Time to Think Outside the box- Student Debt Relief

Hildreth Institute founder Bob Hildreth recently published a series of articles in The Hill, making a comprehensive case for the reform of college financing and student debt. As the federal pause on student debt repayments, known as ‘ administrative forbearance,’ shows millions of students what a life without debt would be like, Bob highlights several issues that must be considered amid the national debate over student debt cancellation and free public college. While both policies are urgently needed, we know that cancellation of some existing debt and the establishment of free community college, policies supported by the Biden Administration and Democrats in Congress with a strong likelihood of success, won’t be enough to fix the problems with the current college financing system. Without reform, today’s students will begin amassing debt, leading to another cycle of indebtedness and demands for debt cancellation.Together, Bob’s articles make the case that the current student loan system is broken beyond repair, and that it’s time for the students, parents, and other debt-holders who are paying the price to stand up and fight for a more equitable system. They represent a rallying cry for structural change, and lay out a series of reforms that would transform the current student loan system, in which colleges have all the power, into a college financing system where students and their families have the ability to call the shots.

In “The time is right to restructure student debt,” Bob outlines the case for restructuring student debt before the end of student loan forbearance, warning that “the alternative of restarting payments [without comprehensive reform] could lead to a general collapse with defaults sky rocketing.” A former International Monetary Fund economist whose professional work involved restructuring South American debt and marketing sovereign debt loans, Bob uses his experience to explain how student debt must be managed like other forms of debt that are often restructured, writing:“The dual goal of restructurings is to relieve the burdens of past debt while building consensus around future finance...It’s odd that student debt restructuring has not already occurred since half the borrowers had stopped paying even before the suspension. Only about half (52 percent) of direct federal loan debt was in repayment. Deferments, delinquencies, forbearance and outright forgiveness slapped together in a hodgepodge of policies over 50 years have gutted much of student debt. A restructuring is needed simply to clean up the mess.”

In “How to solve the student debt crisis? A reverse pension,” written with UMass Boston Chancellor Marcelo Suárez-Orozco, Bob argues that debt restructuring must be followed by comprehensive reform of America’s college financing system. Bob and Marcelo present an innovative idea: replacing the student loan system with a “new model that would draw on the principles of the pension system to lower students’ debt burden without adding to the nation’s debt.” They outline how adopting two key characteristics of pension systems, lifetime payments and zero interest, could shrink the burden of monthly student loan payments that are holding borrowers back, without requiring significant taxpayer support. Bob and Marcelo write:“We could reduce monthly payments to about $50 from $370 on the average debt load of $35,000 — and much less on the smaller amounts that community college students typically borrow…Think of it as a reverse pension. Instead of receiving retirement money in old age, students would receive government support during college. When they graduate and get jobs, they would begin to pay it back in small amounts through payroll deductions. Employers could contribute as well, reducing student payments further.”

In “Why American employers should help pay for student debt,” Bob calls for employers to play a bigger role in both funding education and having a voice in how colleges operate. Citing the benefits that companies receive from a well-educated workforce, he raises the idea of making student loan repayment benefits, which were created last year through the CARES Act, mandatory for all businesses. He writes:“Companies match what their employees pay into Social Security to support the pension system. Why not the education system?...It would be in all companies’ self-interest to have colleges bring down tuition and fees, which would directly benefit students and their families. Paying for college would give companies a greater incentive to make sure colleges are teaching students what their future workers need to know...American companies large and small are direct beneficiaries of the American educational system. We need both their money and their advice to reform it.”

In “To lower tuition, empower the family with direct funds,” Bob turns from employers to the family, making the case that “nothing would empower [families] more than if the government sent its financial aid (grants and loans) directly to them rather than to colleges as it does now.” Drawing on his expertise as the founder of college savings and financial education nonprofit Inversant, Bob argues that sending financial aid directly to families through 529 tax-advantaged college savings accounts would give more power to families when negotiating with colleges, and make financial aid easier to understand for students and their families. He writes:“Students and their families should demand — show me the money...Hard cash is a lot easier to understand than a financial aid letter. Families would be able to concretely measure the money in their account against the invoice from the college...Sending aid directly to parents is really a logistical change that could work with other reforms such as free college. After all, government grants and loans will not disappear. In the interests of equality and equity all reforms should move in the direction of empowering families.”

In “Paying for college: Too few scholarships support excellence — we can change that,” Bob brings the previous two pieces together, calling for businesses, foundations and research universities to work together with the federal government to create national merit scholarships that go directly to students and help meet national goals. He explains that “federal grants and loans serve to create an equitable playing field while merit scholarships reward excellence on the field itself. Both support each other, but they are distinct approaches and should be pursued on parallel tracks.” While pointing to research showing that 97 percent of scholarship recipients receive $2,500 or less, Bob writes:“Bake sales, church fairs and other traditional forms of fundraising for scholarships can no longer keep pace with the sharp rise in the cost of attending college...National scholarships offer greater potential for expansion and change. They have the ability to provide billions in aid for national goals such as STEM, civic engagement, vocational training and more...At present the National Science Foundation runs a $100 million program for STEM scholarships for low-income students. Why not turn this into a $100 billion scholarship program over five years funded with public funds and private gifts?”

Finally, in “Nothing to lose but your debt: What students can learn from labor organizers,” Bob brings it all together in an animated call for action, writing on Labor Day that if students and their families “look to the history of the labor movement in this country, they could see how to demand change, how to be activists and not just supplicants.” Arguing that colleges react to bad press due to their need to recruit a new class of students every year, Bob calls for students and their families to use their leverage to make demands of colleges. He also calls for the government to formally recognize the associations they form and make colleges negotiate with them. He writes:“Until workers unified, they lacked the power to confront employers...It is past time for students, parents and graduates with debt to take matters into their own hands...They should not expect to be taken seriously at first by college administrators...If students and parents, remain silent the costs of higher education will jump again, forcing yet another restructuring. They must fight. They have nothing to lose but their debt.”Please let us know what you think of Bob’s ideas, and share them if you agree! It will take all of us working together to win a better higher education system in America.