General State Funding for Higher Ed Proves More Popular Than Programs to Curb Student Debt

By Joelle Fredman, NASFAA Staff Reporter

Despite concerns about student borrowing and rising debt, state programs to assist borrowers repay their loans or offer them some sort of debt relief remain unpopular — perhaps because they can be difficult both to establish and maintain due to data-sharing issues and other obstacles. As an alternative, several states have been increasing their general funding for higher education in an effort to reach pre-recession levels, and most are inching closer toward that goal. 

Colorado last week announced forthcoming legislation to repay the loan debt of its students for the first two years they are enrolled in income-driven repayment (IDR) plans, if they agree to remain in the state. While Colorado modeled its program — dubbed “Get On Your Feet” — after a similar effort in New York enacted in 2015, there are barely any other states with programs that directly repay student loans. 

“The appetite more broadly for states actually repaying students’ loans is pretty limited,” said Sarah Pingel, senior policy analyst for the Education Commission of the States (ECS). “[Instead,] a lot of states are still trying to get back to levels of funding for higher education generally, before the [Great] Recession.”

Pingel said she has been noticing a growing trend in states reinvesting in higher education by carving out additional funding for their existing financial aid programs, and focusing on reforming policies around their programs to best serve students.

In fact, a recent, annual Grapevine survey found that approved state appropriations for higher education have been increasing for the past eight years, and overall grew by 5% between fiscal years (FY) 2019 and 2020 — the largest increase since FY 2015. 

The survey found that of the 47 states and Washington, D.C. that reported annual increases, 25 saw increases of less than 5%, 19 saw increases between 5% and 10%, and four saw increases of more than 10%. Plus, the report noted two of the three states that reported decreases in spending —  Hawaii and New York — have already surpassed their pre-recession funding levels, and only experienced minor annual cuts of 2.2% and less than 0.3%, respectively. 

In addition to increasing funding for higher education more generally, some states, such as Maine, Massachusetts, and Nebraska, have also instituted tax credits to help defray the cost of student loan repayments, Pingel said. Plus, since 2018, ECS found 10 different states — including New York, Missouri, California, and Texas — with legislation to provide students with state dollars to refinance their loans. 

Directly repaying student loans, however, falls to the bottom of the list of state solutions to student debt. One possible reason is that such a program may involve data-sharing between the states and federal agencies to verify program requirements — such as enrollment in an IDR plan — which can be a complicated relationship to forge, Pingel hypothesized. If the legislation passes in Colorado, Megan McDermott, the director of communications at the Colorado Department of Higher Education, said her agency would work closely with the Department of Education to contract loan servicers to verify program participants' enrollment in IDR plans, though other states may not have such existing connections. 

In addition, state programs that repay student loans also come with myriad questions around implementation. While the initiative was just announced last week, some higher education stakeholders in Colorado were quick to point out a lack of details surrounding plans for repayment. For example, Eric Hogue, the vice president of advancement at Colorado Christian University, wrote on Twitter following the state’s announcement that he is “trying to understand if this is an actual two-year ‘pay-off’ of the grad’s loan(s), or a delayed payroll (garnished?) ‘repayment plan.’”

While the program is intended to give students “two years of breathing room to actually be able to pursue the career they want to pursue,” according to the Democratic Colorado Senate Majority Leader Steve Fenberg, some also fear the program is too costly. 

Jimmy Sengenberger, president of the Millennial Policy Center, a Colorado-based think tank, wrote in an opinion article Monday that the program is “unaffordable for Colorado taxpayers” and could cost them $7.3 billion. Pingel noted states currently spend an average of $12 billion on their financial aid programs every year. 

Despite the potential issues and unpopularity of state programs that directly repay student loans, Pingel said there is a growing concern among state and university leaders about how much students are borrowing and why they are borrowing so much, as well as discussions around how to continue to address rising debt levels.  

“It’s still a really open question of how much states can afford to invest in higher ed,” Pingel said. 


Publication Date: 1/14/2020

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