March 15, 2010

Prospect of vast load of debt discourages college applicants

— Fannie Mae and Freddie Mac are becoming household words for all the wrong reasons.

The federal government has had to bail out these mega-packagers of mortgage debt to keep the dollar and the U.S. economy from total collapse.

Somewhat lost in this focus on excesses in the mortgage market is another debt problem with potentially greater long-term impact -- student debt.

Student loans, principally for post-secondary education, have been growing rapidly, from under $10 billion in the mid-'60s to nearly $80 billion last year, according to the College Board.

At a time when we are encouraging more high school graduates to go on to college, the financial barriers to doing so are becoming even more daunting. For reasons that the Ph.D.'s who lead our colleges and universities find hard to explain and even harder to control, tuition costs have risen to mind-boggling heights.

It is not unusual today to be spending $40,000-$50,000 per year to attend a private four-year college. Public universities' costs are in the $15,000 per-year range.

The situation in Maine mirrors that nationally. In August, I attended a seminar sponsored by the Maine Compact for Higher Education that addressed this issue.

Particularly helpful in understanding the Maine student situation was analysis presented by Lisa Plimpton of the Mitchell Institute.

The numbers are striking: Maine's public college costs are 13 percent higher than the national average and community college costs are 29 percent higher -- despite the fact that Maine's per capita income is 12 percent lower than the national average.

This is largely because Maine does not adequately support higher education with public funding meaning that tuition costs end up being higher here.

Contrast this with K-12 education where Maine's state and local funding is 8th highest in country.

As a result of Maine's higher tuition costs, Maine's average student debt in 2006 was $22,877, the seventh highest in the nation. This is a whopping 71 percent of state per capita income, compared to 54 percent nationally.

The prospect of such debt is clearly a factor limiting college attendance, particularly for those with low incomes and those from first generation college families. According to Plimpton, from 1999 -- 2006 the participation in college in Maine of those from low income families dropped 10.2 percent, compared to the average of 3.8 percent nationally.

Debt is also a significant factor in the high dropout rate in the first two years of college.

Another difficulty prospective students must face is the complexity of figuring out how much financial assistance is available.

The federal government requires students and parents to fill out a detailed profile of financial capability to determine something called the Expected Family Contribution (EFC).

The feds use a complex formula that takes into account more than 70 items families must provide about incomes and assets, family size, and numbers of family members attending college.

So far this is a bleak picture for a state whose economic vitality is increasingly dependent on a more highly-skilled workforce.

There are two bright spots: thanks to the Harold Alfond College Challenge, every child born in Maine from January 2008 forward will have a $500 grant to establish a college savings plan for every child.

While $500 may not sound like much, it actually represents a huge opportunity to get families started early on college savings plans.

With this impetus and the on-going counseling efforts envisioned by Alfond's plan, the average Maine student could easily have $50,000 to $100,000 available by the time they reach college age.

Moreover, Maine also has a newly passed tax credit program called Opportunity Maine that provides a significant tax credit to Maine graduates working in the state to help them pay down their college loans.

This is another gem of a program that will substantially reduce the burden of college debt for those graduates who find work here in Maine.

The problem of student loan debt is one most of us will have to live with. The key is to continue to find ways to make this debt load reasonable and the process for incurring such debt simpler.

It is a big challenge that needs more open policy discussion and debate. The Compact's Symposium was a good step, but only the first of many more that will be needed.

Ron Bancroft is an independent strategy consultant based in Portland. He can be contacted at:

ron@bancroftandcompany.comIt is not unusual today to be spending $40,000-$50,000 per year to attend a private four-year college. Public universities' costs are in the $15,000 per-year range. The situation in Maine mirrors that nationally.

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