Editorial: A Different Debt Crisis

An optimist would say that a crisis is just an opportunity in disguise. If so, crisis-ridden America is indeed a land of opportunity. Take, for example, access to higher education.

The ever-rising price of college is now a big barrier to social mobility, affecting the country’s economic competitiveness and productivity, to say nothing of the financial strain it puts on students and families. Dropout rates are startlingly high, especially among the poor and working class, in large part because tuition costs are too high and aid is too little. Among first-time, full-time freshmen, fewer than two-thirds ultimately graduate. Those who do manage to attain degrees often are burdened with debt. Student-loan default rates just reached a 20-year high.

In New Hampshire, students owe more than their peers in any other state. The Concord Monitor reported last week that the average debt load of New Hampshire students who graduated in 2011 was $32,440 and that 75 percent of the graduates had outstanding student loans — a consequence of insufficient funding for the state’s relatively small public university system, high tuitions and other factors. Vermont students aren’t much better off: The average debt load in 2011 was $28,273, with 63 percent of graduates owing money.

The ramifications of so much accumulated debt — in total, U.S. student borrowers owe more than $1 trillion — ripple throughout the society. Lawmakers are questioning what taxpayers are getting in return for a record level of federal investment in student aid. At the same time, taxpayers are questioning, perhaps for the first time in American history, the value of a college education, once believed to be an open road to personal and economic advancement.

In this crisis, there may be opportunity, however. The Higher Education Act is up for reauthorization next year; that is, Congress has to renew and update the law that, among other things, governs the massive loan and grant programs that make college and university attendance possible for most post-secondary students. It’s an occasion to establish more sensible rules for student loans and a more effective grant program.

First, lawmakers should consolidate the confusing array of federal student aid programs and simplify the process by which students apply for assistance. The application forms, like so many government enrollment forms, are daunting and difficult to fill out. Public information and counseling about payment options are lacking in both rural and inner-city high schools. Many poor students don’t know there’s aid available and thus assume college is out of reach.

Second, and more important, the Pell Grant program should be restored to what it was when originally conceived in 1972. Pell Grants, targeted to low-income students, are the bedrock of federal aid. But the money allocated hasn’t kept up with spiraling tuitions. The maximum Pell Grant, currently less than $6,000 a year, has to increase in order to expand its purchasing power. Two-year public colleges charge on average $10,500 a year for tuition, room and board, and public four-year colleges cost almost $18,000.

Furthermore, Congress should make the Pell program an entitlement, so that funds aren’t hostage to the politically charged annual appropriations process. If the word entitlement scares you, there are ways to offset the budgetary impact of guaranteed grant funding — including adjusting tuition tax breaks, which now mainly benefit upper-income taxpayers, to make them less regressive.

Of course, fixing federal student aid is just a partial solution to a larger problem. Colleges need to rein in tuition (which is linked to the easy availability of federal loans), and more institutions have to offer aid based on need, not merit. As Philip Hanlon, the new president of Dartmouth said last month in his inaugural address: “The historic funding model for colleges and universities — where too often the cost of attendance grew at rates significantly above inflation — that model is unsustainable. It’s our responsibility, along with every college and university in this land, to operate efficiently and effectively and assure access to all students, regardless of their financial circumstances. We owe it to them to meet this challenge.”

An unsustainable funding model means an unsustainable higher education sector, and that means disaster for a country whose colleges and universities were once the envy of the world.