Three Ways Politicians And Entrepreneurs Are Helping To Make Higher Education More Affordable

America is drowning in student-loan debt. One of these plans may be the flotation device it needs.

Photo by Mauricio alejo

Let's look at some scary numbers: total U.S. credit-card debt, $679 billion. Auto-loan debt, $737 billion. Student-loan debt? Trumping both at more than $900 billion. Since it's in nobody's interest to have Americans intimidated by the cost of college and burdened by debt after graduation, entrepreneurs and politicians alike are working to make degrees more affordable. We asked Cristian deRitis, director of consumer credit economics for Moody's Analytics, to weigh in on three emerging approaches.

1//SoFi

Short for "social finance," this San Francisco-based for-profit, hatched in 2011, connects students with alumni and investors who provide loans at a lower fixed rate than many federal loans. The creditors earn a solid return, while students get introductions and mentorship along with a cheaper loan. (SoFi takes a 1% cut.) The model isn't new—RIP, private-lending site MyRichUncle.com—but SoFi's focus on programs with high graduation rates and infrequent defaults tamps down risk. After launching at Stanford's business school, SoFi now works with MBA programs at Harvard, MIT, UPenn, and Northwestern, and is expanding to roughly 40 other colleges.
deRitis: It's a good program. One of the biggest issues with college-loan debt is that only 60% of students who start a four-year degree graduate within six years. That leaves them with debt and limited earning ability. Having alumni embedded in the program should ensure that more students succeed.

2//FixUC Plan

Independent student organization FixUC.org has proposed to the University of California board of regents a model that provides free schooling to UC undergrads, in exchange for 5% of their salary for 20 years following graduation (with exemptions for anyone earning less than $30,000, and an annual cap of $10,000 for high earners). The economics of the plan are attractive—by FixUC's estimates, tethering alumni to their alma maters could bump UC's annual revenue from $1.5 billion to $3.3 billion—but conversations are in early stages at best. "Our goal is to expand access and quality and build revenue," says David Alcocer, UC's deputy director of student financial support, "but several features of the plan limit its viability."
deRitis: Basically, the FixUC Plan would give UC an equity stake in its students. It's creative, but I worry that it could create negative loopholes: There's no way to account for undocumented income, and what do you charge tech workers who get paid largely in stock options? If they can figure out enforcement, this sounds like a reasonable trade-off, though it's functionally not that different from the federal government's income-based repayment plan.

3//Loan Forgiveness

Programs based on forgiving (read: erasing) student debt already exist but are typically available only to graduates who go into public service or the like. In April, Detroit congressman Hansen Clarke supercharged the idea when he introduced the Student Loan Forgiveness Act of 2012. It outlines a plan to, among other things, wipe the slate for debtors who put 10% of discretionary income toward loan repayment for 10 years. "Americans are demanding that their representatives in Congress take action," says Clarke, whose team has collected more than a million signatures on a petition asking for a vote on the bill. Over to you, representatives in Congress.
deRitis: Fairness is my main concern with any broad-based federal loan-forgiveness plans. You're going to have people who either never went to college or who have no debt subsidizing graduates who may be earning more than they do. If the forgiveness is more targeted—for distressed borrowers, or ones who go into public service—that helps with the fairness. Of course, if you consider student-loan debt a crisis, forgiving a lot of it will solve that.

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4 Comments

  • Degrees of Separation

    Many believe obtaining a college degree is the bridge to a successful career and other opportunities.  But with numerous college graduates currently unemployed, underemployed, and in student loan debt - many find themselves separated from the opportunities they expected. More awareness needs to be raised on this issue and that's what Degrees of Separation Awareness Campaign is doing. Check it out http://www.indiegogo.com/Degre...

  • Junkies Rising

    I think that cracking down on these for-profit schools like Kaplan and Uof Phoenix that relentlessly push people that even just look at one of those stupid school-matching websites into massive student debt would help more than any of these.  Myself, for example, was advised "not to worry about the loans" when I asked about my permanent disability and the possibility of not ever getting a job. The financial aid advisor literally said, "Don't worry about that, there are endless ways to defer payments."  How many other students get wrangled into taking on $20,000 in student load debt that they know from the very start they most likely won't be able to pay back?  The degree I got from Kaplan is useless, I learned more in my year at community college.  If I could trade the degree back for debt forgiveness, I would.  I'm embarrassed of this degree, it's packed away in a box and I rarely mention it to anyone.  And, I only went to Kaplan for ONE year but still owe $17,000/

  • Aaron Wright

    These are creative ideas to solve the problem of student debt, but they don't get at the even bigger underlying problem, which is whether college itself is even worth it. After graduating with a B.S in biology in 2010, I have not found a job in my field. I have worked retail for the past 2 years, and I am now starting a business. I do not need college to do either of those.

    I love learning as much as anyone, but even that is a bad excuse to go to college. With sites like Coursera and Open CourseWare, you can get a college education for free. Other people say networking alone makes college worthwhile. Again, I disagree. In the 3 months that I have operated my business, I have made more connections than I did in all 4 years of college, and they have been better connections (at least from a professional standpoint).

    The big problem that must be addressed is this belief that you must go to college or be a failure. Indeed, I would have more success if I just started my business 6 years ago instead of going to college.

  • perspective2

    University of California Chancellor’s
    and Provost ‘s tuition increases make it impossible to keep the promise of
    equality of opportunity: access, affordability is farther and farther out of
    reach. Self-absorbed Chancellor, Provost are outspoken for elete public UC Berkeley ‘charging Californians
    much higher’ tuition. Cal. Chancellor Birgeneau, Provost Breslauer leave an
    indelible legacy on university access, affordability.

    Cal. tuition is rising faster than costs
    at other universities. Number 1 ranked Harvard is now less costly. Birgeneau,
    Breslauer  decision to ‘charge
    Californians higher tuition’ for eletist Cal. make it  the most expensive of the expensive
    public universities!

    Birgeneau ($450,000) Breslauer ($306,000) like to blame the politicians, since
    they stopped giving them every dollar demanded. The ‘charge Californians higher’
    tuition skyrocketed fees by an average 14% per year from 2006 to 2011-12
    academic years. If Chancellor Provost had allowed fees to rise at the same rate
    of inflation over the past 10 years they would still be in reach of most middle
    income students. Breslauer Berheneau increase disparities in higher education and
    defeat the promise of equality of opportunity. An unacceptable legacy for all
    Californians.

    Additional
    funding should sunset. The sluggish economy and 10% unemployment  devistate family education savings. Simply
    asking for more taxes to fund self-absorbed Cal.senior  leadership, old inefficient higher education
    models and fund excessive faculty staff compensation, burdensome bonuses, is
    not the answer.

    UC Berkeley is to maximize access to the widest number of Californians at a
    reasonable cost: mission of diversity, equality of opportunity. Birgeneau’s
    Breslauer’s ‘charge Californians higher’ tuition denies middle income families  the transformative value of Cal.

    The California dream: keep it alive at Cal. Birgeneau resigned; fire (honorably
    retire) Provost George W Breslauer.

    Opinions?
    UC Board of Regents marsha.kelman@ucop.edu
     Calif.State Senators, Assembly members.