adopt conservatism.

However, the true merit of this plan is that it improves the lives of young people drastically without costing the government excessive amounts of money. Allowing potential college students to make better decisions about their education will result in a more efficient economy. Additionally, student investment plans would lead young people to be less dependent on the loans that have caused this crisis in the first place. Ultimately, this proposal would result in better-informed students, graduates with increased flexibility to invest and start businesses, and a lower rate of student loan defaults.

Joel Gillison is a student the University of North Carolina - Chapel Hill studying public policy.

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