WM: They’re dropouts?
PC: Non graduates. This means they don’t even have the economic benefits of the education.
WM: Right, they just have debt.
PC: Robert Shireman once said that federal student aid programs are a “bridge” for people to get from one part of life to the next part of life. Federal loans are a bridge, and if something happens on that bridge that affects them the rest of their lives, there’s a liability to help them solve that problem. We forget to think of these people because they’re recipients when they take the loan. But they’re also consumers with rights and obligations yet without the experience they need to manage their debt properly.
If you look at the for-profit school data, and the community college data, you’ll see that the percentage of borrowers connected with these institutions who use the debt management services, forbearances and so on, is very small. Those people go right from getting the loan, dropping out of school, and defaulting with nothing in between. Those are the people with the least information, and the least support systems. They tend to be more marginal students.
WM: Well don’t they also make the least money?
PC: Well that’s true. But it has nothing to do with money; there are remedies but if you look at the process they went through to get to default, there is no process: they don’t do anything, they go right to default.
WM: Right, they never got to the point where they were trying to make payments on their limited incomes.
PC: Obama has a policy: he wants to increase education attainment to 20 million, which would be the highest rate in the world. It’s a worthy thing. But you’ve got to be able to make it so that people are encouraged to try. If trying and failing means getting stuck with a stupid loan for the rest of your life, it’s problematic.
WM: The population who goes to school and doesn’t graduate, if you identify them beforehand, wouldn’t you just be recommending that they not go to school at all?
PC: No. Some people may get into the wrong program. Think of it this way - you start a program, and you realize: “I had dreams of becoming a doctor,” but you get in there and realize, “I can’t even do Algebra,” and you fail. But perhaps you could be a pretty good nurse. But by defaulting on your student loan, you can’t go back to school, because you can’t get aid. You’re denied the benefit of it.
And counseling is important. But you can work around the problem. You can focus on improving completion rates. But you’d still have people graduating with debt that they need to have the right information for. So we need to identify this as an individual consumer problem, one borrower at a time. It’s like doing preventative medicine. And like preventative medicine, it’s expensive. [Image courtesy American Student Assistance]
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