Obama's Student Loan Forgiveness Plan Must Focus on Causes, Not Symptoms

Yesterday, President Barack Obama unveiled a new plan to help ease the ever-growing burden of student loan debt. The plan is nothing new; it merely accelerates the implementation of reforms to the existing Income Based Repayment structure passed by Congress.

Income Based Repayment is a system in which qualified graduates can have their monthly loan payments substantially decreased to better align with their take-home salary. For example, a graduate with a public service job making roughly $30,000 a year would not have to shell out over a third of that in loan payments, instead paying as little as 10% of the usual rate, but over a longer period of time. The program Obama seeks to implement next year would also decrease the length of time before remaining loans were completely forgiven, down to 20 years from the current 25.

While Republicans are sure to blast Obama for subverting congressional intent and Democrats are sure to praise the President for tackling the student loan debt issue head-on, the problem at the end of the day will remain far greater than any attempts to address it.

Outstanding student loan debt will exceed $1 trillion this year and it shows no sign of shrinking. Public universities, in response to continued budget cuts caused by the recession, have hiked tuition 8.3%, doubling the rate of inflation. Private colleges, generally not as cash-strapped as state-subsidized schools, have also continued to raise tuition rates. The average cost of attending college broke the $30,000 barrier in 2006 and has continued to grow, with private tuition averaging $35,000 per year.

Don’t expect this trend to change without some systemic forcing function. Recession-hit public schools and private universities greedy for federal education dollars will continue to hike fees because there is no disincentive to doing so. To the contrary, the availability of federal education loan dollars has led to a surge in education costs that mirrors the skyrocketing costs of healthcare. Eighteen-year-olds aren’t likely to turn down “free” money to attend the school of their dreams and colleges know that, cranking out fancy new recreation facilities and dorm rooms to lure in naïve freshmen.

This problem isn’t limited to undergraduate education. Many law schools are taking heat for artificially inflating their employment numbers (many top schools claim 99% employment) or outright lying about the number of alums that attain employment as lawyers (most schools count a job at McDonalds the same as a $160,000-a-year associate position). The lack of transparency is so bad that even Congress has called for the ABA to look into how schools manipulate their numbers to increase application and yield rates.

The increasing availability of Obama’s Income Based Repayment plan is certainly a step in the right direction, but it focuses on symptoms rather than addressing causes. The student loan scheme is at best difficult to maneuver and, at worst, a complete racket. However, the problems go deeper.

The idea that everyone must attend college is a mantra of the modern day rat race but it certainly isn’t anchored in reality. As baby boomers begin to retire, a sizeable chunk of the skilled labor workforce goes with them. As colleges dominate the post-high school life plan, the loss of technical schools and technical specialties will continue to drive up the cost of skilled labor.

What we need is a national discussion on higher education. College isn’t for everyone and we need to stop selling kids on six-digit loans before telling them how unnecessary their chosen major is. Individuals certainly bear the responsibility of the decisions they make, but it is the responsibility of communities and the society at large to provide transparent, complete, and honest information before the loans are disbursed, rather than selling our young minds up the indebtedness river.

Many have called the student loan crisis the next bubble that is waiting to burst. Obama and education leaders should seize this opportunity to engage in a national debate about secondary education before this particular bubble pops.

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