DeVos Says Student Loans Have Created a Crisis. Hold On, Researchers Say.

At a training conference on Tuesday focused on the weeds of financial-aid policy, the U.S. education secretary, Betsy DeVos, spoke in broad and bombastic terms about what she called the “crisis in higher education.” What’s that emergency?

The nation’s $1.5 trillion in federal student-loan debt held by roughly 45 million borrowers.

DeVos mentioned at the Federal Student Aid Training Conference, in Atlanta, that only one in four borrowers have started to pay off their loans’ interest and principal. And she said blame partly rests with the federal government’s nationalizing the federal student-aid program and essentially writing a blank check that has allowed colleges to raise the price of an education.

“The student-loan program is not only burying students in debt,” DeVos said at the conference, according to her prepared remarks. “It is also burying taxpayers, and it’s stealing from future generations.”

In a soon-to-be-divided Congress, new federal policy on this front is unlikely. But under an administration whose views have been opaque in many areas of higher education, observers pay special attention to words like “crisis.”

But is the nation’s federal student-aid system really a bubble ready to pop?

Rachel Fishman, deputy director for New America’s education-policy program, said DeVos’s comments had the unmistakable ring of fearmongering. She added that a number like 1.5 trillion is so big that it can justify a whole range of extreme conclusions. “It’s so easy to point to it as a crisis because of the amount of debt there is right now,” she said.

Colleen Campbell, associate director for postsecondary education with the Center for American Progress, said framing the debate over federal student loans as a crisis concerned her. She said she feared that view could serve as rhetorical fodder to end the direct-loan program, in which the Treasury Department lends directly to borrowers, and to limit some populations’ access to student loans. The direct-loan program replaced the previous bank-based system in 2010-11.

Campbell also said she didn’t hear any mention, in DeVos’s remarks, of practical ways to dial back loan debt: for instance, by raising the value of the Pell Grant in order to reduce students’ reliance on loans.

“It makes me very very concerned,” Campbell said. “When the Department of Education — who doesn’t have policy-making authority in this area, that’s up to Congress — is essentially lobbying for restricting borrowing to certain types of students in a program that should be an entitlement.”

Claims and Hypotheses

Many higher-ed researchers spent Tuesday fact-checking some of the data DeVos used to back up her “crisis” claim.

One data point stood out among the rest. DeVos heavily implied that the 2010 move to direct lending had been responsible for the increase in student-loan debt. (Congress passed a law, signed by President Barack Obama in 2010, that shifted to direct loans from the previous system.)

There’s no evidence to support that claim, said Jason Delisle, who researches higher education and student loans at the American Enterprise Institute. In fact, he said, it’s a myth pushed by the companies that service student loans. The rules for loan eligibility didn’t change from the old system to the new.

“You would think the secretary of education would not fall for it, but she has,” Delisle said. “And that’s unfortunate because now she is perpetuating it.”

He added that DeVos’s stated goals don’t seem to align with the proposals her department has put forward. If vast lending was truly a huge problem, he said, why not suggest limiting how much debt borrowers can take on, or who is eligible for loans?

At another point in her speech, DeVos suggested that colleges are gaming the federal loan program. “It has something to do with what one of my predecessors famously pointed out decades ago,” DeVos said. “When the federal government loans more taxpayer money, schools raise their rates.”

She was referring to William J. Bennett, an education secretary under President Ronald Reagan, who in 1987 suggested that increased government financial support led colleges to raise their prices — a claim now colloquially known as the “Bennett hypothesis.”

But scholars have researched the claim and failed to come up with a definite link. And without that link, Fishman said, the claim is nothing more than “a weak hypothesis.”

When asked about those criticisms, Liz Hill, the department’s press secretary, said they miss the point of DeVos’s speech.

“The student-loan portfolio is $1.5 trillion, and only 24 percent of students are paying down principal and interest,” she said in a written statement. “This is a major problem not caused by a single event. The secretary made very clear that this is a crisis across the entire higher-ed ecosystem and one that everyone should be collectively working together to fix.”

Chris Quintana is a staff reporter. Follow him on Twitter @cquintanadc or email him at chris.quintana@chronicle.com.