A few participants in each group supported the idea of funding guarantees through increasing taxes, while some participants in each group balked at the idea of raising taxes for everyone, as not all people continue their education after high school. These participants did not think that it would be fair to ask nonstudents to help fund guarantees for other people to take advantage of. Some participants in Groups 2 and 3 felt that the responsibility of minimizing risk for payday loan companies in Seymour IN students should not be placed on taxpayers or the federal government. Some participants in Groups 1 and 2 expressed a clear lack of faith or trust in the government. Some participants in each group felt strongly that college should be made more affordable or even free to warrant increased taxes. A few participants in each group believed that the entire country would benefit in the long term from such a tax increase.
We informed all participants that students with federal student loans are generally able to repay their debt using a repayment plan that sets their monthly payment equal to an affordable fraction of their income. Sometimes those with very low incomes are even able to make no payment at all without being penalized. Participants were asked if they had heard of these types of repayment plans and, if so, whether knowing about them affected their education decisions. Participants who had not heard of income-based repayment options for federal student loans were asked how they think their decisions might have been influenced by knowing about such plans.
Many participants across all three groups had not heard of income-based repayment plans. Few of them felt that their educational decisions would have been different had they known such plans existed. A few participants thought that income-based repayment plans would provide peace of mind for continuing their education. Some current or former students who had experience with these plans found them hard to qualify for, or found that the help they provided was insufficient or even detrimental in the long run. Others thought that knowing about these programs positively influenced their educational path. At least one current student would have made a different educational choice had he known about income-based repayment plans when he was to enroll in.
The exact terms and conditions of each example guarantee were favorable to some participants and unfavorable to others; but overall, our participants recognized that risks are inherent in our educational system and responded positively to the idea of guaranteed outcomes as a way to mitigate risks. In these focus groups, two characteristics seemed to influence perceptions of loan guarantees: all participants who decided their area of study after postsecondary enrollment were interested in loan guarantees, whereas nearly all participants who attended trade or technical schools were not interested in them. Future research could probe these connections more deeply and explore other participant characteristics that may affect participants’ perceptions.
There was more agreement on the appeal of these guarantees than on which methods of funding them were fair and reasonable. Future research should explore these populations’ reactions to these and other potential funding methods in more depth.
If a degree program cost $100,000 per year but promised a boost in lifetime earnings that more than offset that cost, we’d all be willing to sign our children up. So it’s not the cost we’re really concerned about. It’s that we aren’t guaranteed to see the outcomes we expect. Borrowing large sums of money only to get derailed from the expected pathway to a lucrative career can have devastating financial impacts.
And rational, even self-serving, institutions will try to ensure that their students find employment and don’t need help paying back their loans
The solution to this problem of risk is not to make college less expensive, as tempting as that might be. Prices are high partly because the service that colleges provide is valuable. The recent scandal of parents paying exorbitant sums to get their children into elite colleges suggests that the market price may even exceed the published price tag by a wide margin. This means that efforts to reduce the cost of college through policy interventions will likely fail.
Aggressive marketing practices can be concerning when they aim to enroll students in degree programs that they can’t really afford. But this program is different: students are not harmed even if things go wrong. For that matter, colleges aren’t generally on the hook directly, either. But enrolling students who don’t see good outcomes will cost the college in the long run, through a higher cost for administering LRAP. This is analogous to the way in which our car-insurance premiums increase when we frequently make claims. Rational drivers will try to avoid having accidents.
On-Time Graduation Guarantees
During the first two days of each group, the study team asked participants about their postsecondary education decisions and how they made them, how they paid for their postsecondary education (if applicable), and their earnings after high school or their postsecondary program (if applicable). On the third day of each group, participants evaluated whether they would have been interested in programs that guaranteed job placement, a certain income, or help with loan payments after graduation. Participants also evaluated the fairness of various methods of funding such risk-mitigation tools, including by raising tuition, raising taxes, or requiring fees to be paid to third-party providers.
In general, participants reacted very positively to a loan repayment guarantee; some expressed a preference for this type of guarantee over a job guarantee. Some participants in each group thought that having been offered an income guarantee would definitely have encouraged them to make different decisions about their education: some reported that they would have chosen a different institution, gone to college earlier in their lives, or changed their minds about not continuing their education.
To provide a concrete example, we referred back to the Purdue University program, in which the repayment cap is set at 2.5 times the original amount borrowed. We asked all participants if the certainty of knowing that they would never have to repay more than they could afford was worth the possibility of having to pay back as much as 2.5 times the amount they initially borrowed.
We informed all participants if the government were to provide guarantees, they could be paid for with an increase in taxes and asked if it seemed fair to impose higher taxes for a system of postsecondary education that is less financially risky for students.