Suddenly, and finally, everywhere we turn somebody is talking about the student debt disaster. Headlines scream it. The presidential campaigns are beginning to seriously talk about it. Congress is starting to focus on it, well….as only Congress does. Last week, once again demonstrating its ability to turn a simple box into a Rubik's Cube, in two separate votes a majority of Democrats and Republicans rejected each other's proposals to extend the low 3.4% rate on many student loans that expires in July.
While the extension would help a lot of struggling Americans, it is little more than trying to suspend a pup tent over a crater. It's time to stop applying Band-Aids to this gaping hole in the body politic. One meaningful solution is a new National Service Corps.
Our banking culture has coaxed the last few generations of students into a false sense of security around the affordability of a college education. A new caste system emerged with the majority of our future workforces willingly entering into indentured scholarship to get a shot at the American dream.
With more dough loosened up via Federal guarantees, tuition rose in an institutional money grab that, even adjusted for inflation, is insane. For-profit colleges pushed loans that rivaled the marketing efforts of reverse mortgages and penny stocks. From 1978 to 2008, the cost of college education increased at more than triple the rate of inflation. Meanwhile, government aid to institutions of higher learning has nosedived in recent years.
The system of higher education in America is broken. That much is certain. But how could a National Service Corps fix this very complicated problem? The mandate is daunting: end the student loan crisis by shining a light on the dangers of skyrocketing student loan burdens while providing a framework to exert downward pressure on the cost of tuition with a workable alternative.
It starts with a change in mentality. People need to stop thinking of college as something they borrow for, and start thinking of it as something they work and save for. A National Service Corps could be the catalyst we need. The G.I. Bill worked in post-World War II America, in part because tuitions were so much more reasonable then, but also because people worked for it. I imagine an NSC that is part employment agency/part vehicle for personal growth and contributing to society.
The National Service Corps would be an umbrella organization that routes people to areas of service that best suits their personal interests and skill sets. People could serve before, during or after college. It would not be mandatory, but it should provide enough incentive for people to want to do it. For roughly each year of service, the NSC would provide participants with the necessary funds to cover one year of tuition, room, board and fees at any public university, or comparably priced trade school (in addition to a modest salary). The amount could also be applied to the tuition at more expensive private universities, though I'd like to see the private universities give NSC participants a tuition break. If you don't participate in National Service, and attend college right out of high school, it is appropriate for you to pay more, in order to keep tuition manageable for students receiving NSC subsidies.
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In terms of the types of service people could do. I envision the following:
• Military: Since members of the military risk the most, I think they should get a full ride after just three years of service.
• Philanthropic: The NSC should place people in organizations like the Peace Corps, AmeriCorps, and other service oriented entities.
• Public Service: The NSC should place people in roles that support the construction and maintenance of American infrastructure and communities. Law enforcement. Firefighters. Construction workers. National Park employees.
• Placing these individuals would drastically alter what it means to work in the public sector, but it's doable. Just as all government agencies must allocate a certain percentage of their private-sector contracts to minority-owned enterprises, participating agencies would be required to draw a set percentage of workers (no matter the skill level) from the NSC.
Essentially, these are real jobs for lower-than-typical pay in exchange for college tuition so they are competitive. Participants are able to replace benefits normally associated with such jobs–such as pension–with tuition credits. Job security, advancement and pay are merit based.
But the devil is in the details, and there are a lot more details to cover. Could the NSC be part of the Department of Labor, or would another agency be better? Can this be funded entirely (or to a large degree) by merging existing program budgets as well as position set-asides in various federal, state and local government agencies? And how can we help students make prudent decisions about what and where to study?
In securities law, brokers have to sell investments that are suitable to the financial circumstances and experience of their customers. This means not selling highly speculative growth stocks to widowers living on modest fixed incomes. The NSC would work in a similar way, requiring school guidance counselors to address the suitability of a prospective borrower's choice of college and curriculum, in terms of their academic abilities, financial standing, and the likelihood that a loan will be repaid should one be necessary.
Choices would not be dictated by these reports. The purpose is to ensure that everyone who seeks financial assistance, whether it's via a student loan or the National Service Corps, has at least talked to a professional about that choice.
[Related Article: Crowdsourcing the Student Loan Mess]
I realize that this will be somewhat controversial since there is serious talk about whether most guidance counselors have the chops or the bandwidth given the many tasks and distractions they face each and every day. In other words, we'd need lots more guidance counselors, and they'd have to provide real guidance.
Furthermore, the Great Recession of 2008 was caused by a woeful lack of financial literacy. The centerpiece of the Dodd-Frank Act is the Consumer Financial Protection Bureau. One of its core missions is to help Americans learn something about the intentionally complicated financial transactions they are tricked into by savvy bankers.
A similar initiative should exist to teach kids about the loan they will have to live with for most of their lives. The material offered would require disclosures from loan providers and schools–in plain English–so there could be no mistake as to just how burdensome the prospective student's plan is, or will become, over time.
In coming columns I will address ways to help bring down the cost of tuition (like borrowing limits on "per-credit" fees) and appropriate changes to the bankruptcy law that would create a less draconian approach to life with student debt.
Education is the life-blood of a civilization, and excessive debt is like cancer. We must rethink our approach not only to the student loan problem, but also to 21st-century education in America. The NSC and a new approach to the legislation of lending to students will help to solve the problem. Will Durant said, "Education is a progressive discovery of our own ignorance." Today, we are charged with dispelling our societal ignorance, the ant and grasshopper situation of lending must end, and the hard work of creating a vibrant workforce from a level playing field must begin in earnest.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.