Dick
George
CEO

Great Lakes Higher Education Corporation

Dick George has been CEO of one of the nation's largest student loan organizations for twenty years. Great Lakes helps lenders serve up 1.3 million student loans to students and parents each year. He believes a crisis is a terrible thing to waste.

What are American student indebtedness levels today?

Two-year and four-year schools report significantly different debt levels. So do graduate and professional schools. Average indebtedness also varies geographically. Estimates from one source, The Project on Student Debt, estimates an average student loan debt for 2007 bachelors degrees at $21,900.

Can you identify one or more tipping points among student borrowers, and have they been reached yet?

Rising indebtedness is just part of the story. The number of students borrowing is also rising. Unfortunately, those earning less than the median after graduation are most adversely affected. Their ability to meet other expenses like car payments, rent or mortgage, and other household expenses is affected. More borrowers are struggling today and delinquencies and defaults are both rising.

Are the students who are most likely to default readily identifiable before they enter college?

Yes and no. The U.S. Department of Education estimates that 76 percent of defaulters on federally guaranteed student loans withdrew from school prior to completing their studies. As a result they can be said to make up a 'cohort' that disproportionately includes low income students, racial and ethnic minorities and first-generation college attendees. While we may be able to identify a vulnerable cohort, we cannot pre-identify individuals with accuracy.

If they could be identified, what should be done for them before they are admitted?

Simple answer: Prevent them from borrowing until they've demonstrated an ability to persist toward a credential or a degree. I've been circulating a proposal to reform federally guaranteed lending that removes all today's loan subsidies and shifts that money to significantly increased Pell Grants. Vulnerable students should be funded by grants and insulated from any borrowing during their freshman and sophomore years.

Will removing the present loan subsidies be sufficient to pay for it?
A great deal of it. Shifting the Pell grant to help finance the first two years of college will help. The cost of non-persistence and default for these most vulnerable students is far higher over time than the cost of the Pell funding to fix the problem.

For those students who do receive student loans, what improvements can be made?
For upperclassmen and graduate students, a market-based federally insured—but unsubsidized—student loan program can provide differentiated competitive interest rates on loans up to the full cost of attendance. Improved and expanded financial literacy training and debt counseling can be included. An interest payment requirement during enrollment will keep the borrower's skin in the game while reducing the likelihood of over-borrowing.

Who will benefit and how?

The benefits would be widespread. Competitive interest rates would assure consumer choice and simplify a system that has become overly complex. A single federally guaranteed loan for any student borrower would eliminate the need for multiple applications and promissory notes each year. There would still be an opportunity for employers, alumni groups, college endowments, government agencies and charities to add skin to the game with payment support, forgiveness programs, and other well-motivated borrower benefits.