Month: May 2013

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What would Student Loan Rate Hikes Mean for the Average Borrower?

Today’s Philadelphia Inquirer has an editorial calling on Congress to address the coming spike in student loan interest rates. Legislative inactivity will cause rates to spike from 3.4% to 6.8% per year beginning July 1. To see what that means to people with student loans let’s take a look at the numbers. According the Project on Student Debt, the average level of student loan debt for college graduates in 2011 was $26,600. This level of debt, paid over a 10 year term, @ 3.4% would require a monthly payment of $261.79 according to a loan calculator.  The same loan @ 6.8% would require a monthly payment of $306.11 0r an increase of $44.32 per month. This number doesn’t seem particularly egregious, but when you factor this over the course of a ten year loan it means that graduates would pay an addition $5318.40.

The Inquirer notes that all of the existing plans for addressing the student loan rate spike are inadequate. According to the editorial

None of these plans recognizes the tremendous public benefit of an educated populace. People with postsecondary education are more likely to become self-sufficient, taxpaying members of the middle class. That contribution to the greater good and to democracy is worth something.

This is food for thought as Congress debates how to keep college affordable.

 

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State Spending on Higher Education Slowly Increasing

According to Education expert James Palmer of the Illinois State University “[h]istorically, funding for higher ed tracks the economy….As the economy gets better, state funding for higher education increases. That’s been the pattern.” That’s a good thing for colleges as the economy has begun to improve and state tax revenue has increased. An article in today’s Wall Street Journal shows that state financing for higher education started to increase last year after five years of overall state cuts nationwide.

Cash-strapped states across the country cut funding for public colleges and directed scarce resources to primary and secondary schooling, Medicaid and prisons. The budget squeezes sparked debate in state legislatures about whether public-university systems had been doing enough to control spending, including runaway administration costs at many schools.

State legislatures have begun to rethink those cuts. Indiana is increasing its spending by $500 million over the next two years (a 14.6% increase), New Hampshire’s governor has requested an $20 million in additional spending next year (a 37% increase) and Florida approved a budget with $314 million more for higher education (an 8.3% increase).

However, this trend has not been present in all states. “Budget hawks in some states argue university administrators haven’t cut wasteful spending enough and could do more. Others argue schools are doing a poor job of preparing students for life after college.”

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Should Some College Courses Cost More than Others? One CA Legislator Thinks So

Higher education has hit a rough patch in California due to the state’s budget woes. A recent article in Inside Higher Education highlights the difficulties budget cuts have caused and one potential solution: two-tiered pricing for courses at community colleges.

Over the last five years, $1.5 billion has been cut from the California community college system. According to another article in Inside Higher Education

[s]ince 2007, the state’s 112 community colleges have been forced to substantially reduce staffing, which in turn led to a 21 percent dip in course offerings…. And first-time students were the most likely to be turned away, with a 5 percent enrollment decline even as the number of California high school graduates increased by 9 percent.

Cutting 100,000 courses out of the community college system’s offerings has created a shortage in many disciplines. Consequently

Das Williams, a Democrat who represents Santa Barbara in California’s State Assembly, introduced [a] proposal last month. It would allow colleges to offer nonresident tuition rates – about $200 per credit compared to the standard $46 per credit – for courses in summer or winter sessions.

Mr. Williams argues that differential tuition will help ease budget cuts to community colleges and also students to save money by getting their two year degree more expeditiously:

“These same courses at the lower fees would still be offered during the regular academic year. But if students choose to pay a higher fee during a summer or winter session, this would allow them that opportunity….This option would save students potentially thousands of dollars in living expenses by allowing them to take a course and transfer, rather than hang around for a year waiting for a class to open up.”

Critics of the plan argue that it will change the nature of the community college system which has been seen as a gateway to higher education for lower income students. They argue that the differential pricing system would cater to wealthier students and marginalize those of more modest means.