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The University of Minnesota needs to be the ‘North Star’ of college financing

Our current system of financing much of higher education with student loan debt lacks sufficient financial incentive to control costs. Making the university the guarantor of student loans would provide that incentive.

University of Minnesota, Minneapolis
University of Minnesota, Minneapolis

In the coming legislative session the University of Minnesota administration will request an increase of 15% in state appropriations. While a portion of the increase would be allocated to financial aid, two-thirds of the increase would be spent on the ever expanding costs of operating the university.

Even with the additional state appropriations, the vice chair of the Regents foresees an increase of 6% to 8% in tuition. Such an increase would undermine the effect of the additional financial aid.

It is not a saving grace that the university budget is comparable to that of other large universities (as the Regents assure us). For too long, no one has been watching the store anywhere in higher education.

Each year the costs of administration consume more than 25% of the $4 billion total expenses of the university. Almost 60% of the students who receive a bachelor’s degree at the university graduate with student loan debt. Most of these students are children of families with middle class incomes. The median amount of their debt is now $23,634.

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National student loan debt is at $1.7 trillion and rising according to the Sept. 8 Federal Reserve Consumer Credit Report.

The cost of an undergraduate degree is not limited to the amount of debt incurred. That debt is incurred after the students and their parents have exhausted their savings and student earnings.

We need to design a different way to operate and to finance higher education.

The Affordable Care Act requires health insurers in large group markets to send rebates to customers if their administrative costs and profits exceed 15% of premiums. In a similar manner the legislature should require the university administration to send rebates to the state treasury to the extent that the costs of administration exceed 15% of the total expenses of the university for the fiscal year.

Student loans have provided the fuel for the skyrocketing cost of higher education, which has risen even faster than the cost of health care over the past 30 years. Our current system of financing much of higher education with student loan debt lacks sufficient financial incentive to control costs. Making the university the guarantor of student loans would provide that incentive.

Payments on student loan debt should be a percentage of the earnings of each student for a certain time period, such a five years. The primary responsibility for repayment should remain with the students and their parents. The university should have the secondary responsibility to pay any remaining balance on the loans. This would inject a much needed dose of accountability into the system.

The university president began her term in 2019 expressing her aspiration to make the university “the North Star of pricing” in higher education. She was referring to tuition, not her annual compensation (which the Regents recently increased to more than $1 million with “supplemental” retirement contributions).

Now is the time to make that aspiration a reality.

Michael W. McNabb is an attorney and graduate of the University of Minnesota. He is a University of Minnesota Alumni Association life member.