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What Goes Unsaid When We Talk About Student Loans

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Education Secretary Arne Duncan took a couple of field trips to Maryland last week.

During his first outing, to the University of Maryland–Baltimore County campus, he delivered a speech outlining the Department of Education’s plan for remediating what has become higher education’s damaged value proposition. On his second visit, to the Maryland Correctional Institution in Jessup, he and Attorney General Loretta Lynch announced the Obama Administration’s plan to launch a limited pilot program under which Pell Grants would be available to federal and state prisoners.

However, as is often the case that involves the highly charged debate on higher ed, what was left unsaid speaks volumes.

Secretary Duncan covered a lot of ground in his UM-BC address. He talked about his belief that “every hard-working student in this country must have a real opportunity to achieve a meaningful, affordable degree.” To help realize that goal, he wants to hold colleges and universities accountable for their academic outcomes—the extent to which students successfully complete their degrees within six years, given that nearly half of all college students fail to do so within that time.

He may have been referring to students whose applications are approved even though they aren’t “college ready” (according to a recent survey by Acheive, just 14% of college instructors stated that today’s high school graduates are adequately prepared for “what came next”), those who would be better served by vocational schools (the secretary makes no mention of these or investing in apprenticeship programs, for that matter), or whose financial circumstances are so tenuous that they are at heightened risk of dropping out for that reason alone (even though the government’s easy-money loan programs may exacerbate that situation). Nor did he spell out what “accountable” means in real dollars and cents.

Further on in the speech, Duncan talked about degrees that fall short of helping students develop financially sustaining livelihoods. There too, he didn’t mention how the ED gave up on what is arguably the most telling indicator of that failure: the cohort default rate (CDR).

The CDR tracks the payment performances of groups (“cohort”) of students whose education loans enter repayment mode (because the borrower has graduated from or left school) at the same time (the “cohort year”). Several months ago, the department decided to abandon this measure and instead take a debt-to-income approach to determine institutional culpability in this regard. Although high debt-to-income ratios may well indicate the potential for a borrower to experience financial distress, a failure to pay (i.e. default) is what’s at issue.

It also happens to be what the CDR was designed to assess.

Then there is the matter of cost, which the secretary correctly noted has more than doubled during the past 30 years (after adjusting for inflation), as has the average level of student-loan debt. But, he warned, “If we limit the discussion to cost and debt, we will have failed.”

Perhaps that’s because he did not acknowledge the enabling role the federal government has played by making available as much money as the schools can spend and which more than half of all student borrowers are unable to repay without some form of relief.

During their trip to Jessup, the secretary and the AG announced the Obama administration’s plan for expanding the Pell Grant program to benefit incarcerated Americans. As you might expect, that idea is already attracting politically motivated opposition. This despite the fact that some studies indicate educated prisoners are less likely to return to jail—which ends up saving the system more than it costs to provide that education in the first place.

What’s left unsaid, however, is that when all the money the federal government spends each year on higher education is taken into account, there is more than enough to cover the average cost of tuition for every student enrolled in a public institution (if they are attending these as in-state residents).

Finally, at neither stop did Secretary Duncan talk about addressing his department’s poor stewardship of the more than $1 trillion worth of loans that reside on the ED’s balance sheet, and on those of private-sector lenders and investors (specifically, Federal Family Education Loan program contracts).

Were it not for its exemption from regulatory oversight (that of the Consumer Financial Protection Bureau, in this instance) and from laws intended to protect consumer-borrowers from mistreatment (such as those that pertain to the collection of past-due loan payments), the secretary would have had even more to talk about.

If only he would.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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