Debtless graduates are all alike; every indebted graduate is indebted in their own way. That variation in college debt is the key takeaway from The Institute for College Access and Success’ report on the class of 2016.
Average debt varies widely by state and even by institution. Utah graduates had the lowest debt levels, at just under $20,000, whereas the average New Hampshire student left college owing $36,367. The gap between individual schools was even higher, with the lowest institutional average at just $4,600, and the highest at $59,100. The states with the highest and lowest debt burdens were:
|High Debt States||Low Debt States|
These differences between individual states and colleges suggests that public officials and school administrators could take action to reduce the debt burden of their graduates.
What States Can Do
The report makes recommendations to states looking to reduce their graduate’s debt burdens. Most importantly, state grant aid should be allocated based on need, not merit. The researchers found that 24% of state grants were awarded without considering the student’s financial circumstances. To reduce student debt, states need to ensure that students who cannot afford tuition without borrowing are prioritized for funding.
States also need to make sure they’re not punishing students who receive loan forgiveness. Federal student loans offer income based repayment plans, and can be forgiven after 20 years of payments. In many states, the amount forgiven is considered taxable income, which can be a significant financial liability for those finally being relieved of their debt burden. These forgiven balances should be exempted from state income tax.
Finally, states should hold their educational institutions accountable by setting and enforcing standards for schools that receive state grant aid or funding. In California, for instance, colleges where a large percentage of students are taking on debt must meet loan default and graduation rate criteria. They can also require colleges to adopt proven strategies to reduce student debt burdens.
What Colleges Can Do
Colleges had more variability in average debt burdens than states, so it’s critical that schools be held responsible for reducing their graduate’s debt.
Just like states, colleges give a significant portion of their grant funding to students without a demonstrated financial need. The 60 colleges whose graduates averaged $40,000 or more in debt spent a total of $465 million on grants for students who weren’t in need. These resources would be better spent on students who have to borrow to fund their education, allowing them to leave school with smaller loan balances.
Colleges also need to collect and report better data about their students borrowing and financial situations. As this report shows, the burden of student debt isn’t distributed evenly, and better data can provide a more useful understanding of the problem.
More information can also help students make better decisions. Students that seek out non-federal loans should be provided with counseling to make informed financial decisions. The interest rates on these loans can dwarf their federal counterparts, and they lack the protections and forgiveness options offered by the Department of Education. Borrowers need to understand this before committing, and find lenders that are trustworthy and offering fair terms.
In addition, colleges frequently underestimate the cost of attendance, leaving students paying more than they expected and borrowing to make up the difference. Projected budgets and net price calculators should be easily accessible, and provide prospective students with transparent and honest estimates.
The Federal Reserve Bank of New York estimates that at the end of 2016 student loans in the US totaled $1.3 trillion, but as this report shows, that burden isn’t distributed evenly. States and schools who are graduating students with high debt burdens need to do more to ensure that they’re protecting students, and making sure students in need are getting the resources they need to succeed.
(Photo Courtesy of Tim Collins.)
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