Congress may have put the final nail in the coffin of hope for many low- and middle-income students by allowing the interest rate to double on subsidized federal college loans. Rates went up July 1, but the problem has been decades in the making.
The promise of education tantalizes, dangling just out of reach. Get good grades and you can go to college. Maybe not a fancy private university, but good old State U. is often as good as a private university anyway.
Up until the 1980s, that was pretty much true. A state education was well within the reach of most middle-class families. But then middle-class incomes began to sink and states started cutting higher-ed funding.
Based on trends since 1980, average state support for higher education will reach zero by 2059, and sooner in some states, according to Thomas G. Mortenson, a senior scholar at The Pell Institute for the Study of Opportunity in Higher Education.
Writing for the American Council on Education chronicle, Mr. Mortenson said only two states — Wyoming and North Dakota — have maintained their investment levels from 1980. All other states have reduced their support in amounts ranging from 14.8 percent to 69.4 percent. The five states with the highest rates of decline were Colorado, South Carolina, Rhode Island, Arizona and Minnesota.
Missouri in the middle
Missouri is toward the middle of the pack. Mr. Mortenson estimates that based on trends since 2000, Misouri could zero out its support for public higher education by 2036.
It is, he says, “a race to the bottom.”
Inside Higher Ed agrees. A report in that publication from the National Association of State Budget Officers says that states have cut higher-ed spending more sharply than on prisons or Medicaid.
College enrollments have grown sharply — got to have a college degree to succeed, and public colleges have shifted costs to students through higher tuition and fees.
A report released Tuesday by the U.S. Department of Education shows that tuition at four-year state schools rose at a faster rate for in-state students than for those from out-of-state for the past three years.
Public college administrators have tried to make up for the loss of state money by recruiting out-of-state students and their higher tuition payments. But that trick is hitting a wall.
Jack Buckley, commissioner of the National Center for Higher Education Statistics, said in the Wall Street Journal on Tuesday: “Out-of-state tuitions are already pretty high. There’s only so much more a school can raise its out-of-state tuition and fees.”
Student loans and mortgage loans
The student loan problem looks a lot like the mortgage industry loan problem of 2008. The Congressional Budget Office estimates that taxpayer losses on student loans will be about $95 billion over the next decade.
Student-loan debt, meanwhile, has nearly tripled since 2004 and is now about $1 trillion. Defaults also are rising on student loans and other types of debt incurred by young borrowers. The impact is huge on these young people as they try to move forward in a shaky job market.
This is all playing out against global pressure to turn out students better prepared to compete for complex jobs. The student debt crisis is forcing young people to put off starting families and making big purchases, such as cars and houses, that drive the economy.
Letting the interest rate double from 3.4 percent to 6.8 percent, as Congress did, is inexplicable, except that it benefits political contributors in the banking industry. If it is allowed to stand, students who enter college in the fall will pay an average of about $4,000 more in loans over the course of a four-year academic career.
Voted down a delay
On Wednesday, the Senate voted down a Democratic proposal, backed by the White House, that would have extended the lower rate for a year. The plan would have bought time to restructure the student loan system, so it doesn’t burst like the housing bubble did.
The nonpartisan Institute for College Access and Success has recommended more than two dozen specific methods to reform and simplify the system. It would tie the rates to the borrowing costs of government, which would keep them low while the student is in college, and then set a fixed rate with a cap when the loan enters repayment.
Maybe bankers wouldn’t see as much money, but that’s OK. The choice between excess profits and the future of the middle class is an easy one.
Copyright St. Louis Post-Dispatch. Reprinted with permission.