Data from the Office of the Commissioner of Higher Education points to growing financial problem within Montana’s education system. In 1992, the state appropriated $120 million to education, with the intent of keeping the rise of tuition throughout universities and colleges in Montana from experiencing a steep hike. The data from 2005, the appropriated amount for education was a confusing $7 million less than the 1992 funding, representing a 38% decline. Throughout those years, the Board of Regents utilized their power to raise tuition, directly impacting students and their ability to attend and subsequently pay for school. To reduce the prevalence of tuition increases, Montana government issued what is now known as a tuition freeze. Under this system, the states took on an equal responsibility to students regarding paying for higher education. Other states enacted similar guidelines to help offset the burden of rising tuition rates, and still follow those directives today. However, to safeguard an equal playing field among students and the state, funding requested by the OCHE would need to be included in the budget for the 2019 biennium. Instead, the governor proposed a budget that effectively fell short – to the tune of $25.5 million. Without the tuition freeze in effect, and the drastic cut to education funding throughout the state, students will make up the delta in education costs as universities and colleges, again, raise tuition. Lasting Implications for Students Students considering or currently in a degree program at an institution of higher education face difficult choices as it relates to footing the bill. Some may make the choice to work a part-time job (or two) in an effort to avoid taking on student loans to cover the cost; others may borrow through public and private student loan providers to pay the bill. In some cases, students may opt to forego college altogether because the cost of attending is simply too steep. Each of these choices students must make before and during a college career has lasting implications. First, students who work part-time jobs to help pay for the cost of higher education often end up doing themselves a disservice. Working even a few hours each week takes away time that could be spent taking an additional class or studying for an upcoming exam; missing these opportunities creates the need to stay in college for an extended period, which ultimately increases the total cost of attendance. Students who opt to pay for schooling by borrowing private or federal student loans also face an increased cost, albeit deferred. The majority of student loans are not paid while a student is in school, leaving a significant bill after the deferment period ends (six months after graduation or leaving full-time status). All student loans carry with them an interest rate, varying greatly depending on the source of the loan, which adds to the problem of repayment over time. And, there is currently no vehicle to refinance student debt with the Department of Education. The Federal Direct Consolidation Program does not actually help debtors to refinance to a lower rate. Instead, the consolidation loan assumes a weighted average interest rate. Although there are income-based repayment programs available to qualified borrowers that reduce the monthly payment due for recent graduates and low-income earners, interest continues to accumulate on some if not all student loan balances during that time. Moreover, some states have enacted state-level legislation to support a state sponsored student loan refinancing initiative. A situation is created where borrowers are forced to have their loans forgiven after two decades of repayment (a taxable event), or they struggle to make higher payments to offset the interest accumulation. Both scenarios burden student borrowers for what seems like a lifetime. Finally, when students feel as though the cost of attending school is too much of a risk, they simply won’t attend. In the current job market, a substantial portion of entry-level positions require some level of college education. Without a degree, individuals are left taking low-income or hourly wage jobs which may lead to a need for public assistance or taking on high-interest consumer debt. Without appropriations on the state or federal level, prospective and current college students in Montana face a nearly impossible challenge. As history has shown, lower government funding for education leads to an increase in the cost of attending a college or university, and ultimately, a vicious cycle for students. Being forced to work during college years, take out additional student loans, or forego a college education altogether gives students a bleak outlook on the future, and it prevents economic growth for years to come. Sources: 1. http://time.com/money/4586201/income-based-repayment-student-loan-forgiveness-cost/ 2. https://studentaid.ed.gov/sa/repay-loans/consolidation 3. https://lendedu.com/blog/refinance-student-loans 4. https://www.hesc.ny.gov/repay-your-loans/repayment-options-assistance/loan-forgiveness-cancellation-and-discharge.html
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As outstanding student loan debt soars above the trillion-dollar mark, it’s little surprise that the subject of college tuition has become one of the key issues in this year’s presidential election. Despite such attention, proposed solutions have failed to truly address the root issue of the problem.
Although a wealth of evidence has proven that subsidizing higher education on the federal level actually increases the cost of tuition, proposed solutions, such as debt-free or tuition-free college, continue to gain traction. Such policies do not actually address the key issue of price increases and instead only transition more of the burden of higher education onto taxpayers. Traditionally, the subject of higher education has tended to focus on policies that would cause prices to balloon while extending ineffective incentives to students as well as schools. Under the Obama administration, the policy of income-based payments was expanded. This type of solution establishes a cap for loan repayments based on a percentage of the borrower’s income. This program, which began in 2007, originally capped such repayments at 15 percent of the borrower’s discretionary income. Under President Obama, that amount decreased to 10 percent. There were no measures put into place to ensure students did not borrow more money than they would be able to reasonably repay in the future. Furthermore, the length of time for loan forgiveness was shortened. Under the George W. Bush administration, loan forgiveness was set at 25 years. Today, loans are forgiven after the borrower makes payments for 20 years. If the graduate accepts employment in the public sector, loans can be forgiven in only 10 years. There have been suggestions that these terms should be reduced even further. While on the surface, it might sound generous to encourage students to borrow money in order to obtain a higher education with the general acceptance that these loans will be forgiven eventually, such a policy would only cause higher education costs to rise even more. The cause and effect are simple. When a student knows he or she will not have to pay back the vast majority of a loan, he or she will be encouraged to borrow more money regardless of whether it’s actually a good financial decision. At the same time, schools will be practically forced to rely more on federal subsidies while simultaneously increasing tuition costs. Those costs must be covered at some point, and it is the American taxpayers, a large percentage of which do not even hold college degrees, who will be stuck with the bill. As the cost of higher education continues to rise and an ever-increasing number of students take out loans to finance the cost of their education, it has become incumbent upon policymakers to address the root cause of what is actually driving the cost of college. Subsidies must be limited to reduce those costs, paving the way for private lending to be restored. The real problem is that the federal government, which originates and services student loans, has also taken the responsibility of determining the terms for loans based on the value of the education borrowers receive. Private lenders take a far different approach by establishing loan terms based on such factors as the likelihood of a borrower to repay the loan, school type, a student’s major, and the creditworthiness of a co-signor. Both forward-looking and backward-looking measures can be taken into consideration by private lenders when making a determination of whether to approve a student loan. For instance, a private lender might consider such traditional factors as credit score but could also consider whether a student would be able to reasonably repay a loan after graduation. Unfortunately, under current policies, financial aid offers are required by federal law to encourage students to exhaust borrowing options from the federal government before they explore private lending. This one policy has created a detrimental obstacle to a more common-sense approach to higher education financing. Eliminating that one rule is not enough, however. The real issue is that federal loans are inherently designed to be appealing and easy to obtain by offering partial debt forgiveness and low interest rates. For this reason, most students never even think about exploring private loans. As kind-hearted and generous as the subject of loan forgiveness may sound, the reality is that it is hardly plausible. Because of that, it has created a $1.3 trillion problem the American taxpayers now face. Rather than throwing more government subsidies at the problem, a more sensible solution is to reduce college costs in a competitive manner so that college students have the opportunity to finance the cost of their education more reasonably. This would require restructuring financial aid so that it is aimed at those students who truly need it while limiting federal subsidies, thus making it possible for private lending to be restored. Sources: 1. https://en.wikipedia.org/wiki/Student_debt 2. https://fred.stlouisfed.org/series/SLOAS 3. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation |
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