We criticized Elizabeth Warren at the time she proposed her first bill, a one-year interest rate reduction on student loans. While letting the current rules expire and having interest charges shoot up would have been a bad outcome, Warren presented her interest rate reduction as a meaningful remedy, when it was a band-aid over the gunshot wound of out-of-control higher education costs putting many young adults into debt slavery.
Warren has finally stepped up and has taken on the problem of college education, calling for much more affordable college education:
And while not every college needs to graduate every student debt-free, every kid needs a debt-free option—a strong public university where it’s possible to get a great education without taking on loads of debt.
As an aside, “debt=free” bothers me as rhetoric, but Warren’s aim is clear. She fingers how the cost inflation in higher education has perilous little to do with delivery of learning, and how the schools themselves have become debt pushers, winning from getting students to borrow to pay more for their “product” and suffering no consequences when students become delinquent. She also takes aim at predatory student loan servicing.
One noteworthy lapse is Warren fails to finger the rise in number and compensation of the college adminisphere, which lards on expenses and contributes not a whit to teaching. However, she gets at them indirectly in her proposal. Here is the meat of the “get rid of gold plating” part of her plan:
First, force colleges to put some skin in the game on student loans. Right now, when borrowers default on their loans, students and taxpayers pay the cost – not colleges.26 That means colleges reap all the benefits of student loan funds, while students and taxpayers bear all the risk. If we want colleges to pay attention to rising costs and failing students, then they need to bear some of that cost too.
There is bipartisan support for the idea of more college accountability. Senators Reed, Durbin and I have worked on it together for the last few years and we’ve introduced legislation to force colleges to have some skin in the game.27 Conservatives at the American Enterprise Institute have endorsed similar ideas,28 and Senator Alexander has indicated his interest in including a risk-sharing program in the Higher Education Act.29 If done right – not just window-dressing, but with a real and robust accountability mechanism – this could create meaningful incentives to cut costs and boost graduations. Skin in the game could also be paired with reducing overly burdensome reporting requirements and regulations, replacing them with astreamlined set of meaningful measures. Of course, the devil is in the details – if done wrong, the accountability problem in higher education just gets worse.
Second, require schools to spend a minimum proportion of their federal financial aid revenues on expenses directly related to education. Call it the rule against “taxpayer waste.” Right now, taxpayers invest about $164 billion a year in colleges.30 That money is supposed to help support affordable education for our young people, not pay for exploding numbers of administrators or elaborate college marketing departments. If colleges want access to that taxpayer money, then they should commit to investing that money in an affordable education for their students.
Third, give colleges an incentive to cut costs by establishing “shared savings.” When colleges help more students graduate in four years instead of five or six, for example, the students save money on tuition and the government saves money on Pell Grants, work-study, and other aid. If colleges can share in the savings, they will have an added incentive to keep down costs.
I’ve embedded the speech below and urge you to read it in full.