Student loan crisis: Obama’s Pay As You Earn plan doesn’t fix the real problem.

Colleges Should Pay a Fine When Students Default

Colleges Should Pay a Fine When Students Default

Who's winning, who's losing, and why.
June 11 2014 10:04 AM

Student Debt Isn’t the Problem. Colleges Are.

We need to make universities responsible for their students’ outcomes.

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Consider the findings of Paying for the Party, a masterful account of the many ways life at a large Midwestern flagship public university is rigged against students from working- and lower-middle-class backgrounds. Over the course of five years, the sociologists Elizabeth A. Armstrong and Laura T. Hamilton tracked a group of female students at “Midwest University,” a thinly disguised big public flagship school, starting in their freshman year. One of their most striking findings is that standard college advising consistently failed to meet the needs of students from modest backgrounds. Students from affluent backgrounds had extensive social networks at their disposal, which helped them turn degrees in “party majors” like sports communication and broadcasting or interior decorating into jobs in glamorous, or glamorous-sounding, fields. Students who didn’t have parents familiar with the ins and outs of higher education to help them navigate the system found themselves at the mercy of incompetent, indifferent, and overworked advisers who routinely led them astray.

Many of the students profiled by Armstrong and Hamilton thus wasted precious dollars, and precious years, taking courses that ultimately proved useless to them. It was this opportunity cost—the wasted time these young women might have spent learning something useful elsewhere, at a school that actually gave a damn about them—that is the real tragedy at the heart of Paying for the Party. It’s not clear that making Midwest University tuition-free would suddenly make its administrators more attentive to the needs of their students. If anything, it might ease what little pressure there is now to offer value for money.

So what can we do to address the many ways higher education is failing young Americans? A good first step would be to punish colleges that have failed their students, as Andrew P. Kelly and Alex Pollock of the American Enterprise Institute have suggested. The basic idea is that if a student defaults on her student loans, the higher education institution she attended should pay a penalty. The genius of this idea, as Kelly has explained, is that it would make colleges think twice about their lackluster advising, even if the penalty were quite small. Colleges would suddenly have an excellent reason to guide students to majors that would help them gain marketable skills. The usual objection to this notion of giving colleges more “skin in the game” is that colleges would become extremely selective to minimize the risk of default, and this in turn would deny large numbers of students the opportunity to get an education in the first place. The reality is that the vast majority of America’s higher education institutions are nonselective, and colleges that refuse to even try to educate students who need competent guidance would quickly find themselves out of business.


More broadly, we’d do well to rethink higher education from the ground up. Thinkers like Kelly and New America’s Kevin Carey often talk up the importance of breaking down the barriers to entry in higher education—of making it easier for new higher education institutions better-suited to the needs of today’s students to get up and running, and to compete with existing colleges that are failing to offer value for money.

Anya Kamenetz has gone even further in “$1 Trillion and Rising: A Plan for a $10K Degree,” a report from the think tank Third Way that offers a step-by-step roadmap for transforming public higher education. While Kamenetz appreciates the importance of lowering tuition, she emphasizes institutional reforms that would also lower the cost of high-quality instruction. Among other things, she envisions “cohort colleges” that offer students who need the most help intensive advising and instruction designed to help them meet their educational goals and short-term pop-up schools that would meet the lifelong learning needs of working students looking to learn specialized skills. Flagship schools, meanwhile, would be transformed from elitist bastions that take pride in their exclusivity to educational innovation hubs, where resources would be devoted not just to teaching students lucky enough to be on campus full time, but also commuters educated at satellite campuses throughout the state.

I get why President Obama is talking about student loans. Telling your voters that you want them to keep more of their own money is always a political winner. Just ask every Republican since Jack Kemp. And the president has, to his credit, made occasional noises about reform, most recently when he proposed a new college ratings system, an idea that the higher education lobby has correctly interpreted as a threat to its lucrative incompetence.

But he hasn’t gone far enough. It is egregious that students, parents, and taxpayers are the ones who suffer when colleges don’t do their jobs while the colleges in question are left untouched. We simply can’t let them get away with it anymore.

Reihan Salam is a columnist for Slate.