What's the Most Important Reform for College Financial Aid?

Student loans are both a necessary part of our higher-ed system and, potentially, the next debt bomb to take down the economy. What's the best way to responsibly encourage students to keep learning after high school?

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Perhaps no industry is under greater assault than higher education. Rigorous studies have revealed that college students learn shockingly little. For example, in Academically Adrift, it was reported that 36% of graduating seniors grew not at all in problem solving, critical thinking, and analytical reasoning since entering college as freshmen!

And our sending the highest percentage of students to college in history (now 70%) has created an oversupply of college graduates. That helps explains why, according to a Pew fiscal analysis, 35 percent of the unemployed with college or graduate degrees have been unemployed for more than a year, the same rate as unemployed high school dropouts,

Despite providing far too little learning and employment enhancement for all that money and time, colleges keep raising their sticker price well beyond the inflation rate, largely because that increase is largely paid for by taxpayer-subsidized financial aid. And that aid ever increases because politicians know it's a political winner to vote for increasing it. The public doesn't realize that paying for more student aid mainly puts more money in colleges' bank accounts, not in students'.

Indeed, student debt has skyrocketed. According to a Federal Reserve Bank (NY) report, student now exceeds $870 billion, more than credit card debt and auto debt! Not surprisingly, college graduates and the almost half of freshman that don't complete their bachelors even if given six years, are finding it difficult to pay their student loans. That Federal Reserve report indicates that more than 1 in 4 borrowers are behind in their student loan payments.

Yet the powerful higher education lobby consisting of individual universities and all manner of consortia has successfully pressured Congress into making student loans the only loan that, except in rare circumstances, are not dischargeable in bankruptcy. The higher education industrial complex will not be denied your money, even if you're broke.

No wonder that Occupy, even during the winter hibernation period, is continuing to protest for moderation of college prices and student debt.

In a previous Working it Out, I argued that a most potent way to get colleges to improve is for government to require each college to post consumer information on its home page: growth in student learning, employability, cost after subtracting financial aid, four-year graduation rate, the accreditation report, etc.

This week, we turn to financial aid. This week's Working it Out question: What one change would you make in our system of college financial aid?

To start the ball rolling, here are some options:

-- A new rule that colleges demonstrate a minimum level of value-added or they lose government funding.

-- A new rule that colleges post on their homepages a chart of the likely aid in years 1 through 6, broken down by a family's income and assets

-- More taxpayer-funded aid

-- Less taxpayer-funded aid

-- More generous forbearance and loan modification policies

-- Student loans that are dischargeable in bankruptcy

Later in the week, my editor, Derek Thompson will publish your most thoughtful, provocative, and amusing ideas. And next Monday, I'll weigh in with my favorite.