Alexander: Stop Telling Students They Can’t Afford College

Wednesday, June 3, 2015
Senator Lamar Alexander said that it is easier to pay for college than many think, noting that with federal grants, community college can be free for many students, and with state aid and federal loans, 4-year colleges can be affordable.

“The question before us is, can you afford to pay for college?  I believe the answer for most Americans is, yes. For millions, two years of college is free.  For most students, four years at a public university is affordable and these include some of the best colleges and universities in the world," Sen.
Alexander said. “It is never easy to pay for college, but it is easier than many think and it is unfair and untrue to make students think that they can’t afford college.  The average debt of a graduate of a 4-year institution is about $27,000 – or about the same amount of the average new car loan.”

Sen. Alexander chaired the Senate education committee’s fourth hearing on the reauthorization of the Higher Education Act.

He proposed 5 steps Congress could take to help reduce overborrowing for students who are taking out more money in federal loans than they can repay: stop discouraging colleges from counseling students about how much they should borrow;  help students save money by completing their degree at a faster rate; make it simpler to repay loans; require colleges to share in the risk of lending to students; and have Congress evaluate its role in increasing college costs, whether through unfunded Medicaid mandates on states or through regulations on colleges and universities that waste college resources and increase their costs and tuition.

The senator’s prepared remarks follow:

The question before us is, can you afford to pay for college?  I believe the answer for most Americans is, yes.  And for millions, two years of college is free. It is never easy to pay for college, but it is easier than many think and it is unfair and untrue to make students think that they can’t afford college.

Four weeks ago, I spoke at the graduation of 800 students from Walters State Community College in Morristown, Tennessee.  Half those students are low-income. Their two years of college was free, or nearly free, because taxpayers provided them a Pell grant of up to $5,730 for low income students and the average community college tuition is about $3,300. 

So, for the nearly four of ten undergraduate students in our country who attend two-year institutions, college is affordable.        

Especially in Tennessee, where our state has made community college free for every high school graduate.

Another 38 percent of undergraduate students go to public 4-year colleges and universities where the average tuition is about $9,000.  

At the University of Tennessee, Knoxville, one third students have a Pell Grant.  And, 98 percent of in-state freshmen have a state Hope Scholarship, which provides up to $3500 annually for freshmen and sophomores and up to $4500 for juniors or seniors.

So, for most students, four years at a public university is affordable and these include some of the best colleges and universities in the world.

What about the 15 percent of students who go to private universities where the average tuition is $31,000?  

Here is what John DeGioia, the president of Georgetown University, where college costs are about $60,000 annually, told me this week.

First, he said, we determine what a family can afford to pay.  Then we ask students to borrow $17,000 over four years.  Then we ask the student to work 10-15 hours under our work-study program.   Then we pay the rest of the $60,000 which costs Georgetown about $100 million a year.  He said that 21 other private universities that work together on financial aid have the same policies and that Harvard, Yale, Stanford and Princeton are even more generous.  

So even these so-called elite universities may be affordable.  

Finally, another 9 percent of students will go to for-profit colleges, where tuition averages $15,230 a year.

OK, despite all this, let’s say your family still is  short of money for college.  Taxpayers will loan you money   on generous terms.

We hear a lot about these student loans.

Are taxpayers being generous enough? Is borrowing for college a good investment? Are students borrowing too much?

One way to answer these questions is to compare student loans to automobile loans.

When I was 25 years old I bought my first car. It was a Ford Mustang. The bank made my father co-sign the loan because I had no credit history and no assets.   I had to put the car up as collateral.  I had to pay off the loan in three years.    

If you are an undergraduate student today, you are entitled to borrow at least $5,500 from the taxpayers each year. It doesn’t matter what your credit rating is.   You don’t need collateral.  The fixed interest rate for new loans this year is 4.29 percent.

When you pay your loan back, you may elect to pay no more than 10% of your disposable income. And if at that rate you don’t pay it off in twenty years, the loan is forgiven.

Is your student loan a better investment than your car loan?  Cars depreciate.   The College Board estimates that a 4-year degree will increase your earnings by $1 million, on average, over your lifetime.

Is there too much student loan borrowing?

The average debt of a graduate of a 4-year institution is about $27,000 – or about the same amount of the average new car loan.

About 8 million undergraduate students will borrow about $100 billion in federal loans next year.  The total amount of outstanding student loans is $1.2 trillion.  That’s a lot of money, but the total amount of auto loans outstanding in the United States is $950 billion, and I don’t hear anyone complaining that the economy  is about to crash because of auto loans—nor do I hear that taxpayers should do more to help borrowers pay off their auto  loans.

Well, you might say, what about all those $100,000 student loan debts? 

The answer is, debts over $100,000 make up only 4 percent of student loans, and 90 percent of those  borrowers are doctors, lawyers, business school graduates and others who have earned graduate degrees.

Nevertheless, it is true that college costs have been rising and that a growing number of students are having trouble paying back their debt.

According to the Department of Education, about 7 million, or 17%, of federal student loan  borrowers are in default– meaning they haven’t made a payment on their loans in at least 9 months.

The total amount of loans currently in default is $106 billion or about 9% of the total outstanding balance of federal student loans—although the Department also says that most of those loans get paid back to the taxpayers, one way or another.

The purpose of this hearing is to find ways to keep the costs of college affordable and to discourage students from borrowing more than they can pay back.

Here are five steps the federal government could take:

Stop discouraging colleges from counseling students about how much they should borrow.

Federal law and regulations prevent colleges from requiring financial counseling for students, even those clearly at risk of default who are over-borrowing. At a March 2014 hearing our Committee heard from two financial aid directors who said that there was no good reason for this. One said “institutions are not allowed to require additional counseling for disbursement. We can offer it, but we're not allowed to require it.  And without the ability to require it, there's no teeth in it.”

Help students save money by graduating sooner. For example, our bi-partisan FAST Act would make the Pell Grant available year round to students so they can complete their degrees more quickly and start earning money with their increased knowledge and skills.

Make it simpler to pay off student loans.  Last week, a Tennessee college president told me it took him nine months and the help of a financial aid officer to to make a full one-time payment on his daughter’s student loan. 

Allow colleges to share in the risk of lending to students.   This could provide an incentive to colleges to keep costs down and to students to borrow no more than they can pay back.

Point the finger at ourselves.   Congress is one cause of higher college costs.   The main reason state aid to public universities is down is the imposition of Washington Medicaid mandates  and a requirement that states maintain their level of spending on Medicaid. In the 1980s when Tennessee was paying 70% of the cost of its students’ college education, Medicaid spending in Tennessee was 8%. Today it’s 30%, and the dollars have come right out state-supported colleges.

Chancellor Nick Zeppos of Vanderbilt University told this committee that the Boston Consulting Group estimated that the cost for Vanderbilt to comply with federal rules and regulations on higher education was $150 million in 2014,  equating to about $11,000 in additional tuition per year for each of the university's students.

Zeppos co-chaired a report commissioned by a bipartisan group of senators on this committee that told us that colleges and universities in this country are ensnared in “a jungle of red tape.”

We should take steps to make college more affordable but we should also cancel the misleading rhetoric that causes so many students and families to believe they can’t afford college.

This is untrue and unfair.

It’s untrue because:

If you’re a low-income community college student your education may be free thanks to a taxpayer Pell Grant.

If you’re a four year UT Knoxville student – between a Pell Grant and the Hope Scholarship – 75 percent of your tuition may be covered with student aid you never have to pay back.

Even at elite private universities, if you are willing to borrow $4500 a year and work 10-15 hours a week, the university will pay what your family can’t. 

And if you still need to borrow money to help pay for a 4-year degree, your average debt is going to be roughly equal to the average car loan.  And your college loan is a better investment.

And your student loan is a better investment for our country as well.  Dr. Anthony Carnevale of Georgetown University says that without major changes the American economy will fall short of 5 million workers with postsecondary degrees by 2020.

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