6 Steps to Ease the Student Debt Crisis
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The Fiscal Times
December 4, 2013

College graduates are sinking in a sea of student debt that just keeps getting deeper. 

The Class of 2012 graduated with an average of $29,400 in debt, up from an average of $26,000 for the class of 2011, according to a new report from the Project on Student Debt at The Institute for College Access & Success. 

Related: The Hidden Reason for the Student Loan Crisis

The reason they’re borrowing more: While the recession has left families’ income levels flat, tuition just keeps climbing.

Average public university tuition and fees increased by 4.8 percent last year to $8,655. And that doesn’t include the rising costs for room and board, food, books or other necessary expenses.

With household incomes remaining flat – the median wage in 2012, at $26,984, was at its lowest level since 1998, according to the Social Security Administration – parents are covering less of their children’s college expenses than they had before, prompting students to borrow more. Last year, parents covered 27 percent of college costs, compared to 37 percent in 2010, according to a report from student loan giant Sallie Mae. The average debt load for students at graduation increased by 6 percent a year from 2008 to 2012, the Project on Student Debt report found.

Related: 11 Things You Didn’t Know About Student Loans

Students and grads are struggling with that heavier debt burden. Of the more than $1.2 trillion in outstanding student debt, one third of borrowers are either in default, deferment, or having payments postponed, according to an analysis by the Consumer Financial Protection Bureau.

That is likely explained by the poor job market and relatively high unemployment rate for new graduates. Still, the new report notes that young adults without a college degree face far worse job prospects than those with diplomas. “Despite discouraging headlines, a college degree remains the best route to finding a job in this tight market,” Lauren Asher, president of The Institute for College Access & Success, said in a statement accompanying the new report. “But students and families need to know that debt levels can vary widely from college to college.”

In its report, the institute recommended six steps for addressing rising levels of student debt:

1. Reduce the Need to Borrow. The organization called on Congress to double the maximum Pell Grant and consider measures “to ensure that new federal dollars supplement – rather than supplant – state and other forms of higher education funding and financial aid.”

2. Improve Understanding of College Costs and Financial Aid Options. The group recommended several ways to give consumers better data tools and comparative information about the real cost of attending specific schools. That would help students shop for schools.

3. The Government Should Collect Better Data. President Obama has proposed a ratings system to help consumers compare the value of different colleges. “The success of the president's proposal to rate colleges based on access, affordability, value, and student outcomes will depend on the quality of the data used in the ratings, underscoring the urgency of gathering better information," Debbie Cochrane, the institute’s research director, said in a statement. The report recommends that the Department of Education collect some data directly from lenders.\

4. Create Consequences for Colleges. Schools with relatively low graduation rates or ones that consistently produce students who struggle to pay their loans should have some accountability, the report says: “We recommend more closely tying a college’s eligibility for funding to the risk students take by enrolling and the risk taxpayers take by subsidizing it, with rewards for schools that serve students well.”

5. Reduce Reliance on Private Loans. Those loans account for 20 percent of debt for recent grads and are typically more costly, with fewer consumer protections attached, the report says.

6. Improve Awareness of Federal Repayment Options. The default rate on federal student loans is the highest it has been in 16 years, but income-driven repayment plans are available that can make student debt more manageable. Those plans can be improved and better publicized. “The Administration recently announced additional steps to promote awareness of income-driven plans and ease enrollment,” the report finds, “but much more needs to be done.”

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Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.