Student debt is a $1.2 trillion shadow cast over the lives of tens of millions of Americans, and it's getting longer each year. President Obama has a plan to make it easier for borrowers to pay it all off.
Today, he announces an executive order to cap student-debt repayments at just 10 percent of income. This expanded pay-as-you-earn plan (which already exists for recent borrowers) should be welcome news for young people struggling to find steady work. Gainfully employed grads would pay just $0.10 for every $1. Unemployed grads might pay nothing. After 20 years of following these rules, remaining debt would be wiped clean.
The president will also throw his support behind Sen. Elizabeth Warren's plan to refinance student loans at lower rates. But since the president's public support is of extremely dubious value in the GOP-controlled House, this idea is probably going nowhere.
Student loans have an overrated effect on the overall economy, but there is little doubt that fresh debt warps the choices of young college grads, pushing some away from homes and cars. Even worse, the high cost of college warps the choices of wannabe students, pushing some to drop out of college, or skip it altogether, a highly questionable choice for most young people considering that college graduates earn more, work more, and are happier with their lives.
The pay-as-you-earn plan is appropriate and targeted. It carries relatively few downsides, and it will help some students get on with their post-graduate lives. But we shouldn't expect it to “fix" much now, because the existing program hasn't "fixed" much already. Libby Nelson reports that just a tiny fraction of eligible borrowers are currently using Pay As You Earn. This is like giving somebody with a broken leg a half-off coupon for crutches—a perfectly decent ameliorative option that only works if the injured party chooses to use it.
The president has no control, or minimal control, over the most important drivers of per-capita student debt growth, which include:
- Budget cuts that are raising the cost of public colleges
- Other costs—e.g.: amenities and administrative bloat—that are raising the cost of private colleges
- The intimidating marketing challenge of getting students to actually realize that income-based payments are a thing
- The also-intimidating marketing challenge of making students aware of the relative costs and benefits of certain schools and degrees, particularly at for-profit colleges that are student-debt factories
- The even-more-intimidating marketing challenge of persuading enrolled students to not drop out of college unless they have a concrete plan to use internships or job opportunities to set themselves up for a career
- The yet-even-more-intimidating marketing challenge of getting smart low-income students to apply to good schools … and of getting good schools to better identify promising students outside of the well-worn corridors of privilege
The word marketing appeared often in that list. Although "better marketing" sounds like an unsophisticated solution to problems on the scale of $1 trillion in student loans and higher education, I think there’s a good case to be made that the important crisis in higher education is "better marketing."
Smart low-income students with the most to gain from a select college degree aren’t applying to select colleges. Smart middle-class students with everything to lose from not finishing college aren’t finishing college, or they’re being scared away from price tags that have nothing to do with the actual cost of attending the school. These aren’t problems you can fix by executive order, or tax tweak, or House vote. They’re problems of information. They’re problems of marketing. The White House knows about these problems—they're all listed under the education tab on its website—but until we have working ideas to fix them, or otherwise bring the cost of higher ed down to OECD averages, we're still just handing out coupons to the guy with the broken leg.