Potential Student Loan Interest Rate Increases Can Cost Pennsylvania Students Thousands

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A major issue for college students in the 2012 presidential campaign was the possibility that interest rates on federal subsidized Stafford loans would double from 3.4 percent to 6.8 percent on July 1, 2012.  With student debt hitting $1 trillion and becoming the second largest form of consumer debt, a doubling of interest rates would only further harm struggling students and negatively impact the economy.

To remedy this potential problem, President Obama—with bi-partisan support – proposed an extension of the 3.4 percent rate for one year.  After a one-year reprieve, interest rate hikes for those in the Stafford Loan program are again staring lower and middle class students dead in the face.  This time around, however, the only proposed solutions will increase student debt.

College students and graduates currently have limited options to address the debt issue: let the one-year extension expire on July 1, 2013 and see interest rates double; accept plans to further delay rate hikes; or accept the president’s proposal to tie student loan interest rates to market conditions, which would effectively raise student loan interest rates as the economy recovers.

With consensus on a long-term solution far off in Washington DC, both the House and the Senate have proposed plans to delay the rate hike for two years or indefinitely postpone it. If the government cannot come up with a long-term solution, skyrocketing student debt will continue to adversely affect students in the Pennsylvania State System of Higher Education (PASSHE).

According to the Project on Student Debt, two-thirds of graduating students in the United States in 2011  had an average debt of $26,600. Seventy-seven percent of students graduating from PASSHE universities in 2011 took on student loans; the average student graduated with $26,047 in student loan debt, with an estimated $20,727 coming from federal student loan programs.  Students are graduating with significant debt, and allowing rates to double will only make matters worse.

Let’s assume a student graduates with $10,000 in subsidized Stafford loan debt.  If interest rates were to double, that student would pay an extra $2,000 in interest over the life of their ten-year loan.  While this scenario may be frightening, the proposed solutions may end up being worse.

In President Obama’s budget request on April 10, the president proposed changes to the way interest rates are calculated for subsidized and unsubsidized Stafford loans, as well as Parent PLUS loans.  The president’s “market-based solution” would peg the interest rate on these loans to the current 10-year bond rate plus an additional amount for each loan type. Inside Higher Ed describes how these formulas would apply:

“The interest rate would be the 10-year Treasury yield plus 0.93 percent for subsidized Stafford loans, plus 2.93 percent for unsubsidized Stafford loans, and plus 3.93 percent for PLUS loans for parents and graduate students.”

The logic behind the proposal is that students will graduate with low interest rates during hard economic times and higher rates when the market is healthier.  However, what looks to be a short-term win for prospective and current college students and recent graduates can actually turn into a Trojan Horse years down the line.

Considering that current interest rates for unsubsidized Stafford loans are 6.8 percent, Parent PLUS is 7.9 percent and the 10-year Treasury yield is at 1.84 percent, this formula would be a benefit for parents and students at the present moment. But when the economy picks up again, parents and students will most likely be paying more money for interest for all three government loans.  In the years leading up to the recession, 10-year interest rates peaked at around 6.6 percent in 2000 and hovered around 4.5 to 5.25 percent in the immediate run-up to the recession.  If the economy fully recovers, students will be facing interest rates that may be much higher than current rates.  Using the formula quoted above, if 10-year treasury rates were between 4.5 and 5.25 percent, Subsidized Stafford loan rates would be between 5.43 and 6.18 percent, unsubsidized Stafford loan rates would be between 7.43 and 8.18 percent, and parent PLUS loans will be between 8.43 and 9.21 percent. If Treasury rates returned to their pre-recession peak, interest rates would be even higher.

With the economy still “depressed” and student debt at an all-time high, policymakers and students should be discussing reforms to the way interest rates are calculated.  These reforms should focus on long-term affordability and accessibility. Education advocates worry about the government using these loans, which serve lower and middle class families, as means to generate long-term profits.  ThinkProgress noted that the federal government is set to make $34 billion off of student loans in 2014, and the government makes 12.5 cents on every subsidized Stafford loan dollar.  Nearly two-thirds of those in the Stafford loan program are from families with an annual income under $50,000; education advocate Ethan Senack said, “[h]igher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt.”  Tying interest rates to market conditions, while possibly providing short-term relief, may be counter to this mission in the long run.  Student should demand more lasting, meaningful reform.

 

Climbing out of the Cliff – Holding the Commonwealth to Its Promises

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PASSHE E&G Appropriations vs. Tuition and Fees

This article was authored by Sean Kitchen 

Governor Corbett’s decision to “cliff fund” the State System of Higher Education (PASSHE) for a second straight year, again failing to restore the $90 million cut in the 2011/2012 budget, goes against the Commonwealth’s moral duty to support public higher education.  The act that chartered the creation of the State System – Act 188 of 1982 – states that it is the Commonwealth’s responsibility to provide a “high quality education at the lowest possible cost” to those attending a PASSHE institution.  This obligation has increasingly become compromised in the context of shrinking state support.

According to a recently published Center on Budget and Policy Priorities report, states around the country have taken the ax to public higher education funding.  Between 2008 and 2013, Pennsylvania cut higher education spending per-student by 29.9 percent, or $2,082 per student (inflation adjusted).  The State System in Higher Education is included in this equation.  At the fourteen PASSHE institutions, state spending per student was reduced by 29.6 percent or $1,632 per student during the same period, the trend is not comforting.

The Thirty Year Flip-Flop: Responsibility for Funding Higher Ed Shifted From State to Student

During PASSHE’s first official year of existence (1983-84), roughly 65 percent of its budget was supported by Commonwealth appropriations while a smaller 35 percent came from tuition and fees charged to students.   Over the last 30 years, those numbers have flip-flopped.  Fast forward to the 2008 recession and the percentage of support coming from the state had shrunk to 37 percent.  By 2012-13, state support had shrunk to 26 percent.  That means for  the average in-state resident student is that tuition and fees have increasingly taken up a larger chunk of their family’s income.  In 2001, tuition and fees at PASSHE universities took up 8.5 percent of the median family income in Pennsylvania; in 2012, they take up nearly 17 percent median family income.

To hold the Commonwealth to its promises and responsibility to provide a  “high quality education at the lowest possible cost,” state government must stop balancing the budget, through cuts in education and safety net programs, on the backs of the collective citizenry and start exploring for more responsible funding revenues.  Examples of these revenue streams include a severance tax on the Marcellus Shale, closing tax loopholes and ending corporate tax breaks.

Going back to the report published by the Center on Budget and Policy Priorities, the only two states that have continually invested in public higher education over the last fiveyears were North Dakota and Wyoming. During this time frame, these states have increased their spending per student by 16.5 percent and 7.5 percent, respectively.  What is not reported in the article are the reasons why they have invested in higher education spending, but Kevin Keily from Inside Higher Ed points out that these two states have used their natural resources boom to fund public higher education.  Unlike Pennsylvania, which has a 2.6 percent “fee” on the Marcellus Shale, Wyoming has a severance tax of 6 percent on natural gas and oil, and North Dakota has a 5 percent severance tax on oil extraction and a 6.5 percent tax on natural gas extraction.

What is unique about the Marcellus Shale is how the royalties are distributed.  Unlike Wyoming or North Dakota, which puts their severance tax into their general funds, Pennsylvania distributes most of its revenues to the local municipality with little to no revenues going to the state’s general fund.  Last fall, the Pennsylvania Budget and Policy Center released an analysis on the minimal revenues collected through Pennsylvania’s Marcellus Shale severance tax.  Their findings stated if Pennsylvania had a severance tax comparable to West Virginia, which is around 6 percent, the state would have raised $378 million dollars, instead of the $200 million dollars the state collected through impact fees.

Other options for responsibly funding higher education without raising taxes on the citizens include closing the Delaware Loophole—which allows companies operating in Pennsylvania to register in Delaware to avoid certain taxes–and stopping the governor’s and General Assembly’s proposed tax cuts to large businesses.  Delaware is a legal tax haven in the United States, and the state “offers an opportunity to game the system, and do it legally” according to David Brunori at George Washington Law School.  According to a recent New York Times article, “more than 400 corporate subsidiaries linked to the Marcellus Shale” have registered in Delaware since the natural gas boom began four years ago.  It is estimated that the Commonwealth has lost $400 million dollars a year since 2004 due to the Delaware Tax Loophole.

In Governor Corbett’s 2013 – 2014 budget, he proposed to cut the state’s corporate tax rate from 9.99 percent to 6.66 percent starting in 2015, which would then continue to phase out until 2025.  According to Sharon Ward at the Pennsylvania Budget and Policy Center, this would cost the state $1 billion dollars a year.  Other tax cuts that the General Assembly are taking up include House Bill 36, House Bill 1100, and Senate Bill 303, which would cost the state at least an extra $30 million a year in lost revenues.

Some states are beginning to reinvest in public higher education, Washington state being a notable example by proposing a $300 million increase in funding.  Pennsylvania has a long way to go.  To reverse Governor Corbett’s cliff funding of higher education and for the Commonwealth to provide a “high quality education at the lowest possible cost,” the Commonwealth should consider responsible common sense revenues that restore the promise to Pennsylvania students and their families.

Cliff Diving – The New Normal for Public Higher Education in Pennsylvania?

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By Sean Kitchen

There is an old idiom that: “once is an accident, twice is a trend.”  And with regards to the cliff funding – the proposed flat funding of public higher education for a second consecutive year –  of higher education, that idiom is being perpetrated by the Governor’s office and being accepted by the leadership of the State System of Higher Education (PASSHE) and the four state related universities.  Governor Corbett’s history of cutting higher education is no secret, and the fight to restore those previous cuts was pretty obvious.  In 2011, public outcry reduced a proposed 50 percent cut in higher education funding to a cut around 20 percent.  In 2012, public outcry was once again responsible for staving off proposed cuts between 20-30 percent and restore funding for higher education to 2011 levels when the Pennsylvania Senate passed its 2012-2013 budget plan.

When the cuts were taken off the table in 2012, Governor Corbett gathered the leadership representing the 14 PASSHE institutions and the four state related universities to have a nice photo op, and then proceeded to explain that the proposed higher education budget cuts were taken off the table.  Then last month, a week before his budget, the governor brought the leadership of the PASSHE institutions and four state related institutions to embrace the notion of cliff funding higher public education for another fiscal year.  During his press conference, the governor said: “I think both sides understand that a young man or a young woman’s future should not begin with a mountain of debt,” and “our young people appreciate the investment Pennsylvania taxpayers make toward their education.”

If this were the case, Governor Corbett would follow his colleagues from around the country, and begin to reinvest in public higher education.  According to Kevin Kiley from Inside Higher Ed, 31 states during the 2013 fiscal year began to reinvest in public higher education, but two states in particular, which have republican governors and an abundance of natural resources, have made it through the Great Recession with budget surpluses and commitments to investing in public higher education.  The report states that Wyoming and North Dakota “are seeing large increases driven by natural resource booms,” but both of these states have a much smaller population than Pennsylvania.  Other republican-controlled states that are witnessing an increase in higher education funding are Nebraska and Nevada.  In his budget address, Nevada Governor Brian Sandoval asked for a $135 million increase in public education spending, and he proposed to extend a tax package that would send an extra $649 million to the state’s general fund; most of which would be spent on public and higher education and Medicaid.

If Governor Corbett’s cliff funding of higher education becomes “the new normal” the burden of will slowly be felt by those attending a publicly funded institution.  For instance, if we accept the 2011/2012 funding level as the bar for public higher education spending – or an investment that students should appreciate from the taxpayers – the PASSHE system will actually lose money due to inflation.  When adjusted to the Bureau of Labor Statistics inflation calculator, the state system of higher education has lost $8.25 million a year for the past two years.

If there is a chance in advocating for reinvesting in public higher education, that opportunity was extended last week when Interim Chancellor Peter Garland and PASSHE representatives were in front of the Senate Appropriations Committee.  At the hearing, Senate Appropriations Committee Chair Jake Corman (R) from Center County thanked the PASSHE representatives for keeping tuition increases at a minimum over the last few years, especially with not receiving any funding increases over the previous budgets, and the Senate leader proceeded to throw a lifeboat to the interim chancellor and the PASSHE representatives by repeatedly asking if there was anything that the committee can do for the State System.  Senator Corman said:

 “I do get to a point where I am concerned -you do see a 17% two years ago, flat funded this year, flat funded next year, assuming the budget holds – of our quality… I guess I can help you improve that quality by finding you more money, but that is unfortunately the state of our finances these days.  But I do think it is important for you at some point to come before this committee, because every budget item has consequences – positive and negative.  And if we get to the point, we’re not going to be able to provide services that you currently provide at the level you provide.”

The senator then goes on to explain the importance of the university system, especially in the northern tier where there isn’t much access to community colleges in the state.  He reiterated the point that these schools provide access for those in the area, especially commuters who wouldn’t be able to afford living on campuses.  He ended his comments thanking the PASSHE leaders but also making the point that the state needs to give more than moral support, and he puts the onus on PASSHE to explain the budget ramifications.  After Senator Corman spoke, Senator Hughes addressed the same points and added the fact that maintenance and maintaining the schools are costly.

Reversing the trend of the “new normal” and reinvesting in public higher education will need to be sparked by the collective citizenry of the Commonwealth.  If Senators Corman and Hughes and the other members of the Appropriations Committee are throwing this large of a lifeboat to PASSHE leaders, it is an opportune time for the public, the parents and the students to be the third party at the table.  Over the next few months, I am going to use this blog as a forum for new alternatives at reversing this trend.  We’ll be looking at what can be done in Pennsylvania, what can be done nationally and how student groups have successfully fought back against budget cuts and tuition increases.

Let’s Talk About… Getting Politically Involved

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It’s that time again. The robocalls are ringing, the radio ads are clogging up the air, and political signs are taking over the lawns. You’re probably sick of it! However, despite the annoyance, there are indeed many important reasons to get politically involved. By getting politically involved you can make your voice heard on many important issues. Issues such as:

• Student loans
• Rising tuition costs
• Health care availability
• Environmental degradation
• Social issues
• Jobs and the economy

These and other important issues may get ignored unless students become politically active. Luckily, there are many different ways of getting involved. In this post, we’ll go over a few.

Petitions:

One easy way to get started is to petition your representatives. By petitioning them, you can express any grievances you may have. It can be any issue, big or small. But, the more people you can get to send a petition, the greater chance you have that your representative will be responsive to your concerns.

While emailing a petition is very easy, actually mailing a physical copy of a petition oftentimes will have a greater effect.
If you’re not sure who your representative is, you can discover your US representative here, and your Pennsylvania state representative here.

Blog:

With the advent of the internet, we are now able to voice our opinions to a global audience. If you have particular concerns about a topic, and wish to bring greater attention to it, a blog may be a great way to go about it.
And you don’t have to necessarily write a blog by yourself either. For example, Raging Chicken Press is a student/faculty joint venture based at Kutztown University.


Rallies:
If you know there are many people concerned about a particularly issue, you may want to consider holding a rally. Putting together a rally takes a lot of hard work and organization, however, its impact is very powerful. Be sure to contact media if you’re expecting a lot of people.

In the past, Pennsylvania students have held rallies to protest cuts to higher education. A video of these rallies can be found here.

Campaign volunteer:
If there is a candidate that particularly excites you, consider volunteering for them. Campaigning can be as simple as making a few phone calls, to as intense as a being a full-time campaign staffer. Contact your candidate’s campaign office for more information on how you can get involved.


Vote:

And of course, the most fundamental way to be politically active is to get out and vote! If you’re not sure of the steps needed to take in order to vote, check out APSCUF’s guide.

These are just a few broad guidelines to consider when looking to becoming politically active. Be creative and have fun in coming up with new strategies to be politically active. And remember, that unless you speak up, your voice won’t be heard.