White House Student Loan Measures Will Barely Dent Soaring Costs
Just as the Obama administration unveils new measures it says will ease crushing student loan debt, the College Board is out with new figures showing the cost of college surged again this year, and student borrowing along with it.
Tuition and fees at public four-year colleges and universities jumped 8.3 percent nationwide for the 2011-2012 school year, the organization said. The numbers were skewed by California, which raised in-state tuition and fees by a whopping 21 percent this year. But even without California, costs rose seven percent, according to the College Board’s annual “Trends in College Pricing” report released on Wednesday.
“State budgets are still tight, and states are appropriating less money per student than they were a year ago—much less than they were after adjusting for inflation a decade ago,” said Sandy Baum, an independent policy analyst for the College Board.
Private, non-profit colleges raised prices as well according to the report, but not nearly as much as their budget-strapped public counterparts. Tuition and fees rose 4.5 percent, which is still more than twice the core rate of inflation.
“Private institutions don’t rely on state budgets for funding,” Baum told CNBC.
For-profit colleges largely held the line on prices, averaging a 3.2 percent increase from a year ago according to the report. But average tuition and fees at for-profit colleges remain considerably higher than at public institutions.
Along with the higher prices comes higher borrowing, the College Board said.
For the 2010-2011 school year, total borrowing—including federal loans, private loans and parent loans—rose two percent to nearly $112 billion dollars. Most of that money consisted of federal loans averaging around $4,907 per student. The non-profit Project on Student Debt reported last year graduates in the class of 2009 carried, on average, $24,000 in student debt. And the U.S. Department of Education reported earlier this year that the official student loan default rate had jumped roughly 25 percent from a year ago.
The new Obama administration measures—which the White House says do not need Congressional approval—are aimed at lowering payments for millions of borrowers.
Beginning next year, an existing program that allows borrows to base their monthly payments on a percentage of their income will be enhanced. Under the current “Income-Based Repayment” program, borrowers can limit their payments to 15 percent of their income, with the ability to have the balance of the loan forgiven after 25 years. Under the new program, the cap will drop to ten percent, forgivable after 20 years.
Another program will offer new options for consolidating student loans. The federal government began making loans directly to students last year, rather than guaranteeing loans by private lenders as was the case in the past. That has left nearly six million borrowers with both the old guaranteed loans and the new direct loans. Under the new plan, those borrowers will be able to combine the loans into a single loan with a lower interest rate.
The President was scheduled to tout the plan Wednesday in Denver. It is part of a package of measures unveiled this week aimed at helping the ailing economy without having to gain approval from the Republican-led Congress.