MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Student loan debt and college affordability are big issues for voters this year. About 43 million Americans owe a total of $1.3 trillion dollars in college loans. The majority of Americans support the idea of going to college for free, but few are willing to pay for through it higher taxes.

MS. DIANE REHMHere to talk about student loan debt and what the presidential candidates are proposing to help make college affordable, Beth Akers of the Brookings Institution's Brown Center on Education Policy, Kim Clark who covers higher education for Money magazine and Mark Huelsman of Demos. That's a nonprofit public policy organization focusing on inequality.

MS. DIANE REHMI'm sure many of you will want to join the conversation. Feel free to call us at 800-433-8850. Send your email to drshow@wamu.org. Follow us on Facebook, send us a tweet. Thank you all for joining us.

MS. BETH AKERSThanks for having me.

MR. MARK HUELSMANThank you.

MS. KIM CLARKIt's great to be here.

REHMKim Clark, tell us about the student loan debt problem in general. What's the average that an individual student owes in this country?

CLARKRight. Well, so student debt is one of those issues that pretty much you find a statistic to support any political point you'd like to make. Right now, about two-thirds or 70 percent of college graduates end up -- leave school with debt and the average debt is about $30,000, which is quite a bit. That's a $300 a month payment on a standard plan. And if you're a single individual living in Washington D.C. earning the typical salary of about $43,000 a year, you don't have 300 extra dollars at the end of the month if you're paying rent and all the other expenses.

REHMSo at the same time, how much has college tuition itself gone up in this last decade?

CLARKOh, right. I mean, one of the reasons people are borrowing more is because of the fact that tuition has risen much faster than other kinds of aid, like grants and scholarships. About 10, 15 years ago, the average tuition at a public university was about $5,000. And the average Pell -- I mean, the maximum Pell Grant, the federal grant for low income students, was also about $5,000. Today, tuition at the typical public university is more than $9,000 and yet, the maximum Pell Grant is only $5800.

CLARKSo this big gap between tuition and grants is one reason that people are having -- they had no choice to turn to student loans.

REHMNow, is that because Congress has decided to reduce Pell Grants?

CLARKNo. They haven't reduced Pell Grants. They've inched up very, very slightly. But what's happened is states and colleges have risen their tuition very dramatically and part of that is due to the fact that states have cut the subsidies they've sent to public universities. But I think there's also, you know, rising demand. Schools have been able to, you know, charge what the market allows.

REHMOf course.

CLARKPrivate universities have been raising their tuition as well.

REHMBeth Akers, you seem to think that this whole issue has become overblown.

AKERSYeah. I think that's a fair characterization of some of the things they've written. You know, we talk a lot about a general crisis in student lending and I think that's where we're misguided in the conversation. I wish we were talking more about the specific crisis that were facing certain subsets of students. If we look at higher education very broadly, we know that the financial returns to degrees are very large.

AKERSSo, in essence, the typical student is seeing a very good return on their investment even if they have to borrow to make it. So it's helpful to know that the stories that we hear an awful lot about in the newspaper are sometimes mischaracterizing the typical experience of a college student in this country. For instance, a 2014 study looked at what is the average amount of debt that students had. When you look at the people who were interviewed for news stories in the newspaper, the average was $85,000, which is far in excess of the typical amount of debt that a student has in this country.

AKERSSo I think what's happened is that we're talking about numbers that portray a really different story from the reality of the overall picture.

REHMHow can that be if the total amount is over a trillion dollars?

AKERSWell, the total amount is over a trillion dollars, but we have more people going to college than ever before and they're paying more for their degrees, yet they're still seeing a good return on the investment. So a lot of people see that $1.3 trillion and think that's a huge and scary number. Another way to think about it is that that's $1.3 trillion that was invested in human capital and people's ability to contribute to the domestic economy.

REHMBut if they can't pay it back, that still becomes a rather large number.

AKERSThere's absolutely a group of students who are struggling to pay back their debt.

REHMAnd who are they?

AKERSYou know, it's -- so we'd like to think -- to make analogy to what happened in the housing market, these are the people who are under water on their degrees. So they basically paid more for it than it's worth in the long run. So research is really starting to poke at who those people are. One group we know for sure who is struggling are people who started college, but didn't complete their degree. This is the group that I'm most concerned about because they've paid the price for that investment in their future earnings, but they've never seen the earnings bump that comes along with their degree.

AKERSSo it's people like that that policymakers should be most concerned about.

REHMBut when you say they paid more than it's worth, who do you put into that category?

AKERSWell, like I said, it's the people who pay for a degree, but don't the certificate at the end because they don't complete the program, but also people who go to institutions that just turn out to not provide a good return. So we're just starting to see data at the institution level that suggests which programs of study yield a good financial return and which don't. And so the -- we're starting to learn who those students are and where policy can make a difference.

REHMAnd how about you, Mark Huelsman, how do you see it?

HUELSMANSo I think that Beth is absolutely right that going to college, for most people, is much better than not going to college, right? The returns to a...

REHMFor most people.

HUELSMANFor most people. Right. The returns to a degree over a lifetime are substantial and we should be sort of, you know, encouraging more college enrollment and attainment. But one of the things that's sort of lost -- and Beth touched on this a little bit -- is that as college has gotten more important, we've really increased the risk and past the risk onto students and families. And I think it's important to know that really didn't intend for it to be this way, right? Kim talked a little bit about the Pell Grant inching up.

HUELSMANGrants, you know, in their sort of heyday were supposed to cover the cost of college for low income and working class students and that was because they couldn't afford the price of entry. Loans were supposed be sort of a tool for middle class and above families to, you know, sort of make up the gap. We've sort of had the opposite happen where the real need to borrow is concentrated among -- at the undergraduate level -- among working class students and students of color.

HUELSMANAnd we have a system now where African-American student borrows, working class student borrowers have to borrow far more than white students and wealthy students for the same degree, particularly at public colleges. And, again, we've increased the risk. You know, due to sort of structural inequality in this country, black students and low income students don't actually see the same returns to a degree that wealthier students do.

REHMAnd therefore, cannot afford to pay back the loans.

HUELSMANRight. They're more likely to be delinquent. They're actually more likely to drop out of college with debt, things like that. So I sort of worry about, again, at the median, most people, you know, can sort of make that money payment stretch. It's sort of an annoying thing. It's not an existential crisis. But if you look below the median, there are a lot of people struggling, millions of students and families struggling to repay debt.

REHMKim Clark, what has Donald Trump proposed with regard to student loans and college affordability?

CLARKNot much. The one point, I think, he's made is to change the way student loans are made. Currently, the federal government makes the student loans and I think he would like to privatize that, even though...

REHMWasn't that privatized earlier?

CLARKYes. And even though the patron saint of libertarians, Milton Friedman, has said that actually student loans are an example of a market failure that should be and can only be solved by the government, so Donald Trump is now -- thinks that, I guess, Milton Friedman is a liberal. I just want to -- can I -- I just wanted to make one other point.

REHMSure.

CLARKWe talked about $1.3 trillion. People don't realize that 40 percent of that is from graduate debt, not undergraduate. So a lot of these high numbers, a lot of these crazy, you know, six-figure debt numbers are really from people who went to medical school, law school, who borrowed for a professional degree and are in their 50s and 60s and are really struggling. So a lot of the undergraduate debt is really quite small, I think 20 to 30 percent of it...

REHMI see.

CLARK...is held by people who have less than $10,000 in debt.

REHMBut then, why haven't those graduate borrowings succeeded in making available jobs that really pay good salaries?

CLARKSure. So I think most doctors are probably able to pay off their six-figure debt. As we all know, law schools -- I'm sure we've heard a lot of law school graduates are really struggling. So it really depends on the economy and the degree you get.

REHMSo many law firms are not hiring is the problem.

CLARKRight, exactly. Right.

REHMBut for doctors, the need is still out there, depending on where you're willing to go.

CLARKExactly. Right.

REHMAnd you wanted to add to that, Beth.

AKERSYeah, something else we know about borrowing and who it is who's having -- struggling with their payment is it's actually the borrowers who have very small balances who are showing signs of financial distress. So their highest rates of default and other indicators of, you know, having financial strugglers are showing up for people with less than $5,000 in student loan debt. So, you know, it's just further evidence to support Kim's point that it's the people with the large balances that maybe we shouldn't be so concerned about.

REHMBeth Akers, she's a fellow at the Brookings Institution's Brown Center on Education Policy. She's the author of "Game of Loans: The Rhetoric and Reality of Student Debt." Short break here, we'll be taking your calls, comments when we come back.

REHMAnd welcome back. We're talking about student debt in this country. With me are three people. Mark Huelsman, senior policy analyst at Demos. That's a non-profit public policy organization with a focus on issues related to inequality. Kim Clark is senior writer for Money Magazine, covering higher education. And Beth Akers is with the Brookings Institution. Kim Clark, tell me about Hillary Clinton's plan for reducing the amount of student loans and student debt.

CLARKSure. I think actually Mark is probably a better person to answer this, but I'll summarize it and maybe he can fill in. She's announced that she wants to provide so-called free college to families earning up to $125,000 a year. Of course, there is no such thing as free college, just as there's no such thing as a free lunch. I mean, someone's going to have to pay for it. But I think that she's a little light on the details about how exactly this will be funded. But the idea is that, I guess, you wouldn't have to pay tuition if you earn, you know, less than $125,000. And she's proposed lower interest rates for student loans and the ability to refinance, if you have current loans, to refinance those. So she's had a lot of different proposals. But I'm going to...

REHMSo, and that would be across the board for a college education, not for advanced degrees.

HUELSMANThat's correct. What she's proposed is really a renewed federal-state compact to, you know, guarantee affordable college for students at in-state public colleges and universities. And the goal of which is to provide a debt-free option for students, you know, a public option, for lack of a better term, that really tries to address the root causes. As Kim mentioned, a lot of this at the colleges where most students go is caused by state funding declines, which has been a really 30-year problem that was exacerbated during the recession.

HUELSMANShe talks about free tuition for middle-class families and below. But it, at the end of the day, it is actually targeted towards the students who face the most unmet need when they enter college. Because students would have tuition taken care of and low-income students could then use the Pell Grant or grant and scholarship aid and actually sort of return us to a system where you could work your way through college again with a part-time job.

REHMAll right. And joining us now by phone from Seattle, Sheila Bair. She's president of Maryland's Washington College, the former chair of the FDIC -- that's the Federal Deposit Insurance Corporation. It's good to have you with us, Dr. Bair.

DR. SHEILA BAIRWell, thank you, Diane. And I understand that you received an honorary degree from our college, so it's very nice to be on the show with one of our alumnus.

REHMThank you so much.

BAIRThanks for having me.

REHMAnd you've written about how to improve the federal student loan system. Tell us what you think needs to be done.

BAIRWell, I think it needs to be radically simplified. I think we need to have better clarity between loans and grant programs, which we need to focus on high financial-need students. But the loan program, I think, needs to be radically simplified. I'd just have one loan. I'd let anybody participate. I'd get rid of FAFSA. It's horribly complicated and confusing to a lot of students. And then I would have income share be the default option for repayment. If you're going to -- the current income-based repayment plans are troubling in a number of ways. Many of them have negative amortization features. Many still result in unaffordable payments.

BAIRI actually liked a plan that Jeb Bush had put forth during the presidential campaign -- he didn't survive but I'm hoping some of his ideas on higher education did -- was to have the default option really be a very, very small percentage. He suggested 1 percent for every $10,000 borrowed up to a cap of $50,000, coming out of adjusted gross income, build it into the tax collection system so you can really get your default rates down, and let these young people pay it off over a very, very slow period of time. And it's not -- and it's more like an equity investment. So they pay up to a certain multiple of what they originally received in aid or after a certain period of years. And I really think that that would guarantee everybody affordable payment.

REHMHmm.

BAIRThe kids who get really well-paying jobs that go to work for a hedge fund or whatever, are going to pay back more and they're going to pay back faster. The students who go teach math in inner-city high schools are going to pay back less and over a long period of time. So there is some cross-subsidization, which I think is fine. But I really think dramatic simplification and defaulting to an income-shared, not income-based repayment, getting away from the debt model, but income share is the way. It's an elegant solution and would -- it would get rid of -- dramatically get rid of this severe stress that so many students of ours in the country have with student debt.

REHMTell me about what you announced there at Washington College to help students not become so burdened by debt.

BAIRYeah. Well, and that's a good point. Because I think, though we need a change in federal policies, there's so much schools can do now. One thing is we need to really double down on efforts to make more grant and scholarship funding available for the low-income students. If you look at the distribution of debt, the real problem is that the lower income students, they should be getting grant and scholarship aid. They shouldn't be having to rely on any significant debt to finance their college.

BAIRWe created a new program called George's Brigade that covers full financial need for low-income students. And we've built a lot of support services around that. We're encouraging students to apply in groups. So we think that, if they come to our college with friends, it will help with the transition that kind of, when they already immediately have some social support structure in place as they join our school and become fully integrated into all the great things that we have to offer.

REHMSo one year at Washington College costs more than $30,000. So I mean that seems out of reach of most people.

BAIRWell, it's, you know, that is the sticker price is different from what the actual -- the price that most pay. We discount an average of 50 percent. For George's Brigade students, they don't -- the cost is zero. So we do offer work study, but their tuition, room and board fees, everything except incidental expenses is covered. And so -- and I do think for lower income students, you need to go to a scholarship-funding model...

REHMHmm.

BAIR...not a debt-driven model.

REHMAh.

BAIRBut yeah, it's not -- liberal arts colleges -- I mean, that's very much in range of what liberal college -- other liberal arts colleges charge. We're actually lower than a lot of them. And we froze tuition. We're trying very hard to contain costs...

REHMAh. Yeah.

BAIR...and keep tuition down. But, you know, when you offer -- when you maintain a student ratio -- to-faculty ration of 12 to 1, our students are taught by regular faculty members. Every time, if we grow our enrollment by 12, we hire another faculty member. It's not just small class sizes. It's not a cheap way to provide education. But it is a very high quality, interactive way. And we're very proud of our program at Washington College.

REHMTell me how you would assess Hillary Clinton's proposals.

BAIRWell, you know, I think it's -- I applaud the fact she's trying to tackle the problem. I'm -- I applaud the fact that she's coming -- trying to come up with dramatic solutions. But I think free public college for 80, 85 percent of the population is something that, first of all, we can't afford. And I think the fact -- you're really just -- you're still debt financing it. You're financing it with federal debt that they -- our young people are going to pay later on through taxes, if not as student borrowers. So I think there's a fiscal issue. And I know she thinks and hopes she can finance it with various sorts of taxes.

REHMSure.

BAIRBut I've been in Washington long enough to be skeptical about that.

REHMAnd...

BAIRYou know? And I also think, you know, I think it's fair for -- I think we should, at least a loan program. We should look at that as an investment in our young people, a way we have an interest as a society and our economic reasons for a well-trained, educated workforce. But I think it's fair for taxpayers to ask for a fair return, not a market rate of return but a fair return. And so, you know, we have continued to rely on some level -- responsible level of financial aid for students. What, and again, what I would have them pay back through income share, not through a debt model but more of an equity model. I really thing that's the way to go.

BAIRI wish we could afford what she's talking about but I don't think we can. And I, again, I think it's just wearing down on these kids later on as taxpayers.

REHMYou identify yourself as a moderate Republican. What do you think of Republican nominee Donald Trump's proposals?

BAIROh. Well, you know, I actually wrote a column on that. I think, you know, any good conservative, I don't think, should be trying to dictate who gets federal aid, who gets and does, you know. So French literature majors are not going to get federal aid but that engineers are. I don't think that's the way that you should go. I think there are a lot of humanities majors -- we have a lot of English and history majors that go on and get wonderful jobs in tech and in finance and what have you. So kind of trying to gear financial aid towards the majors we like, I don't think that's a good idea.

REHMSo I gather what he would do is to penalize those who are seeking liberal arts degrees by making it harder for them to get federal student aid.

BAIRWell, that's what it sounded like, yeah. And, again, I think that's not what a good conservative would do. And I think that penalizes a wonderful form of education that goes back to the ancient Greeks. So, you know, and something that's very unique in terms of having these small, liberal arts colleges that deliver a very intimate, very interactive and personal high-quality education. It would definitely penalize schools like mine. And by the way, nearly 50 percent of our graduates last year were either business, economics or STEM. I mean, it's not this idea that somehow liberal arts is just, you know, esoteric areas. I think that's not an accurate perception.

REHMI know that in 2015 you said that the explosion of student debt holds disturbing parallels to the sub-prime mortgage frenzy, which led to the 2008 financial cataclysm. Can you spell that out for us?

BAIRSo I do. I think it's, you know, the good news and bad news is, is that most of this debt is on the federal government's balance sheet. So it's not going to -- it doesn't threaten the banking system. The banks aren't making the loans anymore. The vast majority of the funding is being done directly by the federal government. But the parallels are that it is fed what I would call a tuition bubble. So I do -- there are a lot of reasons for tuition increases, which have far outstripped inflation. But I think a key component of this, it's been just too easy to raise tuition because it's been too easy for kids to borrow to keep paying for it.

BAIRAnd we absolutely saw the same situation with housing, where it became very easy to get credit. Loans were being made to home borrowers who did not have the capacity to repay those loans. It became very easy to buy homes, multiple homes. That also fed home price increases. And in both situations, we really, you know, ultimately we didn't do anything to improve home-ownership rates. And if you look at the data, we haven't really done much to improve the percentage of high school graduates going on to college through all this student debt. But we have contributed to making tuition more expensive.

BAIRSo I do think it's a disturbing parallel. I think all of these debt-based federal programs, where you provide very, very easy access to credit, you need to think hard about what that's going to do to the supply-demand dynamic and whether you're just going to be expanding access or just going to be making it more expensive. You know, I think, again, these programs have the best of intentions. But it has been an unintended consequence. And -- but I think some commonsense reforms, just making schools have some skin in the game, you know, some commonsense over-arching caps on total federally back lending. I don't think that it would have to be major fixes to get this changed.

BAIRBut we do, you know, it's interesting, you know, a basic tenet of consumer protection, financial services -- and you see this with the Consumer Financial Protection Bureau standards on mortgage lending and now with small-dollar loans -- is the ability to repay. You don't do anybody any favors if you give them a loan they can't repay.

REHMIndeed. Indeed.

BAIRBut if you want to make a financially, broadly available, with some payback mechanism, go to income-share. Get off of the step model. And I really think that's the way to go.

REHMAll right.

BAIRBecause we're really burdening kids a lot here.

REHMSheila Bair. She's president of Washington College, the former head of the FDIC. Thank you so much for joining us.

BAIRThank you, Diane. My pleasure.

REHMGood to have you with us. And any comment from you, Mark?

HUELSMANYeah. I think that Dr. Bair mentioned a few things about the public benefit to investing in education. We know that this is true at every level of education. And I would hate to see us not make a big down payment on the next generation of students because it costs a little money up front, right? We know that the GI Bill returns $7 for every dollar we put into it. We can think of it like a public investment. There are, again, there are massive public benefits.

HUELSMANAnd in terms of how we pay for it, I know that Secretary Clinton has proposed closing tax loopholes and raising some taxes on the wealthy, but we're not actually talking about an insurmountable amount of money, right? We have $30 billion in the tax code that's spent on higher education every year. If we rerouted that to tuition subsidies or grant aid for low-income students, we'd get most of the way there or half way there. I mean, we're talking about one tenth of the defense budget. We're talking about a couple fighter jet programs here and there. I think that we get lost in terms of, you know, looking at the public rather than the individual benefits to college and there are both.

REHMYou know, it's so interesting that Hillary Clinton now seems to be joining the college-is-not-for-everyone camp.

CLARKRight. That was a very interesting comment she made in her speech in Michigan just, I guess, last week. I think, parsing what she was saying, when you look at the job market, it's clear that if you are a young person now just leaving high school, you are not qualified for many jobs. Something like 98 percent of all the new jobs that have been created since 2008 have gone to people with some higher education. So I think what she's saying is a four-year degree may not be for everybody. But if you want to participate in the economy going forward, you need some sort of skill, some training beyond high school. So it might not be a four-year degree, but it might be a certificate in welding or coding or accounting or something.

REHMBeth, your thoughts?

AKERSYeah. You know, I think for a long time we've had this narrative in this country that a bachelor's degree is really the ticket to financial prosperity. It's sort of the American dream in a way to achieve that. And I think that's really done a disservice to people who would be better served by other sorts of higher education. And when we talk about who's struggling with debt and a lot of them being the ones who start degrees but don't complete, my guess is a lot of those people would have been better served by other types of education than the one that they entered. And so I think we're moving off of that narrative. And that's probably consistent with the comment that she made.

REHMSo, go ahead.

HUELSMANI was just going to say, we have a real advantage here in the U.S. We have a system of community colleges which really could take a lot of this effort on. I think, you know, we're all in agreement that a four-year bachelor's is not the only pathway, or should not be the only pathway for economic security. But we have a system where, if well funded -- and community colleges have taken -- borne the brunt of a lot of state funding cuts -- if well funded, community colleges really could be, you know, a vocational option or another option for students.

REHMMark Huelsman, senior policy analyst at Demos. Short break here. And when we come back, we'll open the phones, take your calls. I look forward to speaking with you.

REHMAnd welcome back. It's time to open the phones. Let's go first to Mike in Detroit, Michigan. Hi there, you're on the air.

MIKEHey, Diane, longtime fan of the show.

REHMThanks.

MIKEI have a comment, maybe a different perspective. I went to undergrad, took out loans, I went to law school, took out loans. The issue was nobody ever described what the consequences of taking these loans were. I mean, yeah people understand that there's going to be payments later on, but when you're a kid you don't realize another $50,000 in interest is going to build up by the time you graduate. And they sort of incentivize loans by giving you more than you need, and I just think that's one of the key issues in this situation here.

REHMWhat do you think?

AKERSYeah, absolutely, I mean, the lack of financial literacy among teenagers is a real problem.

REHMYou bet.

AKERSAnd the fact is also the teenage brain is very immediate focused and can't really handle the thought of a 10-year repayment plan or, you know, 15 years from now. So I think it's very hard to get teenagers to understand the impacts of taking out these big loans.

REHMSo what that means is that if your parents aren't there to talk about these loans with you, you need to go to a financial advisor and have some realistic approach to what's going to happen.

HUELSMANYeah, I mean, I don't think we can overstate how complicated a system is facing students, you know, whether they're just out of high school or whether they're an adult returning to school, both on the front end in terms of verifying your income on financial aid forms, not knowing what, you know, your net price is going to be until well after you've applied to college, I mean, it's a lot, you know, and then on the back end having multiple different repayment options, you know, options like deferment and forbearance.

HUELSMANThere have been massive servicing issues that the Consumer Financial Protection Bureau has unearthed throughout the process. So I think, you know, we have a fairly complicated and somewhat inhumane system of college financing, I would say.

REHMBeth?

CLARKYeah, I mean, look, you could take the unsympathetic position and say these are students who signed up for this debt, and they knew what they were getting into, so why do we need to help them, but, you know, it's very clear that there's a very broad sense of feeling like they were a victim of the system, and that's a systemic issue, right, that the policymakers need to address.

CLARKJust to add a data point to what we've been talking about so far, some of my previous research showed that when we interviewed students within the first year after they started taking on student loans, they didn't know how much they had borrowed, and they couldn't guess even within a reasonable margin of error. So it suggests that these people are making decisions without very much information at all, and there may be some sort of element of surprise that comes when they get to the back end and have to start repaying.

REHMOkay, take me through the process of applying for a student loan.

AKERSWe'd need another hour. I mean, it's very complicated. The current financial aid system is like a Rube Goldberg machine with lots of crazy dials and things that you jump -- things that you have to jump through. You have to file your Free Application for Federal Student Aid, which is, what is it, 200 -- or some, a huge number of questions that, you know, your parents have to fill out their income and their savings and all kinds of things.

AKERSAnd then you file that in, and then each college evaluates it on its own to determine how much aid they'll give you, and often they're looking at also things like your grades or your sports ability. So you really can't predict what your net price will be at any particular college. So it's very -- you have to fill out these big forms, you have great uncertainty, and then when you get your aid package from a school, you don't know what it will be the next year. You can't count on getting that aid necessarily renewed each year. So there are many unpleasant surprises all along the path.

CLARKWhen you talk to financial aid officers who are on the ground working with students and ask how this really works, what they'll tell you is that it gets to be crunch time, the student needs to get into that classroom in the fall, and if they come in with their parents, and they're willing to sign just about anything to make that happen.

REHMAll right, to Toledo, Ohio, Melody, you're on the air.

MELODYHi.

REHMHi.

MELODYI guess my question or comment is why do we give student loans to young people who cannot pass an ACT or an SAT because I know here in our community colleges, you can take out a student loan or get financial aid without even a high school diploma if you tell them you will get your GED before you're -- before you're finished with -- it just devalues, it seems like, a degree, and irresponsible of the government to give out loans to people who can't pass an entrance exam into a college.

REHMThat's an interesting point, Beth.

AKERSYeah, absolutely. So the caller's raising the issue of something that we would call underwriting. So the current federal student loan system gives loans really to anyone who can enroll in an eligible institution, and there are folks who would like to change that. So that's actually consistent with Trump's platform, which is to say that there are different dimensions on which we want to choose to decide whether or not a student is eligible for aid and how much they're eligible for.

AKERSYou know, a lot of people on either side of the conversation will say that this is important to maintain the eligibility for those debts for the sake of access. We can't move from a system in K-12 that's completely socialized to a system in higher education that's completely restrictive.

REHMAll right, to West Lafayette, Indiana, Conner, you're on the air.

CONNERI'm an undergraduate at Purdue University. Purdue this year, they have a new program, it's called Back a Boiler. And the program is donors donate for students' education, and then in return they get a percentage of the student's income for 10 years. So I was wondering, because Mark was saying right now the risk of making the investment, getting the payoff, is on the student, but if you turn that eventually where the program is going to people with large capital that can invest in multiple students, and that way they can share the risk on their investment, and then on the student's end, because it is a percentage of income, even if they don't turn out that well, they don't have as much risk. So I was wondering.

REHMSo what is the percentage of income?

AKERSI think it depends -- actually I'm interested, are you -- would you be willing to make this deal? Would you be willing to trade free tuition for a percentage of your income after you graduate?

CONNERYeah, yeah.

MS. SHEILA BAIROkay, are you, in fact, participating in Back a Boiler?

CONNERI was invited, but I have other resources to pay for college right now.

AKERSSo you're not. Okay, so this is a fascinating experiment by Mitch Daniels, who is president of Purdue, and he's getting investors, not donors, these are investors who want a return on their money, to basically front tuition for certain kinds of students, and in return after their graduation, the investors will receive a percentage of the students' income.

REHMOkay, now first explain, when you say certain kinds of students, what do you mean?

AKERSYeah, I'm not sure on the details, but I have a feeling it's mostly engineering students, and it's mostly upper-classman.

CLARKI'm pretty sure that they are restricting it to certain years of students. I don't think it's restricted by program, but I'm not completely sure how Purdue has decided to structure that.

REHMAnd what about the percentage? What do we know about that?

AKERSI think that varies by major. I'm sorry, we look -- we don't have full details.

CLARKLet's get Mitch on the phone.

AKERSIt hasn't started. It's just -- this is the first...

REHMJust getting off the ground.

AKERSRight, it's just going to start in the next few weeks.

REHMGo ahead, Mark.

HUELSMANRight, and I think, you know, obviously it's a new program, you know, we await the results. I think a couple things. One, a couple things I worry about a little bit with income-share agreements, and it's not things that are insurmountable, but on the one hand, if you're offering better loan terms, not loan terms but income-share terms to students in high-wealth fields versus who are entering maybe public-service professions, you know, it might not be particularly equal.

HUELSMANYou know, I think that -- there's also not really a decent regulatory structure around this yet. I think we need some meat on the bones there to make sure that we don't have predatory actors in the system. And then, you know, on sort of the overall view, it doesn't necessarily get rid of the problem, at least at public colleges, of states disinvesting, right. It's another form of repayment plan that certainly could be an alternative to private loans, or parent loans in a lot of cases, but I think there's a lot that remains to be seen about these agreements.

REHMBeth?

AKERSYeah, so this is an idea that I'm very excited about. So I've written a bit about how I believe that risk is really one of the biggest problems we're facing in higher ed, and it's what we talked about before. It's the people who spend the money up front but don't see that return. Those are the people who need help. If we could create some sort of insurance policy for those students, I think we'd be a lot better off, and that's exactly what an income-share arrangement does.

AKERSSo what's interesting, a lot of people tend to think that income share only works for students who are in these high-return majors like engineering.

REHMYeah, yeah.

AKERSIt's actually not true. Income share works for students across all types of programs of study, and yeah, it's absolutely true what Mark said, that there's a lack of a regulatory and legal framework for income share right now, but that's something that I hope that we can push through and get more of these off the ground.

REHMAll right, to Portland, Maine, Brand, you're on the air.

BRADThank you, Diane. I guess first I'll explain the situation so I can make the comment and question. Me and my fiancé are currently looking for houses, but she just graduated with her pre-med degree and has over $60,000 in privatized loans, and I'm just wondering why there's no regulation on privatized loans, seeing as though it's basically the reallocation of the credit line for mortgages today, seeing as though we hold the most wealth for our country, in studies recently, in our housing market and why -- and so why are we not having any regulation, seeing as though we're just barely paying off the interest month by month, and we can never kind of catch up unless we're making either almost double payments, you know, in order to be -- and we're buying a $250,000 overall, over a 15-year period of time.

REHMSo Beth, he, at least up here on my board, he is paying $600 a month, and $520 of that is interest. Does that interest go down gradually, and more of the principal gets paid off?

AKERSYeah, exactly. So these loans function just like mortgages in that way. So unfortunately private loans have a very high interest rate. That's just the market rate for these financial products.

REHMNow why would you go for a private loan rather than a government loan?

AKERSWell, you shouldn't. Some people will max out the allowance in the federal lending program and then have to turn to the private market for loans. I think what this highlights here is that there are, you know, very serious repercussions for private borrowing that these folks probably didn't realize when they initially took on the debt, and it come back to the problem of the need for simplification and better information on the front end so people can make better decisions and not have these sorts of regrets.

REHMBrad, do you think you did not have sufficient information?

BRADSee, I went to a public community school. I've paid off my school loan debt because it was very low, and we had subsidizes. She's had grants to go towards her education, but after the four years of going into pharmacology and working in the field, she no longer actually likes the field and now has to choose another major for her doctoral program.

REHMSo that complicates it even further.

BRADIt does, it does, yeah, and overall just the amount of debt that it incurs over a period of time, without actually knowing that you're going to be interested inside that field, it just kind of makes it unfair to be able to not make a privatized loan, you know, especially for an education-based system, even for a medical program, not be subsidized down to at least like a four to five percent interest rate rather than a 16 to 20 percent.

AKERSWell I mean...

REHMOkay, do you mind if I ask you a question?

BRADSure, thank you.

REHMHow come you're buying a $250,000 house?

BRADWe are not buying one. I'm saying overall the interest over an accrued amount of time, that would -- it takes away from our debt-to-income ratio, so they would look at the housing as if we can't take as big of a loan now because they don't just look at the $60,000 that she has taken out, but they look at the overall accrued amount of debt over the amount of time that's going to take to pay off.

REHMKim?

CLARKRight. I mean, in Maine, you don't have a lot of college choices. I'm going to ask, did your fiancée or wife, did she go to a private college, or did she go to a...

BRADShe did. She went to UNE for a pre-med degree.

CLARKRight, so she chose to attend a more expensive college. There was -- you know, there are public colleges in Maine that are -- would be less expensive. She I hope maxed out her federal borrowing but then decided to stay at the school. She took out a private loan.

REHMChoices.

CLARKThose were choices that she made, and there are regulations covering, you know, private student loans.

REHMAnd you're listening to the Diane Rehm Show. Beth, I know you wanted to make a comment.

AKERSThat's okay, I'll save it.

REHMYou're going to let that go.

AKERSYes, I will.

REHMAll right, let's go to Nina in St. Augustine, Florida. I know you've been waiting. You're on the air.

NINAThank you, what an honor, Diane.

REHMThank you.

NINASo I'm a bankruptcy attorney, I've been practicing for 25 years, and we've seen, when I started practicing, interest rates were, you know, 20 percent, so we've seen quite a shift in -- it's very cyclical. I don't think we're going to see a change in the ability to discharge student loan debt from our Congress, but I think our bankruptcy judges are going to start ruling in cases that they may be dischargeable, and I think that's going to be a real shift in the entire student loan situation.

REHMMark, do you agree?

HUELSMANYeah, I think, you know, something that this brings up is that unlike other debt, medical debt, credit card debt, mortgage debt, things of that nature, student debt is nearly impossible to discharge in bankruptcy, both private student loans and federal student loans. You know, the worry initially was that you'd have all of these students take on a bunch of debt, declare bankruptcy when they were 22 years old and rebuild their credit over time. That was not borne out at all by the facts when students did it.

HUELSMANAnd obviously, that's not going to happen. It's a very painful process to do that. So I would like to see -- I would like to see federal statute changed, the law changed by Congress to allow it, given that we now -- given that student debt is now the biggest non-mortgage form of debt in the economy. You know, we're just facing a different terrain than we did when most bankruptcy laws were written.

REHMSo all of you have been involved in higher education for quite a while. How much value do you place on higher education? Can -- there is someone here from Pensacola, Florida, who says everybody needs trade. Some you get through college, some you don't. He says he worked all the way through college as a mechanic. He's now a family physician. So clearly he went on to do education but paid his way.

REHMBut the question comes back to how much value you see in higher education.

AKERSYou know, what I would say is that everyone needs skills. Everyone needs skills that they can translate into a salary that pays their bills and puts food on the table. And for some, higher education in the traditional sense, bachelor's degree, a graduate degree, is a great way to get there. For others, vocational training or associate's degrees or certificates are a better way to do that. So I think, you know, we have a tendency to talk very specifically about a traditional, four-year higher education system when the conversation should be much more broad.

REHMKim?

CLARKYeah, so I think, you know, this whole issue of, you know, is a college degree worth it, I think about college as like a toolkit. Now you can buy a lousy toolkit, or you can buy a high-quality toolkit, and what you do with the tools really matters. You can use a good, a high-quality tool very badly, or you can use it well. So a college education is this toolkit, and the question is whether you buy a high-quality one and whether you use it well.

REHMMark?

HUELSMANI'll extend the metaphors further. I think that college is an insurance policy anymore. We've seen the value of a college degree is very high relatively to a high school degree, but that's because college degree wages have flat-lined, high school degree wages, have gone down. So someone -- everyone needs skills.

REHMAll right, we'll have to leave it that. Mark Huelsman, Kim Clark, Beth Akers, thank you all.

HUELSMANThank you.

AKERSThank you.

CLARKThank you.

REHMAnd thanks, all, for listening. I'm Diane Rehm.