With the Project on Student Debt reporting last month that the average student debt is now $23,200, and state budget cuts causing tuition hikes at a time of high unemployment, higher education has become a major concern for low- and middle-income families. In last night’s State of the Union address, President Obama endorsed two programs that would boost participation in postsecondary education and make college more affordable.
First, the President urged Congress to pass the student financial aid reform package that he proposed in his 2010 budget proposal:
Still, in this economy, a high school diploma no longer guarantees a good job. That’s why I urge the Senate to follow the House and pass a bill that will revitalize our community colleges, which are a career pathway to the children of so many working families. To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants.
The House passed a bill in September along these lines, the Student Aid and Fiscal Responsibility Act (SAFRA), but it has stalled in the Senate because of the long and cantankerous health care debate and a multi-million dollar lobbying and PR campaign by student loan companies, who are interested in protecting their federal subsidies.
The non-partisan Congressional Budget Office has estimated that cutting these subsidies would save about $87 billion over ten years, which would be used to fund grants for low- and middle-income students, community colleges, minority serving institutions, early learning programs, and programs to improve college. Campus Progress, part of the Center for American Progress, has been supporting the SAFRA through its campaign Students Over Banks.
Interestingly, the “$10,000 tax credit” mentioned in the speech is not dealt with in the House’s student aid bill. Obama was referring to the American Opportunity Tax Credit, which provides a partially refundable credit of up to $2,500 for four years. And the President also mentioned a brand new initiative that will be part of his 2011 budget proposal:
Let’s tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.
This would improve the Income Based Repayment program, passed in 2007 as part of a major student aid bill, which currently ties monthly payments on federal student loans to 15% of discretionary income, and forgives any debt remaining after five years. If passed, the new rates would increase the portion of borrowers that would benefit from the program from around 16 percent to around 36 percent.
Obama also put some of the onus of reform on colleges by urging them to hold down tuition costs, although he did not propose any specific policies to that effect.