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The Future of Higher Education Finance

February 25, 2020

Conversations around the cost of higher education and the student loan debt burden are pervasive in everyday life. They dominate news headlines, propel political campaigns, and incite divisiveness. While both parties agree that addressing the student debt problem is a priority for 2020, there is almost no consensus on how to enact the necessary changes or even what the necessary changes are. Surprisingly, the biggest hurdle to enacting change may not be political.  

Education finance exists at the complex intersection of three vastly different entities: schools, lenders, and the federal government. In order to create lasting reform, each participant will need to coordinate and align behind a system-wide solution. 

The need for collaboration between schools, lenders, and legislators was a driving force behind a recent industry conference in Los Angeles where the keynote panel was a wide-ranging discussion on the current and future state of higher education. Goal’s Senior Vice President of Business Development, Randy Schmidt, who attended the conference and spoke on the panel, shared his thoughts on two challenges facing higher education finance in 2020. 

Changes in federal legislation will not solve the student loan crisis 

The dramatic increase in student loan debt is a complex problem that legislators have offered numerous policies as a panacea for – but loan forgiveness and free college will not address the underlying systemic dysfunction or the ever increasing tuition rates. In fact, legislation that was enacted more than a decade ago in an attempt to make college more accessible and affordable, is widely considered the cause of our current debt crisis. When the federal government increased access to student loans, instead of making a college education more attainable, the increase in federal funding was met with a corresponding rise in school tuition that required students to take on more and more debt. The spiraling debt problem is therefore linked more closely with rising tuition rates, not a lack of federal funding, and this is an issue that legislation alone cannot address.

Loan servicing standards will not improve until the system of vendor selection changes 

Federal loan servicers are under increasing scrutiny for a number of issues that contribute to the student debt crisis, such as misleading borrowers and mismanaging loan payments. These serious complaints have led to very little meaningful reform in the way servicers interact with student borrowers which can be attributed to the lack of performance incentives in their government contracts. In order for servicing standards to improve, the way in which government contracts are granted will need to include broader quantitative metrics and consequences for failing to meet requirements. Loan servicing innovation in the private sector can serve as an example of how new technology is making loan repayment easier for borrowers.  

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