College debt is affecting millennials and their ability to buy homes. It is also impacting their overall accumulation of net worth. However, two KU professors who have researched college debt may have a solution to ending the negative affects of student loan debt.
KU associate professor Willliam Elliott said for him it is equality. He said people with student loans should not have to work harder in order to achieve the same goals.
“We need to think about revisiting bankruptcy laws, some people have to carry this burden when they shouldn’t be,” Elliott said. “And we need to allow some opportunities for relief where it makes sense. ”
Elliott says short-term solutions include things like reducing interest rates and income based repayment plans. He also said we need a long-term solution to get rid of student debt as a way of financing higher education.
Social welfare KU professor Melinda Luis agrees.
“Long-term, we think the evidence is clear that we need to pivot away from reliance on student debt and equip all children with the asset foundation wealthier families use to facilitate their children’s education success,” Luis said.
Luis and Elliott propose that American households start children’s savings accounts early on. The government would provide an initial deposit of $8,400. It would go into an account like a 401k. From there, the family would deposit $5 into the account every month. After 18 years, the account balance would be about $34,000 or the cost to go to a public four-year college.
“Right now, we have the identity of going into debt and paying for college,” Luis said. “It is building that identity around savings which has implications not only for education, but broader society or economic well-being as a country.”
To finance this so-called free college plan, Elliott suggests the federal government put the initial $34 billion into an interest bearing account. His plan actually builds assets along the way and also teaches people about financial institutions.
Compare that $34 billion to the $32 billion the government currently spends on PELL grants.
Children with savings account who don’t go to college will be able to use that money for building other assets.