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We’ve now turned the corner in this series on higher education policy. Are you still with me? In this post, I invite you to consider my seventh of twelve propositions relative to national higher education policy.

Higher education policy proposition #7:

Government policy should dis-incentivize student debt and prevent servitude to educational debt.

Incentivized borrowing – colleges and students lose

It seems to me the entire system of college financial aid “packaging” merits serious re-examination. Notwithstanding my previous assertion that college loans may represent a reasonable and responsible way of investing toward the lifelong benefits of a college education, in my opinion, the current system is fraught with too many unchecked incentives to borrow.

Colleges typically bundle student loans into financial aid “packaging” to make up any gap between college costs and all other sources of aid. Enrollment counselors and academic advisors have a built-in incentive to encourage prospective students to take on debt, notwithstanding the long-term consequences.

Abuses abound

Subsidized interest rates and deferred repayment inclines students to borrow as much as they can. And for what expenses are students borrowing? Federal policy limits use of loans to “education-related expenses” included in an institution’s published “cost of attendance” [aka student budget]. But the word on the street—attested by recent research studies—reveals that as many as a third of student borrowers intend to spend some of their loan proceeds on Spring Break vacations. This is bad for students and bad for the government, but reining in abuse appears difficult. Better not to lend in the first place.


Government appropriation, moreover, inevitably takes on the character of entitlement. Unlike consumer credit, which requires at least a semblance of underwriting, government student loans are not granted based on one’s capacity to repay but on the calculated gap between college costs and available family resources.

Some years ago, my institution’s board of trustees expressed growing alarm as they observed the escalation of student indebtedness. They reasoned that our graduates’ educational indebtedness would force them to postpone or abandon aspirations to serve churches, mission agencies, and other ministry non-profits. They instructed us to place a cap on student borrowing regardless of FAFSA-calculated eligibility.

Nothing doing. We learned that to do so was regarded by the government as discriminatory toward needy students. We were therefore forbidden to deny a student the opportunity to access government-subsidized loans for which they were eligible.

When helping hurts

Okay, I get it. I am all in favor of ensuring socially and economically marginalized students access to postsecondary education. But our society is not lifting anyone from poverty by consigning them to a lifetime of indentured servitude to college debt.

The entitlement mentality applied to student borrowing has led us to new levels of hypocrisy. On the one hand, we peddle student loans as the antidote to discriminatory disenfranchisement and on the other express outrage at graduates’ (not to mention non-graduates) crippling repayment-to-earnings burdens and default rates. So, we mandate sham “debt counseling” by enrollment professionals who are pressured to meet enrollment targets. What a system!

Grants, not loans

If it were up to me, there would be no government educational loan programs. It would be both more fiscally efficient and socially just if we would expand government grants to the neediest students and allow other students and families to access credit subject to appropriate credit-worthiness underwriting at market rates.

Students lose, so who wins?

In my next post, I will address the dirty little secret of how the government profits from student borrowing. Stay tuned …


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