Education

Obama’s College Ratings Will Shape Student Loans


U.S. President Barack Obama speaks on education at University of Buffalo, on Aug. 22, in Buffalo, New York

Photograph by Jewel Samad/AFP via Getty Images

U.S. President Barack Obama speaks on education at University of Buffalo, on Aug. 22, in Buffalo, New York

Striking a populist pose today at the University of Buffalo, President Barack Obama said the government will create a rating system for higher education, scoring colleges in areas including average tuition, loan debt, and what graduates earn after getting their diplomas. The idea is to eventually tie student loans to these scores, directing more students to more affordable institutions and reining in the $1 trillion of outstanding federal loans.

“We need to rate colleges on who’s offering the best value so students and taxpayers can get a bigger bang for their buck,” Obama said. He wants the rating system in place by the fall of 2015. Colleges that rank higher than their peers would get more federal financial aid.

Loan debt is a heavy burden on a generation graduating into a lousy economy, as Bloomberg Businessweek’s Peter Coy noted in a September 2012 cover story. Two in three college seniors graduated with debt in 2010, with an average load of $25,000, according to the Institute for College Access & Success, but it’s common for debt to reach into the hundreds of thousands of dollars.

President Obama’s education speech is part of a push on middle-class economic issues such as housing, health care, and retirement. Obama is promoting his solutions to what he called a “a crisis in terms of college affordability” with a two-day bus tour, which continues at Binghamton University in New York and then Lackawanna College in Scranton, Penn. Average tuition at four-year public schools has increased 250 percent over the last 30 years, the White House says, at the same time that states are cutting funding and pushing more costs onto students.

The federal government offers a menu of ways for borrowers to repay their student loans, but as my colleague Karen Weise has written extensively, few are aware of all of their options. Just 3 in 10 borrowers in repayment plans have their payments tied to their monthly income level. Student loan experts praise the plans for their flexibility and terms that forgive some debt after a certain number of years.

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Nick Summers covers Wall Street and finance for Bloomberg Businessweek. Twitter: @nicksummers.

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