The Bipartisan Policy Center, a D.C. think tank, has a plan to strengthen the Higher Education Opportunity Act in an effort to better serve lesson the debt burden of today’s students. Its new plan, A New Course for Higher Education, calls for an increase in Pell grants, the creation of a state matching grant program, and a reconfiguring of the federal student debt system.
The depth of student debt
There is $1.5 trillion in outstanding federal student loans. The BPC recently conducted an online survey of 2,200 adults and 1,000 adults with student loan debt nationwide. Sixty-three percent of adults reported that paying off their student loans has hurt their ability to build up emergency savings. Fifty-eight percent said that student debt has hindered their ability to save for retirement, and 50% of borrowers say that debt has impacted their physical, mental, or emotional well-being. The BPC also found that 55% of student borrowers don’t know the interest rate on their loans.
To combat this, the BPC believes that income-driven repayment plans should be the default option for borrowers. In the spirit of reducing red tape, the BPC recommends that a data-sharing link be facilitated between the IRS and the Department of Education.
An outdated system
“The first thing we can do is to address the issue of cost and affordability,” says Former Congressman George Miller (D-CA). He is the co-chair of BPC’s higher education finance task force.
“We are making sure that the middle-class can still afford this. We need to get the complexity out of trying to arrange that financing that students go through and their contacts with universities and schools, that really don’t articulate the best information for those students,” he told Yahoo Finance.
The stereotype that a college student is someone who enrolls full-time at a four-year institution directly from high school is not in line with current demographics.
A 2017 survey conducted by the National Center for Education Statistics, “Higher Education General Information,” shows that 38% of students attend college part-time.
The survey also found that 14% of students receive their education entirely online, 40% of students are 25 or older, 62% of students work (full- or part-time) while in school, and 28% of students have children. Miller believes that it is time for Congress to reassess higher education financing to reflect a changing student body.
“Congress has not looked at the higher education system in 10 years. A lot of situations have changed for those students who are working or supporting families and have other obligations than just going to campus.”
Pell Grants, which are the federal government’s primary need-based support for low-income students, are a vital component of higher education financing.
“We recognized the Pell grant isn’t keeping these pace with the increased costs of college,” Miller said. In 2016, 54% of U.S. undergraduates had a median income below $35,000.
“We spent a lot of time trying to figure out how to get additional resources to the Pell grant. We’ve looked at other areas in the higher education system that may not be the best use of money, or maybe an alternative way to do some of these things,” he said.
The BPC argues that the consequences of insufficiently funding need-based grant aid are causing a significant problem for low-income students. According to the group’s findings, Pell Grant recipients who graduate with debt shoulder an average of $4,500 more in student loans compared to higher-income students.
During the 1999-2000 academic year, Pell grants covered 39% of a college student’s tuition, fees, room, and board. In 2019, that dropped to just 28% when adjusted for inflation, according to the BPC.
The group’s plan calls for a strengthening of the current system by increasing the mandatory Pell funding by $9 billion per year with expanded eligibility for middle-income households. According to the BPC, the funds would be used to both increase the maximum award, increase the proportional award for every current recipient, and also expand eligibility into the middle class but capped at the fourth income quartile.
The group believes this would help bridge the gap between Pell Grant eligible students and non-Pell grant eligible students. Currently, 84% of graduating seniors with Pell Grants carry debt, compared to 51% of non-Pell qualifying graduating seniors.
The group argues that this will have a profound impact on lower-income students, especially black degree recipients. According to the BPC, black students who earn degrees take on more debt than any other racial or ethnic group, with the median debt per borrower at $32,523, compared to $27,000 for all groups.
Analysis done by The Pew Charitable Trusts shows that state governments invest more in education than the Federal government. However, most states have balanced budget amendments that hamper their legislatures from increasing investments in education through rough economic times. To incentivize state spending, the BPC proposed a $5 billion annual matching grant program for the states. The proposed plan would help states increase the amount it invests in higher education assistance.
“We want as smooth a system as possible, so we get the opportunity to take advantage of the intellect of all these students. You have these problems that have grown up over the years that have not been addressed. They are impediments to families and students to even apply.”
Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.