Some relief, however, is off limits: Borrowers of public loans are virtually unable to file for bankruptcy, a protection available to other debt holders.
For-profit colleges aren’t the only ones producing students who struggle to repay their debt. A Brookings Institution study last year showed that colleges with comparatively open enrollment standards, like regional four-year state schools and community colleges, have high percentages of students behind on their loans. Cochrane of TICAS thinks the difference between those colleges and for-profits is one of cost—state schools frequently have tuition that’s less than the maximum Pell grant, while for-profit colleges charge average tuitions of two or three times more. “I feel like, as a society, with our lower cost community colleges, we made the decision we want to be able to try out college [and] … leave room for them to fail, but we want the risk of failing to be less.”
To be sure, college debt is likely to continue growing. Ten years ago, seniors who had taken out loans left school owing $19,000. This year that figure is up to $29,000—double the pace of inflation. Whether the increasing debt loads will become a crisis largely depends on if the labor market recognizes the value of a degree and if there are enough high-paying jobs allowing students to pay off their debts.
For graduate students with large loan obligations who are employed in high-paying fields like law and medicine, the federal government’s debt-relief programs may not even be as helpful. Private financial companies like SoFi have entered the playing field promising lower interest rates than what the government charges. “Basically, you can refinance if you’re already in a pretty good financial position, and you can save a lot of money,” said Brianna McGurran, a consumer reporter focusing on 20-somethings for NerdWallet, a personal finance website.
Jason Delisle, a higher-education analyst with American Enterprise Institute, noted that one reason companies like SoFi are interested in attracting wealthy borrowers with large loans is because they could make more money off these borrowers down the line. Mortgages, investment vehicles, retirement plans—“[getting] as many lines of business under one brand as possible, this is an amazing business model,” said Delisle.
But some folks who study college financing are questioning if the government should even be issuing loans to students attending colleges that are known to have high percentages of graduates entering default. “Yes, we have a bad system,” said Miguel Palacios, a finance scholar at Vanderbilt University. “It’s a system that in some ways seems predatory when it demands payment from students whom it was foreseeable were not going to be able to pay.”
He added: “The only reasonable alternative that I know of is having something that is linked to income. We’re getting there with income-based repayment.”