Out of the hole of college debt

Out of the hole of college debt

By Elizabeth Warren and Ganesh Sitaraman
June 5, 2008

GRADUATION season. All around the country, parents are taking photos of grinning college graduates holding their hard-earned diplomas. But after "Pomp and Circumstance" is over, students and parents can start worrying: The debt season will begin.

Undergraduate borrowers leave school with an average of $20,000 in debt, and average graduate borrowers owe $45,000. Even before the recent credit crunch, alarm bells were sounding over the rising number of defaulted student loans, which now top 5 million.

The high costs of carrying student loans echo through dozens of life-shaping decisions. Big student loans? Don't become a public school teacher, a firefighter, or a police officer - the pay is too low. Better not go into business for yourself - too risky when you have big loan payments every month. Don't apply to graduate school - just more debt. And don't even think of moving back to Iowa or Oklahoma - pay scales aren't high enough to support debt payments. Today's students talk about delaying marriage, not buying a home, and working full-time when babies are born, just so they can keep paying those student loans.

Some of those who pay the biggest price for student debt don't take it on at all. About 20 percent of low-income students with good test scores (strong predictors of college success) never even apply to college. Taking on loans that are double the family's annual income is understandably daunting, so they become cautious, resigning themselves to less education and fewer lifetime opportunities - depriving themselves and America.

It's time to rethink college borrowing and repaying. We propose "Service Pays," a program that is as simple as it sounds: borrow money to go to college, work in public service a few years, and loans are forgiven.

This isn't a pie-in-the-sky idea. In February, the House of Representatives passed the College Opportunity and Affordability Act of 2007. Buried in the bipartisan bill's 747 pages is a provision for $2,000 of loan forgiveness per year, for service in areas of national need. To be sure, $2,000 isn't going to get anyone through a year of college, but it's a first step to alleviate the considerable debt burden young people face.

The time spent paying back loans through public service would help rebuild the country. With increased competition from China and India, more and better trained math and science teachers are needed, particularly in lower-income areas. Critical infrastructure needs to be repaired. Some areas of public service face shortages as baby boomers retire.

In state public health agencies, for example, 24 percent of the workforce was eligible for retirement as of 2004, and in some agencies, that number is as high as 45 percent. And loan forgiveness for serving in the military could help replenish the services with well-educated young people.

The transformative potential of Service Pays cannot be underestimated. In an era of community fragmentation and increased mobility, time spent in public service can help forge a shared identity as young people work together to fulfill the promise of America. And some who participate may find themselves drawn into public service as a life's calling. A service-for-debt program has the potential to transform a generation excited about community service into a generation dedicated to public service.

Cost is always a concern, particularly during this time of economic instability. But in the long run, investing in the next generation makes good financial sense. The GI Bill helped 2.2 million returning soldiers become engineers, scientists, entrepreneurs, and business leaders, fueling the economy and raising the standard of living. It cost $7 billion (about $240 billion in today's dollars), but for every dollar invested, nearly $5 were returned over 35 years in higher productivity and tax revenues. Service Pays makes the same investment in the future.

Graduation should move young people toward the American dream. But so long as crippling student loans limit graduates' future options, they cannot build a better future for themselves, for their families, and for our country.

Elizabeth Warren is a professor at Harvard Law School and author of "The Two Income Trap: Why Middle Class Parents Are Going Broke." Ganesh Sitaraman is a student at Harvard Law School and author of "Invisible Citizens: Youth Politics after September 11."

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