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Welcome to our new series, “Innovations in Higher Education Financing,” which will examine new and inventive ways to ensure that higher education in the United States remains financially in reach for every academically qualified student.
We all know that higher education is expensive for the average American, and growing more so by the day. Multiple state governments have cut back spending on public higher education institutions, which educate the bulk of collegegoers today, pushing much of the cost of attendance onto the shoulders of students and families. In turn, student debt has skyrocketed in recent years, escalating by more than 100 percent over the last eight years. Now, students are left with a damned if they do, damned if they don’t decision: take on debt for a risky college degree that might not pan out financially, or consign themselves to the high school graduate’s life of far fewer job opportunities and less chance for economic mobility.
At American Student Assistance’s Center for Consumer Advocacy, we believe this is a dangerous road for our nation to go down. Globalization and automation have reshaped our nation’s economy into the 21st century and beyond, making a college-educated workforce vital to our nation’s success. In short, we all win from the public good higher education brings; and we all lose when Americans either decide against postsecondary education altogether, or they make poor higher education financing decisions that drag down their financial lives – and our economy – for years. We lose not just economically and financially, but we lose also the very values underpinning our country’s promise that anyone, regardless of family income, can better their station in life through hard work and education. It has long been baked into the American Dream that higher education is the gateway to opportunity. That gateway must remain accessible to all.
Keeping that gateway accessible, though, will require the efforts of not just students and families, but federal and state governments, taxpayers, higher education institutions, nonprofits, public and private sector employers and more.
This series will explore the innovations happening throughout our society to keep higher education affordable and mitigate the crushing weight of student debt. First up: Loan Repayment Assistance Programs.
Now, it’s fair to ask: Can something created 30 years ago still be credibly called an “innovation” today? Perhaps not, but there’s no denying that Loan Repayment Assistance Programs – or LRAPS – are seeing a resurgence.
According to the LRAP Association (full disclosure: our organization recently partnered with this group), the idea for this type of program first gained broad attention in the late 1980s at Yale Law School. Yale instituted the Career Options Assistance Program to “provide post-graduate financial security to students interested in using their degrees in public service and other lower paying positions.”
In a nutshell, under COAP (or the more common name today, LRAPs) higher education institutions offer to repay a portion or all of a student’s education debt if the student goes on to earn a modest income after graduation. Think of it as rather like a money back guarantee; it allows the school to share in some of the financial risk that students take on when they borrow.
According to Stephen Yandle, former associate dean at Yale Law and currently advisory board chairman of LRAP Association, and Carroll Stevens, president of LRAP Foundation and also a former associate dean at Yale Law, law schools were the canary in the coal mine back in the ‘80s. Law school graduate students, already carrying large – for the time – amounts of student debt, were hesitant to take on more loans for graduate study, especially if they desired to go into public service or lower-paying law positions. Or, if they did attend graduate school, they felt forced to take on higher paying jobs just to pay back their debt. Yale, with a smaller student population than many of its competitors, did not have as much tuition-generated revenue as larger schools and could not offer prospective students the same generous upfront financial aid packages that other law schools could dole out.
So the team at Yale Law decided to rethink financial aid, according to this LRAP Association YouTube video, as a “motion picture rather than a snapshot.” In other words, through a program like an LRAP, an institution can take into account a student’s financial need not just at the time of application, but throughout the first few years of loan repayment.
Since Yale’s creation of COAP, several higher education institutions have followed suit and instituted their own programs to assist graduates with repayment. In 2008, Yale graduate and COAP beneficiary Peter Samuelson established LRAP Association, which has partnered with 130 colleges and universities to offer loan repayment assistance to over 10,000 student and parent borrowers of both federal and private education loans as well as parent PLUS loans.
“Our services are a win-win, because students feel emboldened to attend the college of their choice and pursue the career of their choice, and colleges see gains in enrollment and retention. LRAPs can provide downside protection for students who truly need it after college, without punishing high-earners,” said Samuelson.
As one of the myriad solutions to the national student debt challenge, LRAPs hold a lot of promise. They could increasingly come into vogue as the national conversation on higher education continues to circle around not just how students must deal with college affordability and student debt, but also how colleges must share in the risk or have “skin in the game.”
As divided as our lawmakers are, one idea with bipartisan support is requiring colleges to be held more accountable financially when their students are unable to successfully repay the debt they amassed for their education. Proposal specifics to date differ, but essentially colleges would be required to pay back a certain percentage of loans, or some other to-be-determined financial penalty, when students either default on their obligations or fail to adequately meet a certain repayment rate threshold.
Could LRAPs offer schools a proactive way to get out in front of the growing demand for risk sharing? Perhaps, although it’s obviously far too early to determine whether or not widespread adoption of LRAPs would be more costly to an institution’s bottom line than, say, a skin in the game penalty. But from a public relations/brand reputation perspective, it certainly seems these programs hold real potential for demonstrating to students, parents and lawmakers that higher education is serious about putting its money where its mouth is when it comes to guaranteeing value.