How to Reduce Student Debt and Increase College Affordability

While some wealthy families, ensnared in a pay-to-play scandal revealed this week, have paid tens or hundreds of thousands of dollars to insure their child gets enrolled in the college of their choice, thousands more students are struggling to pay for a college education.

(Related: Celebrity Parents, Coaches Charged in Elite College-Entrance Scam)

Student debt has exploded to $1.5 trillion as a result of increasing costs, declining state funding and federal programs that have failed to keep up with college cost inflation.

Average state funding per student at public colleges is 16% below pre-recession levels, and the purchasing power of Pell Grants has fallen from covering 39% of college costs in 2000 to just 30% in 2016, according to James Kvaal, president of The Institute for College Access & Success (TICAS), and is likely even lower today.

Janae Parker, a 29-year-old undergraduate at Franklin University who is a Pell Grant recipient and single mother, testified in Congress that “the only way to attend college and eat is to use food stamps” and cited a report from the Government Accountability Office that found about 2 million college students at risk of not being able to afford to eat while paying for college.

Parker and Kvaal were two members of a panel testifying before the House Committee on Education and Labor in a hearing, The Cost of College: Student-Centered Reforms to Bring Higher Education Within Reach, the first of five bipartisan hearings to be used for a comprehensive reauthorization of the Higher Education Act, last renewed over 10 years ago.

Chairman Bobby Scott, D-Va., noted that a decade ago states paid about two-thirds of the cost of higher education; today they pay less than one-third the cost, essentially doubling the cost for students attending public colleges.

For every $1,000 state budget cut in college funding, tuition rises a little over $300, said Douglas Webber, associate professor of economics at Temple University.

Several recommendations and proposals were discussed along with current state programs to help students afford college and minimize debt during the hearing, which lasted over three hours.

Rep. Joe Courtney, D-Conn., said he would be reintroducing a bill, along with Sen. Elizabeth Warren, D-Mass., that would reduce the interest rate on federal Stafford loans from between 4% and 5% to near 3.7%, which would add about $50 billion to the pockets of students.

“The government is charging more than market rates,” which provides the government of windfall of $66 billion, said Courtney, noting that the 10-year Treasury yield is near 2.6%.

Rep. Tim Walberg, R-Mich., said he has introduced legislation for the IRS to share student information with the Department of Education, to make it easier for students and families to file the Free Application for Federal Student Aid, which is required for students to receive institutional or federal student aid. (Students can currently link FAFSA to this IRS tax filing for automatic fill).

Kvaal recommended that the government simplify the FAFSA, double the maximum Pell Grant gradually from the current cap of $6,095 and replace five current income-driven replacement plans with a single plan that requires borrowers to pay 10% of discretionary income for 20 years, after which debt is forgiven tax free. “Student debt should not be a life sentence,” said Kvaal.

(Related: These 11 Counties and Cities Offer Tuition-Free College Programs)

The interim chancellor at Western Carolina University, Dr. Alison Morrison-Shetlar, described programs in North Carolina that fix tuition for eight consecutive semesters, cap student fee increases to 3% per year and, under the North Carolina Promise, set tuition at $500 per semester for in-state students and $2,500 for out-of-state students per semester at three state schools: Elizabeth City, UNC at Pembroke and Western Carolina. As a result, enrollment has grown close to 7% for undergrads and 41% for transfer students.

Temple University instituted a program whereby students who don’t graduate in in four years but meet certain performance goals can continue to study without paying more for classes, according to Webber.

Washington State has a program that allows high school students to get college credit for courses they take at local community colleges.

Beth Akers, a senior fellow at the conservative-leaning Manhattan Institute, took a different approach from others who testified at the hearing, preferring private market approaches over government programs.

She would replace “all government subsidies to higher education” with “a single, means-tested grant program to aid least well-off students,” replace public loan forgiveness programs with a program that “more explicitly subsidizes employment in undersubscribed professions that serve the public good,” and have Congress provide “legal support” for income-share agreements whereby students receive cash from private sources in exchange for promising repayment by forfeiting a certain percentage of their earnings after college as alternative to student loans.

Kvaal noted that private loans always cost more than federal loans and are less transparent.

— Check out How to Get More College Financial Aid: Do’s and Don’ts on ThinkAdvisor.