Want a College Loan? First, Serve Your Country

(Bloomberg Opinion) -- Pete Buttigieg, the mayor of South Bend, Indiana, has made headway in his long-shot bid for the Democratic presidential nomination with an appeal to heal the divisions within the U.S. He’s proposed mandatory national service as a means of forging a renewed sense of national unity from the American mix of ethnicities, religions and creeds. That’s a praiseworthy ambition now that the one-time unifying consensus for spreading American ideals abroad has turned into a source of division.

In the past, national service has been envisioned as a civilian version of a military draft. Both are a way to provide a shared experience for Americans of diverse backgrounds. But the draft was abolished 46 years ago in the U.S. and compulsory service offends the spirit of free association. It also, as Buttigieg seems to acknowledge, has the potential to produce hardship for those who have family obligations or other reasonable objections to participating.

The idea can be salvaged, however, if it's changed from a mandatory program to a prerequisite for receiving federal student loans.

U.S. student loan debt has exploded, in part because the college admissions process obscures the costs and lures students into borrowing more than they need. The pressure of competition to get into the most prestigious possible school creates an incentive to ignore the cost-benefit balancing that should precede heavy borrowing to cover tuition. Government loans appear to be a lifeline when for many families, they’re really a trap.

Requiring a year of service has the potential to put the brakes on this process. For students younger than 26, federal loans should be available only to those who spend a year participating in projects like rebuilding communities hit by natural disasters, or distributing food to the elderly. The only requirement should be that the service must be performed outside a person’s home region in order to expose young people to others with diverse experiences and backgrounds.

Linking service to student loans would accomplish three things. First, the prospect of having to do a year of service would weed out students who never really had a commitment to higher education in the first place and who’d be better off entering the world of work. For them, loans would be a bad personal investment and a bad national investment.

Second, the service requirement would impose a cooling-off period to relieve the heat generated by the high-school academic race and parental pressure to get into college. Before taking on additional financial obligations that could stay with them for decades, students would get a chance to reflect on goals and ambitions.

Most probably wouldn’t change their minds about going to college. But many might choose a more affordable route, through state schools or community colleges. From a purely financial standpoint, they’d almost certainly be making the right call.

Some would realize that, while they are committed to their education, at this point they are unready to take on a big financial obligation. Roughly 3.9 million students with student loan debt dropped out of college during the 2015-2016 school year.

It's impossible to know exactly how many of them got in over their heads versus those that were only marginally committed from the start. In either case, however, the tragedy of racking up debt with little or nothing to show for it could be avoided.

Third, the trade of service for loans would compensate the citizenry for the increasing national commitment to financing higher education. Student loan debt grew to approximately $1.5 trillion in 2018. Over 10 percent of borrowers are currently in default, a growing liability for taxpayers. A national service year would give the taxpayer something upfront.

The Department of Education estimates that 4 million 18- and 19-year-olds will be enrolled in college in 2020. That means there are roughly 2 million incoming freshmen a year, about 70 percent of whom will take on student loans at some point in their education.

A national service requirement could be expected to cut that percentage. So let’s guess that over a million prospective students a year would join up. That would unite nearly one-third of all graduating seniors in national service — a solid core of shared experience.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith is a former assistant professor of economics at the University of North Carolina's school of government and founder of the blog Modeled Behavior.

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