will announce new programs Wednesday to lower monthly loan payments for some students graduating next year and thereafter and to let borrowers who have a mix of direct federal loans and loans under the old Federal Family Education Loan Program consolidate them at a slightly lower interest rate.
At a press briefing Tuesday afternoon, Melody Barnes, director of the Domestic Policy Council, said the president would use his executive authority to expand the existing income-based repayment program with a “Pay as You Earn” option that would allow graduates to pay 10 percent of their discretionary income for 20 years and have the rest of their federaldebt forgiven. That plan would start next year.
Most of the 450,000 low-income student-loan borrowers currently enrolled in income-based payment must pay 15 percent of their discretionary income for 25 years before having their debt forgiven, although terms are easier for those in public service.
The lower caps of the new program were scheduled to go into effect for new borrowers in 2014, but, Ms. Barnes said, “because we know the frustration of crushing loan burdens, we have to act now.”
Ms. Barnes noted that over the last month, more than 30,000 people had signed a petition on the We the People platform at whitehouse.gov, asking for relief on student debt.
“It’s a message heard loud and clear,” she said.
The high cost of college and the growing debt burden of student loans have become increasingly potent political issues in recent years, high on the agenda of Occupy Wall Street and related protests across the country.
And the annualreports on college prices and student aid, to be released Wednesday, make it clear that with the weak economy, the college affordability problem is getting worse.
At public universities and, costs for the current academic year increased more than 8 percent, lifted in part by steep tuition increases in California, according to the “Trends in College Pricing 2011” report.
While California’s whopping increases — 21 percent at the four-year universities and 37 percent at the community colleges — were extreme, declining state support for higher education has brought hefty tuition increases at many public universities nationwide. Arizona and Washington, for example, increased their in-state tuition and fees by 17 percent and 16 percent.
This is the fifth consecutive year in which the public universities that serve most students raised their tuition at a faster rate than the far more expensive private universities. And over the last three decades, the report found, the average tuition at four-year state universities almost quadrupled.
“It is not surprising, but we do have issues we have to face,” said Sandy Baum, the economist who is co-author of the report. “Families are struggling because their incomes are not increasing, but states are struggling too.”
Adjusted for inflation, state appropriations per full-time student are about 23 percent lower than they were a decade ago.
“Families and students are paying more but they’re getting less,” said Jane Wellman, executive director of the Delta Cost Project, “because what we’re willing to invest in this generation is less than what we were willing to invest in my generation.”
At Tuesday’s press briefing, Secretary of Education Arne Duncan estimated that the debt-consolidation program could help 6 million borrowers who carry both direct federal loans and loans made under the Federal Family Education Loan program, which ended last year. Under that program, private lenders received federal subsidies to make federally guaranteed loans to students; despite lobbying by the banking industry, the Obama Administration killed the program, redirecting billions of dollars of subsidies into expanded Pell grants for low-income students.
Between January and June, Mr. Duncan said, borrowers making payments on both kinds of loans can consolidate them and get a half-percent interest-rate cut. The savings to pay for the lower loan rate, he said, would come from the lower cost of administering the combined loan.
Further information on the new programs will be available at 1-800-4fedaid (1-800-433-3243) or studentaid.ed.gov.
The Obama administration has taken other steps toward college affordability. The American Opportunity Tax Credit, introduced in 2009, expanded the tax benefits for college costs. According to the College Board’s new “Trends in Student Aid 2011,” report, higher education tax credits and deductions grew to $14.7 billion in 2009, from $6.6 billion in 2008. People with adjusted gross incomes of $100,000 to $180,000 got 26 percent of those tax savings, compared with 18 percent a year earlier. At the other end of the spectrum, the credits are available even to those who owe no taxes.
According to the College Board, average in-state tuition at public universities this year is $8,244, up from $7,613 last year; with room and board, the average total charge is $17,131, up from $16,162 last year. But the averages mask enormous variation from state to state: the University of New Hampshire’s tuition is more than $13,500, compared with $2,600 in Puerto Rico and $4,100 in Wyoming.
At private nonprofit four-year colleges, the average tuition is $28,500 this year, a 4.5 percent increase on last year’s $27,265. With room and board, the average total charges are $38,589, up from $36,971 last year. And at community colleges, the average tuition and fees are $2,963, up 8.7 percent from last year’s $2,727.
Only about a third of full-time students pay for college without some grant aid, whether in the form of a federal Pell grant, a state scholarship or aid from the college itself.
Net tuition —the amount a student actually pays, after grants and tax savings— is often sharply lower than the published price. In fact, the College Board report said, net tuition at community colleges was low enough that, when grants and tax savings are taken into account, the average student can pay nothing out of pocket and have $810 left over for books and living expenses.
This year, the report said, full-time students at state universities receive an average of about $5,750 in grants and tax benefits, while students at private nonprofit colleges get about $15,530 and those at community colleges about $3,770.
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