It seems only fair that students be expected to pay for a substantial share of their education, since students derive large long-term benefits. Relative to those with only a high school diploma, students with a two-year college degree earn $400,000 more over a forty year career. Getting a BA adds another $600,000, an MA degree another $400,000 on top of the BA, and a doctorate another $600,000 to the BA. Those with a medical or law degree are at the top of the heap, earning $1.4 million more over a career than those with just a bachelor's degree.
While most students can pay their debts and derive long-term benefits from them, there is another fairness issue to consider, when deciding how higher education should be financed. In general, the children from lower socioeconomic families are much less likely to get BAs and graduate degrees than those from upper middle class and wealthy families. At the top of the educational pyramid, only ten percent of the students in top ten percent of colleges come from families in the bottom half of the income ladder.
It is these top schools that have the high "sticker prices." But only about a third of all students--those from families with high incomes--pay this rate. And the revenues from these students have been used to increase institutional grants to students from families with more modest means. So, the more government supports higher education, the more taxpayers would be subsidizing the acquisition of an important career enhancement for children from well-off families.
THE IMPORTANT ROLE OF STUDENT LOANS
While the current system certainly needs some reforms (in particular, the government has been setting up new guidelines in dealing with the high default rates on student loans from private for-profit institutions), student loans have an important role to play in financing education now an in the future.
Yes, over the last generation, the share of BA graduates with debt has increased by 20 percentage points, and the level of debt for those who take out loans has doubled. But this change alone does not make the entire system untenable. Despite the longest recession since the Great Depression, the default ratios have only crept up by a couple of percentage points, and the massive federal guarantee of student loans has yet to cost the government a penny. (The one percent charge on each loan and origination fees have more than covered the costs of the relatively few loans that have not been repaid in full).
That said, with ongoing unemployment of 8% and forecasts of weak labor markets continuing for many years, student debt is a major burden on many new graduates who can't find work or can't find good paying work in the fields they trained for. Currently, there are various forbearance options that allow students to pay just the interest on their loans plus there are consolidation options when interest rates are low. Just as we recognize that finding a job is hard for workers laid off in deep recessions by extending the time they are eligible for unemployment compensation, it seems appropriate that new labor force entrants who are having trouble finding suitable employment be given a break on making their loan payments until their employment prospects improve.