When President Joe Biden forgave $1.2 billion in student loans last week — on top of the hundreds of billions he’d already canceled — many people were understandably pleased. This latest move, however, illustrates just how narrow the debate about the rising cost of higher education has become. While grant makers, activists, and politicians fixate on student-debt forgiveness, they ignore long-term commonsense solutions.
One-time debt cancellation might bring short-term relief to borrowers, but it won’t solve the underlying problems of high cost and potentially low return on investment that created the $1.78 trillion student debt bubble in the first place. Philanthropists gave $58 billion in 2023 to higher education, primarily to fund college scholarships and research. In doing so, they continue to shore up a broken system.
Instead, grant makers must recognize that higher education is changing, and they should change with it. A growing number of today’s students don’t fit the traditional model — 18 to 24 years old and living on campus. Many are adults with jobs and family commitments who are enrolled part-time or online. They need greater flexibility to pursue both college and career-training programs to get the education required to move up the economic ladder.
To help these students, grant makers should focus on an array of innovative solutions that avoid saddling them with decades of debt. Philanthropy can fund and advocate for programs that encourage students to save for their own education while also supporting alternative financing models, particularly those that accommodate career-training programs.
Invest in programs that encourage families to save. Solving rising college costs and student loan debt can often seem intractable. In part, this stems from policies such as student loan subsidies that have created a perverse incentive for students to borrow far more than they could ever repay, which encourages universities to raise their tuition.
Instead, grant makers should consider investing in community-based organizations that aim to make college debt a thing of the past. Rather than students relying on a one-size-fits-all loan system to fund education, these organizations invest in students while giving them the tools they need to invest in themselves.
Several states, for example, offer what’s known as “matched savings programs” that encourage parents and students to save for their education and then match those savings with government contributions. Colorado’s CollegeInvest Matching Grant program is the most generous, matching up to $1,000 in contributions to an investment account. In addition to these state programs, philanthropy can support local efforts, such as NYC Kids Rise or Dollars for College in Texas.
Among the most successful is Earn to Learn, an Arizona nonprofit that motivates students to save for their education through a matched savings account similar to the state-run programs. Students or their families deposit up to $500 a year, which is matched 8:1 by government, philanthropic, and employer dollars, giving the student up to $4,500 a year for tuition, fees, and other costs to pursue their education.
More than half of the program’s participants graduate with no student loan debt. The program also boasts an approximately 80 percent graduation rate, a significant achievement compared with the national average six-year graduation rate of 62 percent. More than 3,000 students have participated in the program, which includes financial literacy courses.
This year, Earn to Learn plans to expand its model to Colorado and Nevada, and eventually nationally. It’s also exploring ways to support trade schools and short-term credential programs.
Earn to Learn has even attracted the attention of state and federal policymakers, and was the inspiration for the Earn to Learn Act, re-introduced in Congress in September. The legislation, which would fund a matched federal savings pilot program, has bipartisan support. But more philanthropic funding and advocacy is needed to help Earn to Learn gain traction and expand to additional states and education options.
Support alternative financing and education options. For too many students, including the more than 40 million adults with some college but no degree, paying a huge amount for college doesn’t add up. That’s why more students and employers are considering short-term and lower-cost career-training programs outside of traditional college degrees. These programs — among the nearly 1.1 million secondary and post-secondary credentials available across the country — help people build the skills needed for a first job or to continue along their career and education path.
But the financing options for these remain limited, especially since many aren’t eligible for government grants. The federal Pell Grant, for example, only funds programs offered by accredited colleges, which often excludes career-training programs that aren’t offered by universities. The growing bipartisan support for expanding Pell Grant eligibility to short-term programs offered by accredited colleges is a step in the right direction, although it still leaves out alternatives to traditional college. Grant makers should call on policymakers to ensure it includes non-college options with demonstrated results on par with traditional degree programs.
Philanthropy can also provide low-cost alternatives to college with the funding needed to demonstrate success, grow, and show policymakers that these approaches work and deserve public dollars. Grant makers, for example, can support tech training nonprofits such as Per Scholas, which provides instruction for technology careers, and Merit America, which helps people in low-wage jobs earn more by participating in tech certification programs.
Grant makers should also consider investing in or advocating for alternative education finance structures. A government-matched training and skills savings account, for example, would equip workers of any age with the financial resources to pursue college or an alternative pathway to gain new skills.
Financial tools, such as income-share agreements and outcomes-based loans are particularly useful for students pursuing non-college options who can’t attain traditional loans. With each, the amount a student must repay depends on their future earnings. Repayment typically only begins once an individual earns a living wage, typically about $40,000 a year.
In Colorado, for example, grant-making organizations, including Colorado Gives Foundation, the Colorado Health Foundation, Gary Community Ventures, and the Walton Family Foundation, launched the Colorado Pay It Forward Fund. It provides zero-interest loans to both students seeking job training and the organizations providing these trainings to students, so they can serve more people. Loans only need to be repaid if students earn at least $40,000 a year and repayments are cycled back into the fund to help other participants.
Nearly every student and parent knows that the higher education finance system desperately needs to be fixed. But forgiving student debt is like painting over a crack while the structure beneath it crumbles. Instead, philanthropy can help overhaul the entire higher education system. To do so, they should demonstrate the potential of alternative financing approaches and build a new postsecondary education and training infrastructure that serves all students.
Anything less is just propping up a system that fails to fully meet the diverse needs of today’s students.
