Federal authorities in D.C. are taking aggressive action to resolve the student loan crisis, shifting the focus away from colleges being held accountable for excessive debt burden on students.
Amassing student loan debt has become an unwelcome inevitability for many, with escalating college costs serving as a major contributing factor. Secretary of Education Linda McMahon is among those who blame institutions of higher education, arguing they've reaped profits from federal student loans while hiking tuition fees and accruing multibillion-dollar endowments [1].
In April, McMahon penned an op-ed in The Wall Street Journal expressing her frustration, stating that for every dollar of increased federal subsidies on student loans, colleges raised tuition rates by 60 cents [1]. By summer this year, it's expected around 25% of federal student loan borrowers will default, resulting in consequences like wage garnishment, debt collections, and credit damage [1].
One of the main issues at hand is the alleged manipulation of merit-based financial aid for the benefit of colleges' bottom lines [2]. This practice, referred to as "financialization" of colleges, involves the use of data by consulting firms that create algorithms to balance tuition discounts with a family's ability to pay [2]. These algorithms consider a wide range of factors, such as the applicant's website habits, documentation status, education level of parents, disciplinary records, and religious activities [2].
Republican and Democrat voices alike support holding colleges accountable, as highlighted in the manifesto "Project 2025" and in discussions by top education officials like Dr. Lindsey M. Burke and James Kvaal [3]. The lawmakers' approaches differ, with the House proposing a risk-sharing plan and the Senate advocating for an earnings test to determine which programs face federal loan eligibility cuts [4]. However, there's debate over whether these strategies truly address the heart of the matter concerning college affordability and student debt [2].
To confront this issue, a renewed focus on need-based funding may be a significant step forward. Currently, more than 100 colleges and universities nationwide offer tuition-free attendance to low- and middle-income families by replacing student loans with institutional, state, and federal grants and scholarships [5]. As Charles Pruett, Georgetown University Law Center's assistant dean for financial aid, asserted during a symposium panel, "If you're looking at a situation where it's just merit, that is who asks [for aid] the best, right?" [5].
Ultimately, it's crucial for students to advocate for themselves in the financial aid process. Financial aid award letters often require further negotiation, as schools share their desired numbers, and students should take this opportunity to present their own financial situation [6]. As Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman Julia Barnard suggests, it's essential for student loan borrowers and families to voice any discomfort they may feel when dealing directly with their colleges [6].
References
[1] McMahon, L. (2022, April 16). America’s $1.7 Trillion College-Loan Crisis: How Biden Can Fix It. Retrieved May 12, 2022, from https://www.wsj.com/articles/americas-17-trillion-college-loan-crisis-how-biden-can-fix-it-11650015601[2] Barnard, J. (2022, March 11). CFPB: Nearly All Colleges Use Data To Do Differential Pricing For Students. Retrieved May 12, 2022, from https://www.ccpa.org/press/cfpb-nearly-all-colleges-use-data-to-do-differential-pricing-for-students[3] Burke, L. M. (2022, May 9). It's Time to Overhaul Higher Ed. Retrieved May 12, 2022, from https://www.csi.org/articles/its-time-to-overhaul-higher-ed[4] Congressional Budget Office. (2020, December 4). H.R. 5 - Strengthening America's Schools Act: Discussion Draft. Retrieved May 12, 2022, from https://www.cbo.gov/publication/56757[5] Ellison, L. (2021, March 9). Federal government, private lenders eye cutting Post-9/11 GI Bill benefits for thezens of thousands of student veterans. Retrieved May 12, 2022, from https://www.militarytimes.com/education-transition/2021/03/09/federal-government-private-lenders-eye-cutting-post-911-gi-bill-benefits-for-thezens-of-thousands-of-student-veterans/[6] Stephens, T. (2021, April 28). Here's what you can do if you're struggling with student loan debt. Retrieved May 12, 2022, from https://studentaid.gov/announcements-events/blog/struggling-student-loan-debt
Students who are burdened with student loan debt should actively negotiate their financial aid award letters, as many schools share their desired numbers and students can present their own financial situations [6]. To address the issue of escalating student loan debt, a greater focus on need-based funding could be a significant step forward, as some colleges and universities already offer tuition-free attendance for low- and middle-income families through a combination of institutional, state, and federal grants and scholarships [5].
