Another commencement season, another crop of graduates facing crushing debt. For Indiana graduates, the liability is larger than most: an average of $27,886, according to the Project on Student Debt’s figures for the class of 2012. The average student debt was higher in just 15 states.
The number isn’t just a problem for those who owe. Even if the new graduates have found work in Indiana, their debt burdens constrain spending on new homes, cars, clothing, and other goods and services that support the local economy.
The consequences can be long term. As debt loads have increased, so have loan-default rates. The Federal Reserve Bank of New York reported student loan-default rates have soared from just over 6 percent in 2003 to nearly 12 percent last year. Poor credit records also ensue.
Student debt draws lots of noise but little action. Congress played a game of brinksmanship a year ago, briefly allowing the student loan interest rate on subsidized Stafford loans to double from 3.4 percent before tying it to the government’s cost of borrowing. The bipartisan deal was approved on a 392-31 vote; Rep. Marlin Stutzman, R-3rd, was the only Indiana congressman to vote no. In a statement, he thanked his colleagues for taking a positive step in the right direction, while calling for an end to the federal government’s manipulative policies in the student loan market.
The manipulation did little to reduce debt loads. Based on rates set at this month’s Treasury bond auction, undergraduate student borrowers will most likely pay an interest rate of 4.66 percent, up from 3.86 percent this year. For freshmen, the higher rate will cost $2,150 more over the life of the loan than if Congress had maintained last year’s rate.
President Mitch Daniels of Purdue announced this month that the tuition freeze for the West Lafayette campus will continue through 2015-16. Students who entered as freshmen in 2012 and graduate with an on-time degree will complete college without a base tuition increase. Other universities aren’t following suit, but the move will inevitably put pressure on state-supported institutions to hold down costs.
One result might keep ballooning debt in check. But it does little to help former students, some of whom failed to complete a degree but still must pay off loans. Nor does it account for the historic change in college financing, with government paying a smaller and smaller share of higher education.
When I was growing up, the states invested in public universities to keep the costs low for students, Sen. Elizabeth Warren, D-Massachusetts, told Pro- Publica in recent interview. Today, the states make much smaller investments than they made a generation ago. That means our students and their families have to pick up the costs. We need to make those investments in education so that all of our kids have a low-cost option for a high-quality education.
A ProPublica analysis of U.S. Department of Education data last fall found that from 1996 through 2012, public colleges and universities awarded a declining portion of grants to students from the poorest quartile of families. The Great Recession, with its inordinate effect on low-income families, didn’t reverse the trend.
If policymakers want to control college costs, they should look at not only how much college costs, but who is paying. Holding the line on tuition is a welcome step, but not a solution if graduates still can’t afford college without taking on massive debt.