Washington is in the throes of a debate on extending the favorable interest rate on student loans. It is fodder for Congressional debates and the President has made it an election issue by “Slow Jamming” the issue on the Jimmy Fallon Show. That rate – 3.4% — will double on new loans starting July 1 unless Congress takes action.
The debate in Washington, however, misses an opportunity if it fails to address the rising costs of higher education. Holding the Stafford Loan interest rate at 3.4% only applies to about 30% of college students. For those who do qualify, the increased interest rate would average about $8 a month. That’s pocket change compared to the costs imposed on students, institutions, and taxpayers by antiquated business practices that are long overdue for reform. There are many examples, but none as clear as the costs of textbooks.
Textbooks make up as much as half of the annual cost of education in some cases. Their share of education expenses is rising more quickly than every other component at two-year public colleges and every component with the exception of room and board at four-year public colleges. These high costs are cited as a primary reason for dropping out and contribute to the low graduation rates for 2 and 4 year institutions (30% and 55%).
Simple changes, like improving the supply chain for textbooks, can lower the costs of textbook by up to 80% and save students hundreds per year. According to data published by Rafter, a Silicon Valley company that provides a technology platform for course materials management to colleges and universities, the difference between purchasing and renting textbooks can mean about $652 in student savings per year. Put another way, if every student who receives federal assistance for college rented textbooks for four years of college, the savings would exceed $17 billion. Better textbook business practices can reduce the cost of higher education, save taxpayers a lot of money, and potentially improve completion rates.
Institutions of higher education also benefit from better textbook business practices. They can use data from the new platforms to better manage demand and pricing for educational content. The information can help college stores build better relationships with their students by helping them to save costs and be more responsive to their particular needs. The information can help professors and adjuncts review, rate and identify which books are the most effective for their students.
Rather than narrowly focusing on interest rates and vote capturing, policy makers should step back and consider new, simple ways to move the needle on the high cost of education and the troubles that come with it. Maybe for an encore, President Obama can return to the Jimmy Fallon’s show and slow-jam how about smarter business models and affordable higher education.