Tuesday, May 24, 2016

Limiting Loans?

Apparently, Sen. Lamar Alexander plans to introduce amendments to the Higher Education Act that, if passed, would allow colleges to set lower loan limits for certain students.  The idea is to reduce the default rate.

Setting aside whether it would pass or not, I’m having a hard time seeing this helping.  At most, it might sacrifice a forest for a tree, improving one indicator by freezing out thousands of students.  And that’s the optimistic scenario.

Unlike most of his colleges, Senator Alexander actually has experience in higher education.  I hope he remembers enough from that time to recognize what I’m saying here.

The primary driver of defaults is…


Dropping out.  It’s NOT high balances.  Students with balances of $50,000 are statistically likelier to pay them off than students with balances of $5,000.  That’s because, with scattered exceptions, the ones with the high balances are graduates.  By and large, graduates earn enough to pay back their loans.  (I’m confining my argument to undergraduate degrees.  Grad school is another issue entirely.)  Despite occasional news stories, the issue isn’t that students are living high on the hog in college.  The issue is that too many students aren’t finishing college.

Why aren’t they?

Several reasons, but they tend to reinforce each other.  Some of it boils down to poor academic preparation.  Some is personal life distraction.  But a lot of it is economic.  Students who work thirty or forty hours a week for pay -- when they can get that many hours -- often find that they struggle to keep up the pace.  Loans are a way -- not the best way, but a way -- to reduce the amount of work for pay they have to do so they can study.

The resource issues play out in a host of ways.  Cars that don’t start or that need expensive repairs, precarious housing, meal-skipping, and refusals to buy books are some of the more common ones.  Last semester a professor here used OER resources instead of commercial textbooks in two sections of a class she has taught many times before, and noticed that the pass rate went up by ten points.  The major difference was that when the book was free, everyone got it from the beginning.  That meant they didn’t fall behind.

If we want to avoid defaults, reducing access to loans is likely to lead to students working even more hours for pay.  That will lead to more dropouts, and therefore to more defaults.  Instead, we should reduce the _need_ to borrow.  Students don’t borrow recreationally.  They borrow because they need the money.  Reduce the need, and you can reduce the borrowing.

That could be accomplished through increased aid to colleges so they could hold down or reduce tuition.  It could work through better pay for work-study jobs on campus, which have been shown to improve student success.  It could work through a conscious national push for OER, to reduce textbook costs.  It could work through streamlined developmental sequences, to reduce time to completion.  

But reducing access to loans isn’t the answer.  It’s attacking the symptom.  Attack the need to borrow, by reducing costs and improving completion rates.  Do that, and the loans will take care of themselves.