In responding to the student debt crisis, Brian A. Sponsler, Ed.D., director of postsecondary and workforce development at Education Commission of the States, encourages state leaders to keep state policy focused on increasing college attainment, not just relieving loan repayment pain for those who’ve already attained.
Student debt has received significant attention of late. Policy think tanks, academics and public policymakers have been wrestling with defining and responding to the impacts of accumulated student debt on individuals and communities. One conventional narrative is that too much student debt has a drag on economic activity by consuming large portions of household income; income that could otherwise be spent on activities that support local economic growth.
And debt levels in general terms do appear to be disturbingly high. Americans owe upwards of 1.3 trillion dollars on student loans. At least 50 million people in the U.S. hold some outstanding student debt, with average amounts trending toward $30,000.
Debt held by education non-completers – those for whom spells of enrollment did not end in a degree – is particularly troublesome. These individuals are less likely to find good paying jobs and therefore have restricted earnings. Borrowers who do not complete are also four times more likely than borrowers who graduated to default on their loans.
Yet despite the difficultly education non-completers demonstrate in managing student debt, conversations about state level policy interventions to address student debt have largely ignored this pool of students. In fact, discussion (here, here and here) has by-in-large honed in on a specific policy response: refinancing outstanding student debt.
At their core, refinancing proposals seek to reduce interest rates on outstanding student debt. These proposals suggest a reduction in interest rates leads to lower monthly payments, providing relief to borrowers and freeing up income that may be spent in ways more conducive to supporting local economies.
Yet at a time when the evidence suggests that it is not degree holders or those with the highest amounts of outstanding student debt who struggle the most with loan repayment, why are we largely discussing refinancing policies that provide debt relief to degree holders? The answer may lay in-part that state refinancing proposals look and feel a lot like another popular higher education financial aid policy – merit aid. Similarities can be seen in three areas.
As is the case with merit aid, the public benefits of student loan refinancing fall disproportionally to those with higher incomes and greater levels of educational attainment; individuals typically holding more debt and therefore reaping greater real-dollar relief than for those who have smaller loan amounts or never accumulated debt at all.
Also, like merit aid, state refinancing policy implicitly favors those who fit a narrative of deserving public assistance – people who have done the ‘right thing’ and successfully prepared for college, or in the case of loan refinance programs, have successfully completed a degree. Rewarding desirable education behaviors is a positive, but it comes with an opportunity cost, as the third similarity hints at.
Finally, as is the case with merit aid, loan refinance policy directs state resources toward policy options that aren’t designed to generate additional college degrees. When assessing the feasibility of debt refinancing proposals in their state, leaders should keep this reality top of mind. At a time when states are setting aggressive degree attainment goals, policy leaders should consider the opportunity costs of decreasing the future debt payments associated with an education already attained, as opposed to increasing educational attainment.
Student debt loan repayment is a challenge for many. The sheer amount of outstanding student debt is appropriately attention grabbing. However, as state leaders attempt to design appropriate policy responses, they need to be mindful of their own state educational attainment goals and make sure they aren’t indebting the future of those efforts.
