Want to watch something depressing? Take a look at MarketWatch’s student loan debt clock and watch the outstanding balance jump by $2,726.27 every second. Every. Single. Second.
Want to read something depressing? Take a look at this new report from Preston Cooper of the Manhattan Institute, which finds that only 59 percent of four-year college students graduate within six years. Moreover, those who finally do graduate aren’t putting their degree to good use. Only 56 percent of recent college graduates (and 67 percent of all college graduates) work in a job that requires a college degree. Taken together, that suggests that only 33 percent of freshman students will emerge with both a degree in six years and a relevant job after graduation.
In short, we’re paying a lot of money for poor results. And, to be clear, these are related problems. Six years’ worth of college is obviously significantly more costly than four, and student loan delinquency rates among those who failed to graduate are four times higher than those of graduates.
Unsurprisingly, nearly every candidate clearly sees the problem and the negative impact it is having on an entire generation of young people.
“I think it’s terrible that one of the only profit centers [the government] has is student loans,” Donald Trump told The Hill. “I’ll see so many young people and they work really had for four years. They borrowed money. Their parents don’t have much. They work all together and they mortgage their future. . . They can’t get jobs and they don’t know what to do.”
The lack of jobs is clearly something that bothers Sen. Ted Cruz.
“Economic growth is critical to young people, because if we want this generation to be able to pay off their loans and develop the skills to live the American Dream, we’ve got to return to an environment where small businesses are growing and flourishing, and creating jobs and opportunities.”
A laser-like focus on returning the economy to good health is a critical piece of the puzzle because, as Gov. John Kasich says, the government simply isn’t in a position to pay.
“College costs are unbelievably tough, but we’re not going to have free college. That isn’t gonna happen anymore than we’re going to have free Ben and Jerry’s,” he recently told Kennesaw State University students.
Kasich is, for better or worse, right. It’s not just fiscally impossible for the government to pay for college, whose costs would inflate uncontrollably. It’s bad policy because it tends to favor well-to-do students over poorer students. And it’s wrong on principle because its removes a sense of individual responsibility that is key to understanding what has traditionally made America great.
That’s not to say that nothing should be done. Far from it. It’s to say that this is the perfect opportunity to think beyond big-government solutions and instead focus on ways to introduce some market competition to higher education. Michael Shindler, writing for RealClearPolicy, outlines one way to do that: Income share agreements (ISAs).
The current system encourages students to take out traditional loans and pay them back, with interest, after they’ve graduated.
With ISAs, by contrast, students agree to pay a portion of their income, for a fixed period of time, to their investors. Graduates earning less than expected might pay less than they received, while graduates earning more will pay extra.
Investors can be more discerning than traditional lenders. When brokering ISAs, they can adjust the length of the agreement and the percentage of income they will receive in order to fit the student’s particular circumstances, such as their field of study and the university they plan to attend. This framework will advantage students majoring in lucrative fields, like finance or engineering, by allowing them to secure contracts that take into account their higher-than-average expected earnings.
Sen. Marco Rubio, who recently dropped out of the race for the Republican nomination, was a big champion, and Gov. Kasich is indicating that he may be the next to pick up the torch. And thank goodness. It’s one of the few solutions we’ve heard about so far that would solve both the student loan crisis and the graduate jobs crisis.