A simple new tool to tackle the student debt crisis

Former FDIC Chairperson Sheila Bair serves as Senior Advisor to the Peter G. Peterson Foundation for Student Debt Smarter.

Several years ago, after spending most of my career as a financial regulator, I became president of a small liberal arts college. One of my goals in taking on this position was to find innovative ways to reduce students’ reliance on loans to pay for their education in light of soaring student debt levels plaguing the country. During my first week, I found myself in a very confused conversation with our director of admissions.

He kept telling me about the amount of “financial aid” given to our students, while I asked him about the size of their debt. After 15 minutes of conversation, I finally realized that in the world of higher education, student loans were called “financial aid”. And therein lies the root of the student debt problem. It highlights the critical need for a transparent and free public resource to show individuals what it means to them to borrow from the federal government.

Federal student loans, which make up 92% of the $1.6 trillion outstanding debt balance, have long been promoted or misunderstood as a government gift — a benefit to be taken full advantage of, not an obligation. contract that will impose a burden on borrowers. financial future. Although disclosures have improved in recent years, much of the information provided to students continues to focus on the extent to which they box borrow, not how much they should to borrow. And clearly, too many students are borrowing more than they can handle. Unfortunately, according to a recent article by the Bipartisan Policy Center, 40% of recent graduates are unable to repay their principal of at least one dollar within three years of graduation. Reimbursement rates are much worse for those who do not complete their studies.

Fortunately, the nonpartisan Peter G. Peterson Foundation is trying to address this issue by launching Student Debt Smarter, a one-stop resource and affordability calculator that helps prospective students better understand how much debt will be affordable to them. before any borrowing decision.

By providing four easy entries – college, major, year of enrollment, and post-graduation location – users can get a personalized assessment of the maximum amount they can comfortably borrow based on their expected income and living expenses. Young people don’t need a “financial aid” offer in hand to use the calculator, nor do they need to answer invasive questions about their family’s wealth. They only need their ideas and aspirations for the future in terms of where they could go to school, what they could study and where they could live when they would graduate. They can analyze as many different scenarios as they want and see how changing variables affect the affordability calculation. The calculator is designed for students to use before applying to college to help them evaluate potential schools and majors, as well as the affordability of financial aid offers once they receive them. It offers much-needed simplicity and transparency in a decision-making process that is too complex for college and professional studies.

The calculator is unique in that it uses the latest salary data from the College Scorecard and leverages economic outlook data from Moody’s Analytics to help forecast the impact economic conditions will have on graduate incomes and expenses. And its use is completely free. It is important to note that Student Debt Smarter does NOT ask for personal information and will NOT sell user data to college marketing companies, as is the case with many other tools found on the internet.

Students are taking on more and more debt, with total debt rising from $642 billion in 2007 to $1.566 billion in 2020. A universal “payment pause” on student debt payments, imposed two years ago years in response to the COVID-19 pandemic, policymakers continue to question the merits of loan cancellation and other reforms. Whatever the outcome of these ongoing political debates, we must ensure that future student borrowers do not end up in the same financial situation as so many borrowers today who endure the stress and uncertainty of having to much more than they can reasonably be expected to repay. . The Student Debt Smarter Calculator will help them navigate the system as it exists and avoid this fate.

As a former banking regulator, I have too often seen the trauma and heartbreak of debt-burdened individuals and families. As a former college and university president, I’ve seen too many times how students are encouraged to borrow to pay for their college education, then later struggle with loan repayment obligations they didn’t understand. not entirely. Most college degrees lead to increased income, and borrowing to pay for them can be smart – within reason. Unfortunately, for many borrowers, the financial benefits of their education have been more than offset by the decades-long repayment obligations that limit their budgets and hamper their ability to save and build wealth.

Many systemic challenges in higher education need to be addressed, including cost, access, equity, and competency-based learning. Student Debt Smarter aims one aspect by empowering individual borrowers to make smart college payment choices, so they can keep more of their hard-earned money and take advantage of greater financial opportunities and freedom in their post-graduate adult life.

Robert P. Matthews