New Reports Propose Plans to Simplify Student Loan System
NEW YORK, NY — While sweeping changes to the U.S. student loan system are attractive on the campaign trail, there are also more manageable opportunities for change that could solve the most pressing problems without the high price tag. In a series of reports published by the Manhattan Institute, authors in its “Solutions from Beyond the Beltway” series explore innovative approaches to higher education finance, proposing ways to simplify access and transparency in the student loan system.
Setting the stage, Duke University’s Jimmie Lenz evaluates the health of the student loan portfolio as it stands today. Its balance exceeds $1.4 trillion, with significant levels of delinquency. Fewer than 40% of student loans are fully repaid, while new refinancing companies target the lowest-risk borrowers, leaving behind a higher-risk, lower-performing portfolio.
One way to reduce defaults is to tie payments to income, but authors Katerina Nikalexi (European Central Bank) and Constantine Yannelis (University of Chicago-Booth) find that few graduates take advantage of a federal program that does just that. The program, which keeps monthly payments affordable, is underutilized because its application process is unnecessarily complex—while in other countries like the U.K. and Australia, it is automatic. The simple, low-cost policy change of a streamlined, online application could substantially reduce student loan defaults and reduce the monthly burden on borrowers.
Striking at the root of the problem, Campus Logic’s Carlo Salerno argues for improving price transparency in higher education. College financing today is largely opaque, with students and parents unaware of what the total price will be. To help them make more thoughtful choices, Salerno suggests three reforms: 1. Give students a single, up-front, total price for their degree; 2. Separate out, and separately finance, cost-of-living and direct training expenses; and 3. Repackage college comparison data in ways that consumers are more likely to understand, and then leverage it.
Read Nikalexi and Yannelis’s report here.
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