Reshaping Student Loan Programs to Fit the Careers of Young College Graduates

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Released: April 2007 • Discussion Paper

Related Topics: Education

Authors:

Thomas J. Kane • Professor, Harvard Graduate School of Education; Deputy Director, U.S. Education, Bill and Melinda Gates Foundation

The payoff to a college education has increased dramatically over the last two decades. At the same time, the cost of a college education has increased steeply. To provide all Americans with the opportunity to share in the prosperity of the knowledge-based economy, those high-school graduates who are prepared to benefit from college must have access to the financial resources needed to pursue their education.

The Hamilton Project paper by Susan Dynarski and Judith Scott-Clayton proposes improvements to the federal grant programs, but the student loan programs will also be crucial for ensuring college access. The objective of federal financial aid policy should be to get the necessary funding into the hands of students and their families to pay their college bills, but with the right amount of subsidy to balance the goals of ensuring access and preserving families’ incentive to spend those resources wisely. Particularly as college costs increase, it is extraordinarily expensive to ensure access through the federal Pell Grant program alone. Each dollar in federal grants costs roughly six times as much as a dollar in federally subsidized loans. Some students, particularly those from low-income families, may be debt-averse. However, there are many ways the federal government could make the loan programs less burdensome and to make an investment in college less risky.