NCPA - National Center for Policy Analysis

Student Loans and College Affordability

August 21, 2012

College loan debt is increasingly becoming a problem for students all across the country.  Recent laws to curb the costs associated with attaining higher education have been misdirected and ignore the problem of rising college costs and inefficiency, says Vicki Alger, a senior fellow at the Independent Women's Forum.

Loan debts are crippling for both the students and the national government.

  • In 2010, Congress passed the Student Aid and Fiscal Responsibility Act which made the federal government the sole direct lender for students
  • Furthermore, total student loan debt sits near $1 trillion and is projected to rise by $100 billion every year.
  • However, the unemployment rate of recently graduated students hovers around 9.1 percent, which is a higher rate than the national unemployment average.
  • Additionally, with a lack of jobs to repay student loan debt, nearly 9 percent of students defaulted on their loans in 2010.

Despite the rising costs, the federal government has pursued more actions that subsidize college education through loans and grants. However, this disincentivizes universities from seeking actions that would reduce the cost of going to school since they are guaranteed money from the government.

State schools argue that the higher price in tuition is a reflection of state budget cuts to education. However, a study by Cato Institute's  Neal McCluskey found only two years when tuition increases simply made up for state budget losses. Every other year the tuition rose well beyond the loss of subsidies from state governments.

There are some mechanisms the government could use to try and fix the current student loan crisis.

  • First, the government could provide accurate details about the job market for graduates and whether the cost of pursuing a college education is worth it.
  • Second, the government could tie the financial aid to universities based on how many students complete their degrees, not simply on how many enroll.
  • Third, businesses could directly finance an education of a student based on a contract that upon graduation the student will work for said company.
  • Finally, federal financial aid can be tied to competency-based programs that allow students to demonstrate their skills and knowledge learned to earn financial aid (as opposed to getting financial aid based on the number of credit hours a student takes each year).

Source: Vicki Alger, "Policy Focus: Student Loans and College Affordability," Independent Women's Forum, August 2012.


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