For the Milken Institute Review, Susan Dynarski explains, “How to—and how not to—manage student debt.”
“If you even casually follow the news, you’ve probably heard that Americans owe a record $1.3 trillion in student loans,” writes Dynarski. Seven million of those borrowers, she says, are in default and millions more are behind on their payments.
“Readers – and politicians – often assume that higher debt must lead to increased risk of default,” she writes. “But the fact is, default is highest among those with modest student debts. Of those borrowing under $5,000, a whopping 34 percent end up in default. For those borrowing more than $100,000, the default rate is just 18 percent.”
Read the full piece to learn about declining state appropriations, escalating tuitions, increasing enrollment at for-profit colleges, poor employment prospects for low-skilled workers, and more. You’ll also find Dynarski’s wisdom on how these patterns should be influencing America’s student debt policy. Among Dynarski’s recommendations: “Lengthening the horizon of loan repayment” and linking student loan payments to income.
“If we are determined to reduce distress and default among student borrowers, the target should not be the graduates of elite four-year institutions but rather those who dropped out of non-selective programs,” writes Dynarski. “Going forward, one way to reduce their debt distress is to keep them from borrowing in the first place.”
Susan Dynarski is a professor of public policy, education, and economics at the University of Michigan. She is co-director of the Ford School’s Education Policy Initiative, which engages in applied, policy-relevant research designed to improve educational achievement and outcomes.