The issues surrounding the effort to limit the amount of debt incurred by students who enroll in vocational programs that don’t lead to remunerative careers are more complicated and nuanced than most of the emotional public commentary might lead one to believe.
First, the question of the role of the Baum and Schwartz paper, How Much Debt is Too Much? Defining Benchmarks for Manageable Student Debt (http://projectonstudentdebt.org/files/pub/Debt_is_Too_Much_November_10.pdf). This paper traced the history of the long-time rule of thumb that students who had to pay more than 8% of their incomes for student loans might face difficulties and looked for better guidelines. It concluded that manageable payment-to-income ratios increase with incomes, but that no former student should have to pay more than 20% of their discretionary income for all student loans from all sources. The Income-Based Repayment (IBR) Plan Congress implemented embodied the basic ideas in that paper.
How does this fit with the current gainful employment discussion? Most important, it seems totally reasonable for the government to protect both students and taxpayers from excessive borrowing by students with little hope of repaying their loans without unmanageable sacrifice. Individual students will always face problems because the investment in higher education, valuable as it is, is risky and doesn’t pay off equally for everyone. IBR is an important safeguard for individual students. But the idea that we systematically lead students into borrowing large amounts of money to attend programs that are highly unlikely to lead to careers that generate enough income to support their debt is another question altogether.
So the government has embarked on a sound project. The details of how best to regulate debt-to-income ratios are not, however, straightforward. We are happy not to have to devise those rules. Surely the details of the proposed rules could be improved upon, but the discussion would be more constructive if it were more about rational policy and less about either promoting the interests of for-profit institutions or preventing that sector from prospering.
Much of the discussion about these rules confounds manageable debt levels for individuals with appropriate standards for institutions. But the point at which an individual student should be relieved of responsibility for making monthly loan payments is not necessarily the same point at which average debt levels for groups of students studying at a particular institution should be deemed unacceptable. It is not clear that half (or more) of the students should be unable to repay their loans before we decide that the students are borrowing more than they should.
The rules can’t cover every possible variation in circumstances without being even more complicated than they already are. But a few concepts are critical. For example, the percentage of students accumulating debt at an institution must be part of the calculation, along with the average debt of those borrowers. If a few students borrow a lot of money and are unemployed and/or default on their loans, that is not the serious problem it would be if the majority of the students had this level of debt.
Perhaps most important is the argument about whether the proposed rules would hinder educational opportunity. The argument is surfacing that because many of the programs with high debt-to-income ratios and low repayment rates enroll high percentages of low-income students, denying access to loans for these programs will deprive these students of an education. While it is true that all other things equal, students from low-income backgrounds are more likely to have difficulty repaying their loans, the solution is surely not to allow them to borrow excessively and then struggle for years and possibly default on their loans. This argument distorts the idea of educational opportunity. Surely the appropriate solution is for these at-risk students to enroll in programs that have low enough price tags and/or generous enough grant aid to keep their borrowing needs in check. And of course the programs should lead to remunerative careers for most successful students.
Some of the arguments that take aim at specific technical provisions are really about whether the rules are viewed as too stringent or not stringent enough. Those who complain that students who are in deferment or forbearance because of economic hardship, or who are in IBR and are not paying down their loan principal, should not be counted as non-payers, are really just trying to loosen the standards. The fact that the students are (and should be) protected doesn’t change the reality that they are not earning enough to repay their loans. Of course they should be in the count of non-payers.
There are technical issues that work in the other direction as well. But even valid arguments about one or another detail miss the main point. The main point is how restrictive the rules should be – not exactly how they are calculated. They will never be perfect. Some of the fixes being proposed should certainly be implemented. But the rules can be adjusted to serve their purpose without putting perfectly good programs out of business.
The important moves towards accountability to students and taxpayers should not become a witch hunt. Many for-profit institutions provide students with opportunities not available to them at public colleges. We do need a wide variety of programs and institutions to serve at-risk students if we are going to achieve our goals for increased educational attainment. But if students are being poorly served by borrowing more money for vocational programs than they will reasonably be able to repay, we should find ways to redirect them into educational opportunities more likely to improve their life circumstances.