How to solve the student debt crisis? A reverse retreat

Public higher education has been America’s great engine of mobility and more: it spurs innovation and is a boon to low- and middle-income students knocking on the door of the knowledge economy. The growing student debt crisis, however, is undermining the mission of public colleges and closing the doors of opportunity to millions. We need a solution to this crisis: Replace the current lending model with one similar to how pensions work today.

No other country in the world has as much variation in public higher education as we do. And in every niche of this vast ecology, public universities are innovating. As the rest of the world continues to emulate the American model of public higher education — for its mind-boggling array of options, flexibility, and pathways to second chances — our own system is in crisis. While many institutions in society are increasingly viewed with suspicion, that is not what is killing higher education.

The biggest threat to public higher education in the United States is student debt. With $1.7 trillion in student loans, some 45 million Americans carry a crushing burden for many, especially rural, first-generation and urban students of color.

Washington appears ready to forgive most or at least some student loans. What happens next will determine how higher education will be funded in the future. Can we rephrase the problem so that it avoids the tired old forgiveness-verses-unforgiveness debate? Can we reduce student reimbursements so the burden goes away? We think so.

Our institutions, the University of Massachusetts Boston and the Hildreth Institute, are developing a new model that would build on the principles of the retirement system to reduce student debt burdens without adding to the country’s debt load.

Americans pay their retirement throughout their lives. The same model could be adapted to payment for higher education. We could reduce monthly payments to around $50 from $370 on the average debt load of $35,000 — and much less on the smaller amounts that community college students typically borrow. This would be accomplished by adopting two features of pensions: lifetime payments and zero interest (which is about a third of what students have to pay under the current system).

Think of it as a reverse pension. Instead of receiving retirement money at old age, students would receive government support while in college. When they graduated and got a job, they would start paying it back in small amounts through payroll deductions. Employers could also contribute, further reducing student payments.

This model could be administered through the Social Security Administration or as a separate program. Much like Social Security does, payments made by students could be invested in treasury bonds, creating a revolving fund for continued investment in students. Today, student repayments go into the government’s general fund, which forces more money to be allocated for new loans each year.

Clearly, students would benefit, but so would taxpayers and colleges, as there would no longer be a need for resource-sapping forgiveness plans.

For public colleges and universities, this system would provide a secure source of funding at a time when changing demographics are already creating financial challenges. The student loan system – battered by defaults, non-payments and forgiveness – shows clear signs of breakdown. This would create another existential problem for public schools, which receive more than 50% of their tuition from government payments via student loans.

Marcelo Suárez-Orozco is chancellor of the University of Massachusetts in Boston. His next volume, “The Education Global Compact,” will be published by Columbia University Press next January.

Robert Hildreth is a former International Monetary Fund economist whose professional job was to restructure South American debt and market sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.