Now is the time to help the nation’s most at-risk student loan borrowers: those who face “completion crisis”

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Consider two young people with student loans. The first owes $27,000 and the second owes $7,000. When it comes to repaying the money, who is likely to face the bigger challenge?

The person with the higher debt, right? Not so fast. One more bit of information is critical: whether or not they graduated.

Borrowers who did not graduate are nearly three times as likely to default compared to peers with a degree.

In fact, while 21 percent of all federal loan borrowers owe more than $40,000 they account for only 4 percent of defaults, whereas 36 percent borrowed less than $10,000 but account for a staggering 66 percent of all defaults, according to a 2016 report from President Obama’s Council of Economic Advisors. These are borrowers who started school, but did not complete, leaving school with debt, but no degree. Our studies have shown that borrowers who don’t graduate are economically worse off than those who never attempt college.

The good news is today’s strong economy means those who borrowed for their education — whether they graduated or not — are far more likely to be current on their payments and far less likely to default. In fact, in the past three years, the percent of borrowers who are seriously past due on their payments (that is, 90 days or more delinquent) has decreased 28 percent, and the rate of borrowers entering default has declined 20 percent.

These positive trends are rarely reported, leaving most with the impression that student loan delinquency and default rates are rising.

This view, along with reporting of the significant increase in outstanding student loans — minus the context of rising college attendance and other factors — has led to a belief that most college students leave school with larger than actual debt burdens. According to new data released from the Department of Education, over 30 percent of graduating seniors in the class of 2016 did not borrow to get their bachelor’s degree and, for those who borrowed, the median balance was about $27,000. Despite this, the average debt of borrowers featured in media stories is more than three times higher at $85,000. The result of this media emphasis has been a focus by policymakers on policies and programs designed to assist borrowers with large loan balances.

Our focus must shift to include those most at risk: students who borrowed to attend college, but for any multitude of reasons were unable to obtain their degree. Well-intentioned efforts to ease the burden of student debt have largely missed helping this segment of struggling borrowers.

Left- and right-leaning think tanks Third Way and American Enterprise Institute recently called this a “completion crisis.” Just 6 out of 10 students who start a bachelor’s degree complete in six years, and even fewer minority students graduate.

The dropout rate is unacceptably high — both for the individuals who deal with the consequences and the taxpayers who provide the funds for the $90 billion in student loans made by the federal government each year.

There are practical solutions to help increase graduation rates:
  • People who borrow through the federal government need a true understanding of the costs, benefits and risks of enrolling in college. Some students arrive underprepared academically or select a field of study that may be inconsistent with tuition cost. Some also arrive with an incomplete picture of what the full cost of earning the degree will be, the amount of debt required to finance it and the affordability of the debt given their future career path. We owe it to our students to provide well-designed information upfront that drives and empowers consumers to make better-informed decisions. A good first step would require the government to provide personalized information upfront to all would-be federal borrowers.
  • Students should receive easy to understand Truth in Lending disclosures about the full cost of their loan and estimated monthly payment amount, just as we do for other consumer loan types including mortgages, auto loans and private student loans. Congressmen Luke Messer (R-Indiana) and Emanuel Cleaver (D-Missouri) have introduced bipartisan legislation to require these plain-language disclosures for federal loans too, a common-sense reform that should be enacted right away.
  • States can also play a role in improving financial literacy. In Indiana, for example, the legislature requires public colleges and universities to send students an annual letter with personalized information on the amount they have borrowed to-date. Combined with financial literacy efforts at schools, research suggests that students receiving these letters borrow less and are more likely to stay on track academically.
  • Many colleges have begun to address the “completion crisis.” The results are heartening. Eastern Connecticut State University uses data such as high school GPA or whether a student is the first in family to attend college to develop customized outreach to increase success. Early warning signs like skipping class lead to additional outreach. The university’s “Eastern in Four” program uses professional advisers, faculty advisers, and peer tutors to help all freshmen develop a four-year academic plan by the end of their first semester. Eastern has produced among the highest four-year graduation rate for African-American students. Other schools such as City University of New York, Georgia State University and University of Texas at Austin are also making a difference.

These programs and the resulting successes students have already achieved indicate that we can make great strides with focused efforts.

In recent years, federal policymakers’ focus has been to add new student loan repayment programs such as plans tied to income. These programs offer 20- to 25-year solutions that are most attractive to borrowers with higher debt amounts — who tend to be graduates with advanced degrees — but are significantly less attractive to those with smaller debt balances and no degree. We can meaningfully reduce defaults by helping more students complete college and earn their degree. There are many ways to work together now to make this goal a reality.

Jack Remondi is president and CEO of Navient, based in Wilmington, Delaware. The company services student loans for approximately 12 million customers.