Degrees of debt

April 18, 2004|By Jonathan F. Zaff

EARLY SPRING means daylight saving, rain and thousands of Maryland high school seniors excitedly opening college acceptance letters.

Inevitably, these prospective students' thoughts quickly turn to financial aid applications and the future education debt that ensues. For all the commendable initiatives college administrators and lawmakers have undertaken recently to open the doors to college to all qualified students, the problem of unmanageable post-college debt has gone largely unaddressed.

Consider the obstacles for today's college hopefuls.

In the 1970s, federal Pell Grants covered 45 percent of tuition costs for public universities and 25 percent for private ones. Today, they cover just 25 percent and 10 percent, respectively. That's largely because they can't keep pace with skyrocketing tuition.

Less grant aid means a greater reliance on loans, which now account for the majority of student financial aid. This is a problem for all students who must borrow, but especially for low-income students on whose behalf activists, politicians and administrators have tried to broaden opportunities for a college education.

To understand how low-income students' efforts are threatened by rising tuition, consider that their families spend a staggering 70 percent of household income each year to pay for public universities and 180 percent for private ones. Worse, family income isn't keeping pace with inflation.

As recent graduates are well aware, greater reliance on loans means a life filled with debt.

According to the College Board, the average private school graduate leaves campus owing $20,000, his public school counterpart more than $16,000. (It's worse for graduate students; more than two-thirds of those with a professional degree incur debt in excess of $30,000.)

And unfortunately the popular belief that a college education pays off when it comes to salary is not quite true, at least in the short term. Nearly half of college graduates have what financial experts consider "an unmanageable debt burden" - one that eats up more than 8 percent of their monthly income. Graduate students devote a whopping 13.5 percent of their monthly income to student loans.

With a presidential election at hand, there's hope the candidates will engage propose ideas about how to solve this problem.

President Bush has asked Congress to increase the first-year student borrowing limit by $375 to $3,000. His budget includes a small increase in Pell Grant funding and $1,000-per-year grants for 33,000 high-achieving, low-income students who participate in the State Scholars program. Such programs are a good start, but far too small to have a serious impact. How many good schools cost less than $1,000 a year? And Mr. Bush's plan does little for the 15.8 million other students.

Sen. John Kerry proposes a $4,000-a-year tuition tax credit that would significantly increase the awards provided by the Lifetime Learning and Hope Scholarship tax credits. This "College Opportunity Tax Credit" would be refundable for the country's poorest students.

Let's get real: The deficit-strapped federal government cannot possibly fund the escalating tuition costs of the 67 percent of high school graduates who attended at least some college last year, the highest percentage ever.

By addressing the debt burden issue in the reauthorization of the Higher Education Act and in numerous state-level higher-education initiatives, politicians can ensure that college graduates start their postgraduate life building assets, not accumulating more debt.

Loan forgiveness programs reduce loans while simultaneously addressing societal needs, such as placing doctors and teachers in underserved areas. But many forgiveness programs offer little return for significant sacrifice - $3,000 in loan forgiveness doesn't mean much when you have $25,000 in debt hanging over your head.

Working within the constraints of financial reality, though, means these programs can offer only so much to only so many graduates. Flat fees for college credit programs allow students to front-load credits to allow for early, or at least on-time, graduation.

Considering the high percentage of students who stay in school for five or more years, such an approach would reduce loans to pay for additional years of schooling, room and board. Of course, this does nothing to help the majority of students who work upward of 27 hours a week to make up for their financial aid shortfall.

Extending the grace period for repaying loans from six months to 18 months would increase the chance for graduates to attain stable financial footing, save money and obtain a higher salary before having to repay their loans. With the national savings rate at a 75-year low, a policy idea that promotes savings should be cheered.

These proposals are only a beginning, but we at least need to start asking the questions. One reason politicians duck the issue of soaring tuition costs is that there are no simple answers to the problem that can fit into three-second sound bites. But if they truly believe that college is the gateway to the American dream, they need to develop fiscally and politically feasible solutions to debt burden.

Indeed, by striking a balance between college access and a manageable debt load, we can do what every politician promises: Ensure our nation's future economic health and give everyone access to a good education.

Jonathan F. Zaff is president of 18to35, a nonpartisan organization dedicated to engaging young adults in public policy-making.

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