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Tuition Deferment: A Promising Solution to Solve U.S.'s $1.3T Student Debt Problem

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Created: 11 March, 2015
Updated: 15 October, 2022
3 min read

NATIONAL -- The higher education system has hit some turbulence recently.

In February, a group of students claimed that they would not pay back student loans for their time at institutions under the umbrella of Corinthian Colleges. These students claim that the "predatory empire pushed hundreds of thousands into a debt trap."

The situation has gotten so bad that a group of Democratic U.S. senators sent a letter to Education Secretary Arne Duncan strongly urging the U.S. Department of Education to cancel all Corinthian students' loans with the federal government.

However, the department has yet to respond, and some are suggesting that it may not cancel the loan payments because Corinthian's "students had $1.2 billion in outstanding federal loans" in 2014, meaning the department would not be able to bring in a large source of revenue.

Even worse, The Huffington Post reported that, despite the significance of student loans in the education system, federal agencies use different statistics when determining how much student loan debt there currently is. This means that the federal government apparently doesn't know how much student debt is actually out there.

But there is some

good news: the education department reportedly "will terminate its relationship with five debt collectors after accusing them of misleading distressed borrowers." This could indicate that the department is stepping up its efforts to protect students.

But there are other ways to fix the system as well.

Steve Cohen advocated an alternative solution to student loans in the New York Times called tuition deferment, which takes banks and the government out of the equation for much of the process of paying for college. One version of this plan states that it would allow "students to defer up to 75 percent of the cost of attending school — tuition, room, board and fees — and pay it back over 20 years."

Think about it: instead of paying tuition to a college along with a large interest rate to the bank, one could conceivably pay a majority of the cost directly to the college instead of through a middle man.

Cohen notes that there would be an interest rate, but a markedly lower one "because colleges have collateral: endowments, physical assets and future cash flow."

Some might take the argument a step further and claim that colleges that participate in such a setup should, in fact, impose no interest rate at all because the ultimate goal is to be paid the full price of tuition, not to turn a massive profit.

However, this may be unrealistic since colleges would have to pay a large sum of money when first implementing tuition deferment. By allowing students to pay back their tuition at a later date, the college has less money to fund operations in the beginning.

However, in a perfect world, once deferred tuition payments (plus interest) are paid back into the system by the first group of students, the interest rate should not be necessary for new students. By that time, the college could have enough money flowing into its account to fund normal operations, meaning new students would not need to pay more.

Of course, this idea does not account for inflation, higher tuition costs, changes in state funding for colleges, etc.

Tuition deferment sounds like a great substitute for loans not only for students, but colleges as well. In the words of Steve Cohen, it "is in their self-interest" to make paying for college easier on students to keep enrollment numbers up. But it may be difficult to convince colleges of this as they would be taking on a high financial risk through such a program.

Let's be honest. Despite tuition deferment seeming like a good deal for students, student loans will most likely be around for a while.

Photo Credit: zimmytws / shutterstock.com

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