Colleges created the student loan nightmare. Here's how to fix it

My decision to leave the financial world and return to Hope College as its 14th president was motivated, in part, by a question that continues to haunt me: Will the United States persist as a land of opportunity for all, or will it turn into a land of privilege for a select few?

If you haven’t noticed, back-to-school season looked different this year. Fewer undergraduates are attending classes on American college campuses this fall than in the previous decade.

For generations, the route to a better life most often passed through higher education. The promise was that the investment in a college degree would have a profound payoff in salary, opportunity and overall life trajectory. College was the ticket to the American dream.

Yet, undergraduate enrollment at four-year colleges has declined about 2% annually since 2010. And the sticker price of college tuition is more than 20 times higher today than it was in 1969.

More than 20 times higher!

The country’s $1.7 trillion student debt problem is the most obvious sign of a promise made to students that colleges, lenders and employers couldn’t keep. But tuition, debt and enrollment are just symptoms of the true problem. It’s student loan programs that are the realthief of the American dream.

To revive that dream, the answer is not to offer more aid, but to entirely reimagine the funding model for higher education.

Student loan reform is a daunting task

Student loan programs began with altruistic intent. From the GI Bill in 1944 to the Middle Income Assistance Act of 1978, the federal government spent decades working to increase access to higher education for groups that otherwise couldn’t afford it.Colleges and universities stepped up as well in the form of merit- and need-based financial aid packages.

There was a problem, though. With no limits on the amount students could borrow, colleges and universities had a clear path to raise the sticker price of tuition year after year. After doling out all available aid, colleges simply directed students to federal loan programs to close any funding gaps − however big.

Tax universities– not the rest of us – to deliver loan forgiveness to struggling students

Reform of federal student loan programs will be difficult to accomplish. Although most federal programs spend more than they bring in, federal student loan programs actually produce positive cash flow for the government. And proponents of capping the amount students can borrow, which would help rein in unrestricted tuition, risk being seen as working against the cause of improving access to higher education.

In the meantime, increasing numbers of high school students are choosing not to pursue college. The facts speak for themselves:

20% of high school students have considered delaying college or skipping it entirely.
More than 30% have considered a gap year between high school and college.
73% of high school students will eliminate a college from consideration because of price alone.

The problem, however, isn’t just the price of higher education but also the two prevailing models to pay for it. They are pay as you go, in which students make payments to the institution as they progress through their degree, and pay it back, in which students make payments to a lender after graduation. The problem with models is that they require students to make payments when their economic power (their salaries) are either very low or zero. And the result of making such high payments − or carrying the debt − is that recent college graduates are delaying major life decisions such as buying a home, getting married and starting a family.

We’ve created new funding model for higher education

At Hope College, we decided to make a change. We are piloting a new model of financing a college education that we call Hope Forward. Hope Forward is neither a loan nor an income-sharing agreement, and it’s not a free education.

Instead, it’s a pay-it-forward model in which students make a lifelong commitment of donating to the college so that future students can receive the same high-quality education at no upfront cost.

Want to avoid student loan debt?Focus on career outcomes, not prestigious degrees.

Our goal is for graduates and other donors to cover the cost of tuition for every student and thus eliminate the need for student loans.

Innovative funding models such as Hope Forward are helping reach students who otherwise wouldn’t consider college. The opportunity for impact, however, is greater than what a small college of 3,000 students can support on its own, and I’m quick to point out that we don’t view Hope Forward as giving us a competitive advantage.

Rather, I hope other institutions will follow our lead in creating similar programs. I believe it is the only way to ensure that all students, regardless of economic circumstances or ZIP code, can realize the American dream, which includes the choice to attend college without worrying about how to pay for it.

Matthew Scogin is the president of Hope College in Holland, Michigan.

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