Student Debt Crisis
The growing student debt crisis in this country is one of those intractable macro problems that are easy to ignore. It often only becomes important in the context of an individual student in front of us at the moment. The current student debt is about $1.3T and the cause of its increase in recent years is “mostly” persistent cuts in state funding for education. Student debt totals about 10% of all household debt and exceeds both credit card and auto loan debt in aggregate. It also has the highest delinquency rate of any type of household debt.
Now why do we care? The simple answer is that because it is a “crisis” and has become a political talking point, someone will propose and implement a solution. Further, we all work in the industry that has assisted the students in acquiring that debt and as a consequence, the “solution” will likely have an impact on all of us and our future financial wellbeing. We need to have solutions to this crisis that work and that we can tolerate. I am not sure that I have a solution or solutions but most certainly, I will be asked to comment soon.
Looking for a solution, I found that Robert Reich and many others have written extensively on this topic and I recently ran across a short video he produced proposing four “simple” solutions to this crisis (see video at Reich or https://www.youtube.com/watch?v=WILR0IxzcxE). Some of these solutions involve our students after graduation but others have a more direct impact on education and our lives. Many of these solutions have some pretty obvious indirect impacts that we would need to mitigate. Reich’s solutions include:
- Allow students to refinance their debt to take advantage of the low rates that business and some households currently receive. Many of us with home loans know the advantage of paying a low interest rate so this sounds great. It seems, however, that the current low rates are available to those that are very low credit risks or, in the case of homeowners, have collateral to back up the loan. We need to ask, who is likely to be able to take advantage of these lower rates if we extend them to students? It would likely be those students with personal or family financial assets sufficient to reduce their credit risk. Less affluent students will find it hard to qualify for this refinancing thus making the benefit less valuable to those with the greatest need. At best only a partial solution.
- Enable students with extreme debt to declare bankruptcy and start over. As Reich says, this is what Donald Trump and many others in business can do and have done so why not extend the opportunity to students. Again an attractive solution on the surface. Two considerations, however. First, the added risk of personal bankruptcy would most likely reduce the supply of student loan funds at least from the private sector. As a class of household debt, student loans would become much more risky. This outcome would depend on the specifics of implementation such as what is the definition of “extreme” debt and how would you guard against the moral hazard effect on the accumulation of debt. Again, the prospect of bankruptcy would likely make getting student loans more difficult for those with the greatest need.
- Tie debt payments to student earnings and extend the time for repayment to 20 years. The linking of debt repayment to income has appeal because it enables students to pursue careers based on their interest and passion and not necessarily income potential. Some positions are difficult to fill because they don’t pay enough to enable debt laden students from paying what they owe. This option has great potential and may enable your students to pursue those career paths that are less financially attractive thus changing emphasis in our programs.
- Restore the public good nature of education such that students can get a good education from a public institution at a low cost. This option would have government restore funding to higher education to limit the cost of education to all. Great concept and probably good for our AUPHA members generally but faces challenges politically. The historic commitment to education has eroded as Reich demonstrates. Like many of you of a certain age, I was able to make enough money working to pay for my college education. None of my children had any hope of making enough money to pay for their education even in state schools.
It seems to me that AUPHA should support the last option. The benefits of having an educated populace and workforce enabled our country to grow and prosper historically. That commitment has been reduced such that only the relatively affluent can afford college education. I believe that the implications for our kids’ and grandkids’ future are negative if this lack of funding continues. The world is getting more complex and a solid education may be more important for our future than in the past. More specifically, however, what does the student debt crisis and potential solutions mean for AUPHA and our members? It seems that we have three direct impacts of the pressure to minimize our students’ debt. First, to pay off debt, we see students pursuing relatively higher paying jobs in the larger and more successful institutions. Not that these are bad places or bad career options but many institutions with a less attractive payer mix need our graduates as much or more than the relatively affluent. There are scores of options in urban safety net hospitals and clinics, free clinics, public health clinics, rural hospitals and clinics not to mention options in less developed countries. More importantly, many of our students arrive with a passion to help others in need and may often bend that career direction because of debt. Second, we are pressured to concentrate our efforts on assuring our students have the necessary skills to operate effectively in their first job. Because of debt, their primary concern is often that first job. We also have an obligation to provide the competencies to enable students to grow through their careers to their last job. The mix represents a delicate balance for all of us and pressure from student debt surely pushes us toward an emphasis on the competencies for the first job. Finally, high student debt has the potential to undue efforts to increase diversity in healthcare management. AUPHA has for years had increasing diversity as a goal and had only limited success up to now. High cost and the potential for debt will not help that effort.
We have an obligation to the “public good” as do all other health practitioners. We cannot let external factors such as massive student debt alter what is best for the country and for our students in both the short and the long run. Solutions to the student debt will continue to challenge all levels of government and your institutions. We need to be a part of the solution.