Personal Finance

Trump touts college savings in speech but ignores student debt

Key Points
  • In his first State of the Union address, President Trump touted growing 529 college savings balances but said nothing about the student debt crisis.
  • In the past, he has called for shortening the student loan forgiveness period, reeling in subsidized Stafford loans and alternatives to college altogether.
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President Donald Trump hit on the economy, immigration and infrastructure in his first State of the Union address.

One issue he overlooked: the ever-increasing cost of college.

"The stock market has smashed one record after another, gaining $8 trillion in value," he said in his prepared speech Tuesday. "That is great news for Americans' 401(k), retirement, pension and college savings accounts."

Yes, balances in 529 savings accounts have been growing, but so are college costs. (See the chart below from the College Savings Plans Network.)

"Those same savings accounts are not covering the full cost of college for most students and their families," said Robert Franek, The Princeton Review's editor-in-chief.

Families with students in four-year private colleges spent almost $47,000 in 2017-18, up 3.5 percent from the year earlier. At in-state, four-year public colleges, it was more than $20,000, according to the College Board.

A college degree is now the second-largest expense an individual is likely to make in a lifetime — right after purchasing a home.

Tuition has historically risen about 3 to 5 percent a year, according to the College Board. During the recession, declining public funds caused tuition to spike. At private four-year schools, average tuition and fees rose 54 percent in the last decade. Tuition plus fees at four-year public schools, which were harder hit, jumped 71 percent over the same time period.

As a result, families are relying on loans and aid more than ever before to make a degree more affordable. Currently, about two-thirds of all full-time students receive some kind of support.

Aid such as the income-based federal Pell grants covered 35 percent of college costs in 2016-17, up from the previous school year, according to a recent report by education lender Sallie Mae. Borrowing covered 27 percent of college costs, also higher than the year before.

Ninety-eight percent of college applicants and their parents said financial aid would be necessary to pay for college, according to The Princeton Review's 2017 College Hopes & Worries survey.

"These worries are understandable and they can be exasperated if the current administration moves to cut back on the student loan forgiveness program and any other federal support, including Pell grants and subsidized loans for low-income students," Franek said.

In the past, Trump has called for shortening the federal student loan forgiveness period (while increasing the monthly payments), reeling in subsidized Stafford loans and eliminating the Public Service Loan Forgiveness Program completely for borrowers who take out loans after July 1, 2018.

In his State of the Union address, the president also promoted alternatives to college. "Let us open great vocational schools so our future workers can learn a craft and realize their full potential," he said.

"I applaud the idea of giving students more options but not at the sake of taking dollars away from students who want to go to school," Franek said.

And still, "students with an undergraduate degree earn more and have lower rates of unemployment," he added. (The unemployment rate among those over age 25 with a bachelor's degree or higher is about half the overall rate of 4.1 percent, according to the Bureau of Labor Statistics' most recent data.)

I applaud the idea of giving students more options but not at the sake of taking dollars away from students who want to go to school.
Robert Franek
editor-in-chief of The Princeton Review

The educational system is due for an overhaul, particularly when it comes to pricing, said Miranda Marquit, senior policy writer at Student Loan Hero, a website for managing debt.

"I would like to see an emphasis on those paths without the traditional four years' worth of debt," she said, particularly coding programs and boot camps in high-paying technical fields, she added, rather than traditional manufacturing.

"But simply, getting up there and saying 'hey, we need to promote these programs' is not going to change the system — especially if there is no substantive policy approach."

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