During his recent State of the Union address, President Obama outlined many key issues facing our nation. One that received plenty of attention was the affordability, or lack thereof, of higher education, and the tremendous importance that education has on America’s long-term success. Through the delivery of fair-value financial services, all credit unions play a critical role in the lives of members who are saving or paying for college. In addition, a growing number of credit unions are playing a more direct role by offering private student lending solutions to help families fill funding gaps. A closer look at the President’s comments reveals a better understanding of both the administration’s proposals and the opportunity for credit unions.
Excerpts from Obama’s official Blueprint for An America Built to Last are indicated below as Administration Goals. The full text is available at The White House State of the Union Website.
Administration Goal: Double work-study jobs and take steps to hold down college costs for middle-class families. College costs are escalating at an unsustainable pace. Even after adjusting for inflation, the www.whitehouse.gov average published cost of tuition and fees at a four-year public university has increased by 136% in the last 20 years. This Administration has made college more affordable by continuing to increase the maximum Pell Grant award by more than $800 and creating the American Opportunity Tax Credit worth up to $10,000 over four years of college.
The Takeaway: While the increase in college funding through Pell Grant awards is certainly a step in the right direction, credit unions can compliment and inject their support by encouraging and educating borrowers on using free and cheap resources to pay for college. Only after these lower cost funding options have been exhausted should alternative financing be considered. Grant increases and tax credits are helpful, but must also be combined with early preparation from families, savvy borrowing from students, and responsible lending.
Administration Goal: The President called on Congress to help keep college costs within reach for middle-class families by keeping tuition from spiraling too high. The President is proposing to shift some Federal aid away from colleges that don’t keep net tuition down and provide good value.
The Takeaway: A diligent focus on monitoring and managing college tuition and fees will play an important role in insuring students are receiving a fair deal, as well as an excellent education. Consider a New York Times article stating that although only 12% of students nationwide attend for-profit colleges, those students account for more than 50% of all student loan defaults nationwide. This data indicates that not only is more focus needed in monitoring the aid that colleges receive, but also what types of institutions receive funding and how those colleges perform. Making college more affordable also means making funding more efficient to ensure the best value possible.
Administration Goal: Preventing student loan interest rates from doubling. The President called on Congress to stop the interest rate on subsidized Stafford student loans from doubling on July 1 of this year, so young people don’t have as much debt to repay.
The Takeaway: The Federal Stafford loan program remains one of the best sources of funding for college students. In fact, after exhausting opportunities for scholarships, grants and other tuition discounts, the Federal Stafford program provides the most affordable solution for college financing. Keeping the fixed interest rate low and affordable would be a tremendous benefit to student borrowers.
Administration Goal: Doubling the number of work-study jobs. The President wants to reward students who are willing to work hard by doubling over five years the number of work-study jobs for college students who agree to work their way through school.
The Takeaway: Students should always pursue opportunities to reduce the total amount they owe through scholarships, grants, and tuition discounts, especially through programs such as Federal work-study. Increasing the availability of these positions will allow colleges to award more work-study positions to students, giving them the opportunity to pay for their college education while still focusing on their studies and leading to the possibility of a debt-free graduation.
Administration Goal: Permanently extending tuition tax breaks that provide up to $10,000 for four years of college. The President is proposing to make the American Opportunity Tax Credit permanent, maintaining a tax cut that provides up to $10,000 for tuition over four years of college.
The Takeaway: Maintaining tax credits that make college more affordable is a great start in reducing the debt burden and making college achievable for more students. Research is clear that a college education is a worthy investment. In fact, according to the College Board “The typical bachelor’s degree recipient can expect to earn about 66% more during a 40-year working life than the typical high school graduate earns over the same period. Compared to a high school graduate, the typical four-year college graduate who enrolled at age 18 has earned enough by age 33 to compensate for being out of the labor force for four years, and for borrowing the full amount required to pay tuition and fees without any grant assistance.” In fact, “the unemployment rate for individuals with at least a bachelor’s degree is consistently about half the unemployment rate for high school graduates.”
These figures are a powerful indication that a college degree is worth the time, effort, and cost. Anything we can responsibly do as a nation to reduce the significant debt burden faced by so many students will undoubtedly help in the long run.
For more information about Credit Union Student Choice or assistance in evaluating if a higher education financing solution is right for your credit union, please contact Jim Holt at firstname.lastname@example.org
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