Student Debt: The Uncanny Truth Undermining the American Dream
Coda Rayo-Garza, NLC San Antonio & Kate Spaulding, NLC New York City
Undoubtedly, we know that the student debt crisis is hurting the nation’s economy, and that the road to this state of catastrophe was not solely paved by the advent of student loans, but by a system that was not well prepared to maintain higher education as a priority and value for all. To this day, policymakers must still grapple with what is essentially a question of civil rights: should we all have access to higher education? Recent changes and proposals coming from Capitol Hill would suggest Congress believes that the answer is no. There are two changes that we must keep in mind as we move forward in advocating for affordable higher education for all 1) changes to the 529 Savings Plan and 2) Representative Virginia Foxx’s (R-North Carolina)proposed PROSPER (Promoting Real Opportunity, Success, and Prosperity through Education Reform) Act.
Where We Are Now
The 529 Savings Plan a.k.a Another Loophole
Born in the mid-90’s, the 529 plan is a tax-advantaged savings plan predicated on the idea that it would encourage savings for future college costs. There are two types of these qualified tuition plans: prepaid tuition and college savings plan. All states in the U.S. are considered 529 plan sponsors, which means plans will differ by state. Each state will have a 529 plan manager to whom individuals can go to if they would like to invest in a 529 savings plan. The College Savings Plans Network provides a comparative tool to allow people to compare their state 529 plans with others across the country here. In addition, the US Securities and Exchange Commission published a primer on 529 plans that can be found here, for more information on how the plans work.
At the end of 2017, Trump signed into law the Republican tax reform bill. The Tax Cuts and Jobs Act made changes to the tax code that will mostly benefit corporations and wealthy individuals. However, Texas Senator Ted Cruz managed to sneak a change to the 529 plan prior to its passing. Though that change may not directly have consequences for poorer students, it does nothing to make college affordable for them or provide a college savings plan for the non-wealthy lower and middle class families and students.
Prior to the change, 529 funds were to be used exclusively for college-related expenses. Now, 529 plans include a provision that will allow usage for K-12 education expenses for tuition. In addition, the provision will allow families to use 529 funds for private and religious expenses at elementary and high schools. Up to $10,000.00 per year can be used from the 529 plans.
This change to the 529 plan incentivizes wealthy families who can afford to send their children to private school, by allowing tax exempt dollars to be used for private school tuition. The initial intent of 529 savings plans were to encourage families to save for college, this change does nothing to encourage that goal. Instead, the issue is that for low or middle class families, the existing plan along with the Ted Cruz modification does not provide an avenue for the non-wealthy to save for higher education. It’s a gross mischaracterization of a tuition savings plan for the general public, and creates yet another loophole for wealthy individuals in states that have an income tax.
The not-so PROSPERous Act
While we are at a standstill with making college affordable for lower- and middle-income families, an additional threat looms for students. Congress is now in the process of reauthorizing the Higher Education Act; the law that governs higher education.
The PROSPER Act, introduced by Representative Virginia Foxx proposes some of the following:
-The elimination of multiple repayment plan options
-The elimination of Stafford and PLUS loans for first time borrowers
-Instituting borrowing limits
-The non-renewal and elimination of the Perkins Loan
-Scaled back accountability measures introduced by the Obama administration
-The elimination of student loan forgiveness
Arguably, the proposed act does offer some concepts that could be considered beneficial, such as instituting a Pell Grant bonus for those students that enroll in additional coursework. However, let’s not forget that there is an assumption of privilege behind this carrot-over-stick approach. Some folks have to work multiple jobs to be able to afford to stay in school and the “bonus” may not cover all living expenses a student may have.
The Congressional Budget Office released a report on February 6th, estimating that college students would lose $15 billion in federal aid over the next decade if the PROSPER Act is passed into law.
In late January, the national Association of Student Financial Aid Administrators (NASFAA), released a policy brief outlining their top concerns with this legislation. The biggest being an overall loss of student aid dollars through the elimination of a number of federal student aid programs. One of these programs is the Public Service Loan Forgiveness (PSLF) and other occupation-based forgiveness programs.
Goodbye Student Loan Forgiveness
The Public Service Loan Forgiveness Program (PSLF) was created in 2007 under the George W. Bush Administration and Congress as part of the College Cost Reduction and Access Act to encourage college graduates to go into lower-paying, but extremely vital public and nonprofit sector jobs, such as social workers, public hospital doctors, public defenders, nurses, and teachers. Note: This was after the Bush Administration, in 2005, made any private student loans impossible to discharge as part of personal bankruptcy.
The PSLF Program allows eligible borrowers to qualify for forgiveness of the remaining balance of their student loans after they have served full-time at a public service organization for at least ten years, while making 120 qualifying payments. Qualifying payments must be under an income-driven repayment plan, on time, and in full while working at a certified nonprofit or public sector agency. While the Department of Education, under Secretary Betsy DeVos, has shown great interest in ending PSLF, she has not been able to make much headway on that front — yet. The PROSPER Act, if passed, has a proposal to end the PSLF program after June 30th, 2018. Trump’s budget proposal also suggests an end to the PSLF. If you work in the public or nonprofit sector and are remotely considering utilizing this opportunity, enroll immediately.
We know that many individuals who are depending on the PSLF to forgive their debt have done much in the way of shaping their lives on that hope. This means forgoing higher paying jobs and true career passions to be able to achieve financial sustainability once the loans are paid off. The United States Government should not be causing anxiety in the very people that have kept their side of the bargain: a career in public service in exchange for loan forgiveness.
Individual hurt: a personal narrative of why the loss of the PSLF will cause devastation
The PSLF program is my life. Every decision I make, to this day, centers around it. After graduating with a Master’s Degree in Urban Planning and $150K in student loan debt in Spring 2008, the economy crashed and no one was hiring — not even the government. I was unemployed for six months, which felt like forever, though that was actually a relatively short span for the Great Recession. During that time, I learned to love the public library, did odd jobs to pay rent, and spent my evenings salvaging unopened food out of the trash with the Freegans, so I wouldn’t have to pay for groceries. After almost giving up and moving back in with my Mom — again a luxury most didn’t have during this last recession — I was lucky enough to land an entry-level job (for which I was overqualified and underpaid) within City Government.
Though I graduated with roughly $150K in student loans and have paid over $32,000 the last seven years, I now owe close to $158K. You read that right! Because my public sector income was so low and the Federal Student Loan Interests Rates so high (7.625% Fixed), my income-based repayments haven’t even made a dent in the principal, seven years later. When my loans are forgiven in three years — and believe me I am working, plotting, and organizing to ensure this happens — the U.S. Government will likely forgive close to $160K, tax free. Without this program, there would be no possible way for me to get out from under this burden.
I reveal all of this to you because many of us have a lot of shame about our student loan debt. Don’t. The “Higher Education Industrial Complex” — as I like to call it — is flawed, not us. I enjoy working for the government, helping people, and being in the thick of the public policy process. Had my student loan situation been different, I still think I would have chosen to work in the public sector, as my passion and drive lies in helping other people. But it because of the PSLF program that I have been able to stay in government for the entirety of my career thus far. This program was developed to incentivize the best and brightest going into public service. Without it, many will be forced to follow the money of private sector positions to pay off the burden of college loans.
It is crucial we keep this program alive for future college and graduate students to ensure our government is run by those who are qualified, and not merely by those able to afford going into public service.
While We Wait
Higher education groups continue to voice their concerns with the PROSPER Act. In January, Peter McPherson of the Association of Public and Land-grant Universities (APLU) sent a letter to House leaders urging that the proposed bill would make college less accessible and less affordable. “If the bill is brought to the House floor without significant changes, APLU would oppose the legislation as it would sharply increase the costs of higher education for students and make students and taxpayers more vulnerable to predatory actors and poor performing institutions and programs.”
A letter from 35 higher education organizations was sent to the House on February 5, 2018. The letter states:
Instead of working to rectify these issues, the PROSPER Act, which passed out of the Education and the Workforce Committee along party lines, exacerbates the increasing burden of student debt and continued inequity in higher education access and outcomes. It would make higher education less affordable, saddle students with greater debt, and push more students into loan default.
On January 22, 2018, Representative Foxx co-authored a piece in the Washington Times titled, “Taming the Tuition Tiger”. Among the strategies to remove the burden of college cost on “everyone”, she writes that “consolidating student loans, eliminating loan forgiveness…[and] encouraging private lending to re-emerge would also help.” It would seem the tiger she is trying to tame is the threat of a better educated society.
Until a new Higher Education Act is passed, so many things are hanging in the balance. The student debt saga will continue until we apply a different lens (equity) on education from PreK-12, college and career. We have to create a system of education that will allow all individuals to obtain a higher education without sabotaging the ability to live the life that the American Dream advertises. But who knows what that dream truly is? We’re too busy drowning in debt and holding on to whatever helps us stay afloat.
Read part one of A Trillion Dollar Anchor: The Weight of Student Loan Debt on the Millennial Generation here. Read part two here.
Coda Rayo-Garza has experience in municipal policy having served as Director of Policy and Zoning for locally elected officials, in addition to serving as Director of Policy and Strategic Communications at a non-profit organization. Currently, Coda works in education policy at a local school district. She serves on the Board of Directors for MOVE San Antonio: a local non-profit dedicated to mobilizing and empowering commonly underrepresented youth in democracy. Coda is a class of 2017 NLC-San Antonio Fellow and a 2018 Truman Political Partner. She may be reached at codargarza@gmail.com.
Kate Spaulding is an adjunct professor at SUNY Empire State College’s Harry Van Arsdale Center for Labor Studies, where she teaches union apprentices about local government, politics, and economics. In her day job in city government, Kate works to make the Criminal Justice system more fair and equitable, tries to keep people out of jail or prison, and helps to create more opportunities in communities. Kate was an NYC NLC Fellow in 2012 and can be reached at katespaulding@gmail.com.
https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html
https://www.wsj.com/articles/todays-college-students-arent-who-you-think-1515240000
https://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=402410
http://democrats-edworkforce.house.gov/imo/media/doc/HR%204508%20CBO%20Score.pdf
