Seventy-one percent of last year’s college graduates were in debt with an average of $29,400 in student loans per borrower, reports the Project on College Debt. The debt load increased by 10.5 percent from the year before, according to Student Debt and the Class of 2012.
Graduates will have trouble paying back their loans: 18.3 percent of young college graduates are unemployed or working fewer hours than they wish. However, low earners can qualify for income-based repayment, which links repayment to earnings, and Pay As You Earn, which forgives unpaid debt in 20 years rather than 25.
Nearly three-quarters of Americans worry about college costs, according to a Bellevue University survey. Fifty-five percent said they’d pursue a degree if it wouldn’t put them into debt; 40 percent said obtaining more education is worth taking on more debt.
In another survey, 42 percent of young people blame colleges and universities for rising student debt and 30 percent blame the federal government.
Redesign Pell Grants, stretch out income-based loan repayment and simplify college cost estimates urged outside experts at a Hamilton Project forum today.
Pell Grants should provide guidance and support services tailored to recipients’ needs, write Sandy Baum of George Washington University and Judith Scott-Clayton of the Community College Research Center at Teachers’ College, Columbia.
They also propose dramatically simplifying eligibility and the application process and strengthening incentives for students to move quickly to a degree.
Income-based repayment should extend beyond the first 10 years after college, propose Susan Dynarski and Daniel Kreisman of the University of Michigan. Payments would rise and fall with a borrower’s income.
This model could prove less costly for taxpayers than the current system and it could even be less expensive; the proposal would reduce defaults and cut the cost of loan servicing, as well as eliminate what would become redundant policies, such as the student-loan interest deduction and the in-school interest subsidy. For the very small percentage of borrowers who take on significant student debt, the authors propose improving bankruptcy protection as well as tightening regulation of the private lenders who own most of these very large loans.
A better college cost calculator would help students from lower- and middle-income families to make informed college choices, writes Wellesley’s Phillip Levine. His Quick College Cost Estimator uses six basic financial inputs.
Changing financial aid to promote college completion could limit access, warns Do No Harm, a report by the U.S. Advisory Committee on Student Financial Assistance. Several proposals under discussion could make it harder for low-income students to attend college, the panel advises.
The report lists 10 financial aid “fallacies.”
For example, redirecting need-based grants to higher achievers and colleges with higher graduation rates would not improve completion, the report argues. The loss in access and completion for unfunded students will offset completion gains, it predicts.
To increase completion, financial aid proposals must address barriers for low-income students, the panel recommends. These include: high net prices for low-income students; excessive borrowing; decoupling of federal, state and institutional aid; complex forms and eligibility determination; inadequate early information and intervention, and insufficient in-college support services.
To increase access and completion, the panel proposes: Using federal aid to spur state and institutional aid; doubling the maximum Pell Grant; converting higher education tax credits to Pell Grants, and redesigning income-based loan repayment.
Student loan default rates continue to rise, reports the U.S. Department of Education. After two years, 10 percent of former students are in default; that rises to 14.7 percent after three years.
“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. The department will expand outreach to explain loan repayment options.
Community colleges have the highest two-year default rate — 15 percent — of any higher education sector. After three years, the community college default rate tops 20 percent, nearly as high as the rate for two-year for-profit programs.
The official default rate understates borrowers’ pain, says Rory O’Sullivan,policy and research director at Young Invincibles, a Washington nonprofit group. The rate, which includes graduates and dropouts, shows the share of borrowers who haven’t made required payments for at least 270 days. It doesn’t include borrowers who are putting off payments through “forbearance” and those on federal income-based repayment programs. “It’s financial disaster for borrowers,” said O’Sullivan. “Defaults can dramatically affect their credit rating and make it harder to borrow in the future.”
Nearly a half-million student borrowers are in default within two years and 600,000 within three years, notes the National Association of Student Financial Aid Administrators.
Eight institutions with high default rates could lose eligibility in federal student aid programs.
Pell Grants should be replaced with a single federal-state matching grant, recommends the Committee for Economic Development in A New Partnership: The Road to Reshaping Federal & State Financial Aid. Cut higher ed tax credits to save $18.2 billion for student aid that expands access, the report also urges.
“Replacing Pell Grants and the other federal grant programs with a need-based grant that would be partly matched by states is both novel and controversial,” notes the Chronicle of Higher Education.
At a luncheon . . . to release the report, several audience members voiced skepticism about the plan, worrying that it would penalize students in states that chose not to participate, and expressing doubt that a federal methodology for determining need would distribute aid fairly.
William R. Doyle, the Vanderbilt University professor who wrote the report, said he doubted states would refuse the aid, given the consequences for their students and colleges. He noted that states fought matching requirements in Medicaid and elementary and secondary education, but ultimately accepted the money.
“The federal government can’t be the only actor that’s concerned with access,” he argued. “They have to start expecting something back from states and institutions.”
The report is one of the studies commissioned by the Gates Foundation’s Reimagining Aid Design and Delivery project.