Saturday, December 12, 2009, 1:30AM ET - U.S. Markets Closed.

Anya Kamenetz Generation Debt

Anya Kamenetz, Generation Debt

Laying Down the Law on Wider College Access

by Anya Kamenetz

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Good (485 Ratings)
2.490718/5
Posted on Tuesday, July 17, 2007, 12:00AM

Last Wednesday, the U.S. House of Representatives overwhelmingly passed the College Cost Reduction Act of 2007, signaling what could be a new era of government commitment to higher education access.

"This bill is a remarkable step forward in our efforts to help every qualified student go to college," said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee and author of the legislation. "With this bill, we are saying that no one should be denied the opportunity to go to college simply because of the price."

Promises, Promises

We've heard this line before.

Lyndon Johnson said it in 1965 with the passage of the Higher Education Act. Richard Nixon said it in 1974 with the passage of the precursor to the Pell Grant. Since then, college tuition and student loan debt have both been on a runaway train, and many believe college access is threatened as a result.

While the current bill isn't perfect, it does point the way toward real change and helps students in several concrete ways.

It's All About Income

To my mind, the most significant student benefit in the bill is income-based repayment. Under these proposed new rules, graduates whose earnings don't exceed 150 percent of the poverty line (about $15,000 for a single person) would be exempt from repaying student loans. All borrowers could opt to repay no more than 15 percent of their income above that amount, known as "discretionary income."

So if you earn $25,000 a year, you'd be guaranteed to pay no more than $121 a month regardless of your total loan burden. After 20 years, all remaining balances would be forgiven (10 years for eligible public servants).

There are some possible snags with this plan depending on how it's eventually implemented, but overall I think it's an excellent and very important response to the problem of student debt burdens. Current income-contingent plans are available only to direct loan borrowers, and the "income sensitive" plans for Federal Family Education Loan program (FFEL) borrowers just increase the overall loan balance and are provided at the discretion of the lender.

Making It Fair

This new policy is really a change in philosophy.

It's similar to how student loan repayment works in the UK (where repayment is set at 9 percent of income over $30,000), Australia, and many other countries, where there's a robust social safety net and contributions to the cost of one's higher education are seen as a form of social tax.

It's only right that those who earn more from their education should pay more back. I hear from far too many students here whose loan burdens are out of whack with their incomes, and who are stuck with snowballing debt and no hope of relief via bankruptcy or any other means, not to believe that it's a good idea to have a fair repayment structure in place.

Benefits in the Bill

Here's a rundown of the other student benefits in the bill:

• The maximum Pell Grant, the largest need-based student grant, would increase from the current $4,050 to $5,200 by 2011-2012.

• Student loan interest rates would be gradually cut, from 6.8 percent to 3.4 percent by 2013-2014.

• Federal loan limits would increase so students don't have to take out as many expensive private loans.

• Working students could earn more without being penalized.

• New loan forgiveness programs would be established for early childhood educators, nurses, foreign language specialists, librarians, certain teachers, child welfare workers, speech language pathologists, National Service participants, and public sector employees.

• TEACH, a tuition assistance program for undergrads and grads who commit to teaching in a high-needs area for four years, would also be established.

• A guaranteed $500 million would be set aside over five years for historically and predominately African American institutions, tribal colleges, and institutions for Alaskan and Hawaiian natives.

Trimming Subsidies

How exactly does the bill pay for these student benefits, as well as a $750 million deficit reduction? By cutting an amazing $19 billion in subsidies to student lenders.

That's a lot of fat, and it still doesn't get down to the bone. Lenders aren't going to like this -- they've been used to excessive subsidies for a long, long time. A report by the nonpartisan Congressional Research Service found that Sallie Mae will still be able to turn a profit with the new, reduced subsidy, but after the bill passed the stock of the nation's largest student lender fell 9.8 percent -- the largest drop in 14 years.

A world of leaner student lenders seems assured by the inclusion of a proposal backed by the New America Foundation, among others. This would use an auction mechanism to allow lenders to compete for the right to offer subsidized, guaranteed FFEL student loans. The subsidy level would be set by the open market, not by student loan industry lobbyists. (Sallie Mae was the top contributor among finance and credit companies in the 2006 Congressional races.)

Tuition Hike Alarm Bells

A second controversial move in the bill is to target the immediate source of college cost increases: the colleges themselves.

Starting in 2011, any college with high, outlying tuition increases would have to submit a report to the education secretary explaining why. After two consecutive years, the college would be placed on "affordability alert status." Conversely, colleges that commit to keeping their tuition increases down would be eligible for more Pell Grant funds.

It's a small step toward the real transparency and accountability we need from our higher education institutions. Watch for more on these issues in future columns.

What Comes Next?

The College Cost Reduction Act bill passed 273 to 149, with 47 Republicans joining 226 Democrats. That's healthy margin, but it's not enough to overturn a threatened veto by President Bush.

According to Secretary of Education Margaret Spellings, too much of the bill focuses on borrower repayment rather than grants -- a funny statement coming from an administration that's held the Pell Grant frozen at its current level since 2003.

Regardless, a vote on the Senate equivalent of this bill, with a few key differences, is expected soon. Here's hoping that this fall is a more affordable season for all of the nation's college students.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Good (485 Ratings)
2.5/5
Sign-in to rate!

140 Comments

Showing comments 6-35 of 140<< PreviousNext >>
Sort: first to last

  • the man with no name - Wednesday, July 25, 2007, 1:29PM ET  Report Abuse

    • Overall: 2/5

    Can you say communism? I like the proposal by the New America Foundation, but otherwise this sounds like alot of unnecessary meddling that will create many unforeseen problems. For one, I can see lenders offering fewer loans to people studying lower paying professions. Also I'm more than a little miffed that I would be forced to pay more because I studied engineering, a difficult and unpopular (thus high paying) major while art history and (gasp) english majors get away without ever paying back their debts, apparently.

  • John - Tuesday, July 24, 2007, 3:58PM ET  Report Abuse

    • Overall: 4/5

    Thanks for the great info and hopefully something will change with the affordability of college! Isn't it funny that you say that Australians pay less in repaying student loans than Americans! I just found out that AUSTRALIANS ALSO PAY LESS ON THEIR MORTGAES THAN WE DO AND ALL BECAUSE OF THE STRUCTURE OF THEIR BANKING! We beat that little fact, though. We just got on a program called the Money Merge Account that is set up similar to the banking in Australia, but it is done with the U.S. banking structure. We will pay off our 30 year mortgage in 15 years, plus we were able to pay off a TON of debt and actually help our monthly cashflow. It's a really cool program that works! We went to this website www.u1stfinancial.net/johnfechik and filled out the account analysis to see if we qualified- not everyone does. You should have a FICO score of 620 they told us. Anyway- we are on the MMA and it is saving us so much money that now we can pay more for our daughter's college and have her get less student loans. But I'm really glad that something is in the works to possibly change the whole college overpricing and all that!

  • PaulL - Monday, July 23, 2007, 8:32PM ET  Report Abuse

    • Overall: 3/5

    While I agree with the bill and article for the most part (I totally agree with making college more affordable for everyone) - I completely disagree with the statement: "It's only right that those who earn more from their education should pay more back" At the start of college everyone has the same opportunity for salary - some people choose to be engineers and some choose to be artists. We all face the same choice. If you want to pay back your student loans then choose a major that will afford you that luxury. (business/engineering/science/etc...) Debt is debt whether it is a student loan or not - Everyone (students included) should be responsible for the debt they take on. We should be attacking student debt by helping all students. Not selectively helping those that are choosing careers that won't make any money for 20 years (at which time we will have cancelled out their debt because people who made money right out of college paid it off for them)

  • Yahoo! Finance User - Monday, July 23, 2007, 4:46PM ET  Report Abuse

    • Overall: 5/5

    Thank you for writing about this topic. We'd benefit greatly from more explanation like this of the legislation that our reps vote on.

  • Yahoo! Finance User - Sunday, July 22, 2007, 11:41PM ET  Report Abuse

    • Overall: 2/5

    I think this so called "college cost crisis" is somewhat manufactured. Although the "sticker price" of college tuition is certainly going up, for many, if not most people, need based scholarships (as well as merit scholarships) reduce what people actually end up paying. In addition, there are many ways that one can offset the cost of college, if you are willing to put your nose to the grindstone, so to speak. There is always the military route, although that may not be appealing to some people. However, there are many private employers which offer programs to pay tuition for its employees. Beyond that, there are many excellent public colleges, as well as community colleges which are the best bargains. Two years at community college and two years at public four year college with some scholarships and employer paid tuition thrown in, and you've got yourself a pretty cheap education. Beyond that, is it really in society's best interest to subsidize students who go to expensive schools, major in art history, and then take low paying dead end jobs because they don't have any real skills. That is what this bill would be encouraging if it ever became a law. Now I understand providing some help to students who go into careers like teaching, social work, etc which are beneficial to society but not very high paying. However, there is a limit to my generosity. If you want to major in Greek lit at Yale, then pay for it yourself. Don't expect society to pay for it!

  • Yahoo! Finance User - Sunday, July 22, 2007, 8:19PM ET  Report Abuse

    • Overall: 4/5

    Very generaous bill, but a great many improvements over our present system of student loans.

  • Mike - Sunday, July 22, 2007, 6:57PM ET  Report Abuse

    • Overall: 5/5

    I love this bill, and the authors concise review of its components. Higher education is what drives the progression of our society, and the government should ALWAYS do everything that it can to encourage Americans to achieve that goal. As a former President of my University's Student Government I witnessed firsthand a 100% increase in tuition and the subsequent 30% decline in enrollment. The University didn't feel it though, as revenues increased inspite of the decrease in classroom size (making both the administration and professors' union happy for obvious reasons). The adverse effect on education compounds as it trickles down to the highschools, discouraging achievement due to the obvious lack of post-secondary options (if I can't afford college, why take college algebra?).To all the critics, remember, this is a bill, so it is undoubtedly going to get sliced and diced until everyone is happy (or unhappy?). Hopefullly, our lawmakers keep the true spirit of the law intact and focus on cost accessibility.

  • Thomas - Sunday, July 22, 2007, 3:10PM ET  Report Abuse

    • Overall: 1/5

    What a stupid plan, forgiving the debt after a period of time (10 or 20 years depending on the situation). That removes an incentive for people to improve their situation because they know they will eventually be left off the hook. And why should some professions get the break after 10 years instead of 20? That is just social engineering. If people incur a debt, they should be honor bound to pay it off eventually, instead of being deadbeats knowing the government is letting them off the hook. It would be better for the government to get out of the student loan business altogether and let the free market reign. The lenders can make loans based on risk of the loan instead of the economic inefficiency of government subsidies. Not everyone needs to go to an Ivy League college. Try the local community college or an in-state school, or try working full time and going to college at night. Many cities have branches of state universities where you can get your degree entirely at night. I know, because I got a masters in computer science from a state school at night, paid for all by myself without a Pell Grant or a Guaranteed Student loan, while working a full time job.

  • Thomas - Sunday, July 22, 2007, 9:55AM ET  Report Abuse

    • Overall: 1/5

    The author's tone is slanted towards the bill, not balanced.....is this news or commentary?

  • Yahoo! Finance User - Saturday, July 21, 2007, 11:23PM ET  Report Abuse

    • Overall: 1/5

    Everyone should start life with a million dollars too, it's only fair! Then those that use it well and make it last or invest well should pay it back and those that don't should pay less of it back.

  • Yahoo! Finance User - Saturday, July 21, 2007, 3:54PM ET  Report Abuse

    • Overall: 5/5

    good

  • Amy - Saturday, July 21, 2007, 3:30PM ET  Report Abuse

    • Overall: 1/5

    A college degree is nice, but (as most of us can see now) it cannot guarantee you a job or success in the future. Especially those people who major in theatre or art or some other non-marketable degree. I have a masters degree in social work (a marketable degree but very low-paying). My husband flunked out of college and now works in construction. He does side work as well, and he takes home a lot more money than I do. Why? Because my husband had a marketable skill and capitalized on it, while I chose to spend thousands of dollars on a degree that I knew was low-paying. THIS WAS A CHOICE I MADE, AND NOW I TAKE RESPONSIBLITY ON THAT CHOICE! It doesn't matter that I never listened to my parents when they told me "don't do it-- you can not live on a social worker's salary." It doesn't matter that I was young and incredibly naive-- thinking that by getting this degree I could "change the world" and having money doesn't matter. I made the choice, I deal with the consequences. That's what personal responsiblity is about. So, should I pay every red cent back, even if it takes years to do so? You bet I should! While I am in agreement with lowering the interest rates as well as making the interest tax deductable (like it always has been) I do not support this bill. Nothing in this world is for free-- either taxes go up astromonically or college tuitions go up to cover the costs. That's what is going to happen eventually with this new bill. Anya, money doesn't grow on trees! Anya-- I also think that you are very naive. When I was 26 years old I was very naive, just like you are. Give yourself a few years, trust me you will grow up and realize what the real world is all about. I know I did.

  • Yahoo! Finance User - Saturday, July 21, 2007, 2:55PM ET  Report Abuse

    • Overall: 1/5

    Economic idiocy.

  • DavidM - Saturday, July 21, 2007, 9:56AM ET  Report Abuse

    • Overall: 1/5

    How about personal responsibility? One borrows money, one pays it back. It is not fair that those who do well pay the way for those who do not. The poor in the U.S. live like kings compared to the poor in other countries. The American poor drive automobiles, watch cable T.V., and eat enough to be obese!!! Make good choices. College education is not a right. It is a privilege for those who can a choose to pay for it.

  • David - Saturday, July 21, 2007, 9:41AM ET  Report Abuse

    • Overall: 1/5

    There is a limited supply of college classrooms and seats within the classroom. When congress makes money available for college, it drives up demand relative to a fixed supply. PRICES GO UP. This bill is a bad idea.

  • Bill - Saturday, July 21, 2007, 6:53AM ET  Report Abuse

    • Overall: 1/5

    "It's only right" that those who earn more from their education should pay more back..., says the self-proclaimed "lefty" from Yale. Wow. Just wow! I don't suppose this legislation considers the effort that lower earners actually put INTO their education? Or the major they chose? Are you saying that the women's studies major with the "I hate Bush" bumper sticker on her (debt-financed) Prius now working at Starbucks should have her loan repaid by the investment banker who busted his ass night and day through school only to go bust his ass night and day on his job? Gimmeafreakinbreak, will you? I could go on and on picking apart this girl's dreck but time and space do not permit; hell, the degree to which this proposal defies basic economics warrants a chapter in itself. Hey, Yahoo! How about a weekly column from Llewellyn Rockwell or someone to balance out these insipid "progressives" like Anya and the Trunkster? After all...it's only right :)

  • Steven - Saturday, July 21, 2007, 5:56AM ET  Report Abuse

    • Overall: 3/5

    Where did we began to think that everyone should go to college? College used to be a place for top students, now even mediocre and sometimes quite bad students go. The truth is is that there are not that many jobs that honestly require higher education. The job market is full of management positions that require you to have a degree, but let's be honest: you would be just fine without it. Also consider that a degree has been watered down. I believe that many people getting a degree today, could have never graduated college in the 1950's. Bottom line is: We don't need to subsidize education so that people can work at Starbucks!

  • Yahoo! Finance User - Friday, July 20, 2007, 6:15PM ET  Report Abuse

    • Overall: 1/5

    The US bill doesn't make any sense. Plain and simple if you borrow the money you need to pay it back... If you extend this logic, buy a large house and only pay what you can afford.

  • ag - Thursday, July 19, 2007, 5:28PM ET  Report Abuse

    • Overall: 3/5

    The information set forth in this article is excellent, the opinion - no so much. I enjoyed college a lot more than work . . . with this plan I might be able to go back to college for the rest of my life!!! This will be a utopia! The other guy can pay for it!

  • Joe - Thursday, July 19, 2007, 2:44PM ET  Report Abuse

    • Overall: 1/5

    Here's the problem. You get these ignorant whiners sitting at home collecting their welfare checks who have nothing better to do than complain to their congressman. They, in turn, propose idiotic legislation because they think this is what their constituents want. Make no mistake: This country promotes socialism. Don't like it? Don't write a review on Yahoo, write your congressman and tell them to stop the madness. The vocal minority of socialists are hoping you won't.

  • Yahoo! Finance User - Thursday, July 19, 2007, 11:30AM ET  Report Abuse

    • Overall: 1/5

    Basic University education is a right. Our high school education is a joke. Only over here do students "graduate" from high school. In Britian for example anyone who excels in the board high schools exams can get into Oxford University. Why can't it be the same here. A idea of a student getting loans for a college education is ridiculus.

  • Yahoo! Finance User - Thursday, July 19, 2007, 11:14AM ET  Report Abuse

    • Overall: 1/5

    College students are supposed to be society's intellectual elite. In an information-intensive society, they should be the winners. So why do we need to subsidize these winners?

  • M&KRich_in_hope - Thursday, July 19, 2007, 9:44AM ET  Report Abuse

    • Overall: 5/5

    The real problem isn't that college is too expensive. It's that college is considered almost mandatory. And why shouldn't it be? It makes up for the shortcomings of high school. I'm sorry, but most 18 year olds really aren't ready to do a rational cost-benefit analysis of what their degree costs vs. how much it will bring them in earnings. So why do parents force them to make such choices before they've learned what they want to do with their lives? ANSWER: Because there seem to be so few good alternatives to jobs that require a college education. Our society needs to do a better job of teaching in high school, and companies need to be willing to invest more in training non-college-grads. Excellent article on the merits of the information given; this was the first i heard of all this.

  • CarlS - Thursday, July 19, 2007, 1:48AM ET  Report Abuse

    • Overall: 1/5

    The income-based idea is very misguided. We'd be much better off if the gov't got out of the college finance business and let market forces work things out. Like, let students borrow at market rates and then see how much they are willing to pay for a certain college. It used to be possible to work your way through school. Then these gov't loan programs became available. Hmmm, somehow the programs have worked exactly opposite to their original intentions.

  • Bertrand - Thursday, July 19, 2007, 12:12AM ET  Report Abuse

    • Overall: 5/5

    Higher Education should be a right for everyone! Why shouldn't it? What is wrong with giving everyone in the society who wants it and willing to commit 4 years of work and time, the financial opportunity of a higher education?

  • Yahoo! Finance User - Wednesday, July 18, 2007, 11:40PM ET  Report Abuse

    • Overall: 1/5

    About your "fairness" statement. If I run up a huge amount of debt on my CC in college and can't afford to pay it off with my "Communications" degree wage, can that debt be forgiven as well? How about loaning students money based on the ability to repay once they graduate.

  • Nerakp - Wednesday, July 18, 2007, 9:42PM ET  Report Abuse

    • Overall: 1/5

    Let me get this straight. John Doe and I both go to college for a law degree. We graduate. I go to work in a law firm. John Doe is sick of hard work and gets a McJob. I get stuck paying my bill and his via my tax dollars?????!!!??? You're a moron. Why don't we just go all the way and follow China's lead and have a cultural revolution like they did? That turned out so well.

  • Yahoo! Finance User - Wednesday, July 18, 2007, 9:33PM ET  Report Abuse

    • Overall: 1/5

    Can you say c-o-m-m-u-n-i-s-m?

  • Elsa - Wednesday, July 18, 2007, 9:26PM ET  Report Abuse

    • Overall: 3/5

    A debt is a debt. "It's only right that those that earn more .... should pay more back." is a slacker's opinion.

  • Yahoo! Finance User - Wednesday, July 18, 2007, 8:26PM ET  Report Abuse

    • Overall: 5/5

    Thanks for pointing out this administrations favorite charity: corporate aid, student aid be damned. Failing to raise Pell grants for years in the face of soaring costs does not serve America. What is the Bush Crime Family's solution for more educated workers? Outsourcing jobs or importing educated workers. Like most other things, Bush forgets (if he ever learned about) the fantastic benefits of free education after WW2 and affordable education for decades after. Granting repayment reprieves to gov workers, however, make little sense: they are already wildly overpaid, can't be fired, get automatic cost of living increases and are immune from economic reality--for starters.

Showing comments 6-35 of 140<< PreviousNext >>

More from Anya Kamenetz

Read the Generation Debt Book

According to economics professor Laurence J. Kotlikoff, Generation Debt offers "a truly gripping account of how young Americans are being ground down by low wages, high taxes, huge student loans, sky-high housing prices, not to mention the impending retirement of their baby boomer parents." Generation Debt will inspire you to take charge of your financial future.

Read more from Anya Kamenetz here and here.

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.