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Thu June 12, 2014
President's Student Loan Action Might Be Too Little, Too Late
Originally published on Thu June 12, 2014 2:31 pm
MICHEL MARTIN, HOST:
We've been talking about a big issue in K-12 education. Wow we want to head to college, where one of the biggest issues for most Americans is paying for it. Now there's a new effort to help. This week, President Obama signed an executive order that will cap student loan repayment at 10 percent of income for millions of borrowers. In addition, some students will see their loan balances forgiven after 20 years of repayment or after 10 years if they work in public service. Now this change expands a program that already exists, but - which has had limited reach so far. And we wanted to ask if these changes are important and what they might accomplish. So we have called Anthony Carnevale. He's the director and research professor at the Georgetown University Center on Education and the Workforce. And he often joins us for conversations about higher education. He's back with us in Washington, D.C. Welcome come back. Thanks for joining us.
ANTHONY CARNEVALE: Thanks for having me.
MARTIN: So this executive order expands the administration's Pay as You Earn policy. The feedback that we're getting so far is that this program really hasn't affected that many people so far. So the question is will this include more people?
CARNEVALE: In the end, this will give income-based repayment - that is you only pay a certain percentage of what you make - to a larger share of people. But we're only talking about a few hundred thousand people out of - there are 37 million people out there with college loans, and we'll get another 18 million this year alone. So one of the characteristics of this program is that we know it's a very good idea in the UK and in Australia. It is the default position. That is - you pay-as-you-go, pay as you earn, unless you ask to do otherwise. You can expedite your payment if you like, and they end up with much lower default rates and much more limited effects on student's ability to buy cars, houses and start families.
MARTIN: Why is it that the reach is not greater? What is it about the drafting of this program that doesn't extent to that many people?
CARNEVALE: The difficulty is that students are unaware of it. It is additional paperwork. It's not clear how it is that you'd find out. What we know is that students don't seek these kinds of repayment programs out. In many cases, even students who default never knew about these options. And so in other countries, we simply made them the default option. That is, this is what you do unless you decide to pay faster. So it's really a question of reach in this case.
MARTIN: Is part of the problem, though, that the people who actually service the loans, who send the paperwork out, our for-profit entities? And so why would they have any incentive to have students pay less? I mean, don't they get fees based on how much the students pay back? If they're paying back less, there's less profit? I mean, isn't that part of it?
CARNEVALE: Part of it is that people who are dealing directly with the students have no interest in this to the extent, in fairness to them, it would add cost. That is - there'd be a certain amount of servicing the students that would be involved. And we're not opting to pay for that either. So - and even in the case of the people in the government that deal directly with students, they're not equipped to service students to give them what is essentially sort of aggressive consulting and help with figuring out their own situation and what to do.
MARTIN: So how does this address the issue? I think that it is now known that student loan debt is a tremendous issue. It's a tremendous issue both for individuals, and it's a tremendous drag on the economy because people who are carrying around these massive debts are not in a position to buy cars, to buy houses. It has tremendous implications that we are now becoming aware of. How does this affect that at all?
CARNEVALE: It helps, but it's a bit like closing the barn door after the horse is gone. That is the loan debt that students carry - there's a more fundamental question about it and that is are they getting value for money? That is, students take out large amounts of loan and that's fine. The students should pursue what they love, but in the end, the loans come due and that, to a certain extent, is a fairly rude awakening from the dream. So there's a fundamental issue here about getting the loan and ensuring that you're getting value for the money that you're borrowing.
MARTIN: One of the things that you been concerned about is getting people to take more seriously the cost-benefit analysis of whatever it is that they're doing. And one of the concerns that I know you have and a lot of people have is that students and their parents and their families aren't necessarily taking that question as tightly as you would like them to do. What does this really cost and what am I really going to get out of it at the end? Is there any part of you that's concerned that this kind of adds to the temptation not to think about it? Because you think to yourself well, I'm only going to have to pay 10 percent of my income. It's not going to be that big of a deal. Even if you don't wind up actually filling out the paperwork, even if you don't wind up - you know what I mean? Does any of that worry you?
CARNEVALE: It does. That is, if we build a system where we continue to forgive the fact that the students and their parents and the institutions and the government that gives the money away - if we continue to forgive the fact that we're really not building a system where we give loans for value, that is for long-term earnings, then we continue the inefficiencies in the system. Ultimately, the taxpayer pays for that as do many of the students who find these loans still overwhelming. That is, it's not as helpful if you've built the loan and it's going to burden you for a number of years. Just have somebody help you with the burden. The real issue is ensuring that you minimize the burden in the first place by linking value - economic value to the loan.
MARTIN: Finally, as I understand, the president's expansion of the program doesn't even go into effect until December of 2015 because that's how long it takes for the education department to get the new regulations into effect. So at the end of the day, is this more a matter of political signaling letting - the president wanting to say, you know, I'm on your side and those other guys aren't - or do you think this really will have a real an effect if at least it just opens the door to people understanding that this is an option that is in effect in other places and therefore, something this country should really consider?
CARNEVALE: I think, in the end, it is progress on the road to real policy. And it also - it affects real people in substantial numbers, although not near what we would hope. And in the end, it continues to raise the question as to what we do more fundamentally with loans - as to whether or not we ensure the young people know what they're getting into when they borrow and make sure they're not borrowing trouble down the road. So I do think it has a real palpable impact on people, but it is relatively limited.
MARTIN: Anthony Carnevale is director and research professor at the Georgetown University Center on Education and the Workforce. We caught up with him where he was nice enough to go to our bureau in New York. Mr. Carnevale, thanks so much for joining us once again.
CARNEVALE: Yeah, good talking to you. Transcript provided by NPR, Copyright NPR.