If you work as a teacher, an employee of a non-profit or one of a multitude of other jobs, you could soon be in for a rude awakening with regard to your student loan situation.
The proposed 2015 budget, which has yet to be put in front of Congress, contains a provision that puts a $57,500 cap on Public Service Loan Forgiveness (PSLF); a nightmare scenario for many who had been working toward full loan forgiveness. If such a cap passes, I predict two things will happen:
- Tens, if not hundreds of thousands of people who were counting on PSLF will potentially incur unanticipated debt, extending the already slow recovery of the economy, especially regarding home-buying.
- An untold number of Americans will be forced to think twice about obtaining an advanced degree, sliding the U.S. even further down the competitive world education scale.
For those unfamiliar with PSLF, the program began in 2007 and provides for those who work in "public service" (defined in this case as a government worker, an employee of a 501c(3) non-profit or a teacher) to achieve federal student loan forgiveness after 120 monthly payments. Basically, it allows people to go on income-based repayment programs, and if they hold public service jobs, whatever is left of their federal loans is forgiven after a decade of payments. Unless, of course, the current budget proposal for PSLF passes, and the forgiveness will be capped at $57,500, which will have extraordinarily harsh effect on an already near-burst student-debt bubble and a struggling higher-education rate in the U.S.
Okay, I know what you're thinking right now: $57,500 is a lot of money.
I don't deny that it is, but it would be disastrous to cap PSLF at such a level. My own story demonstrates why:
I really thought I did everything right.
I attended a state school for my bachelor's degree and received a partial scholarship, working part-time all four years. I didn't live on campus, because it cost too much money. After graduation, I served in the Peace Corps, and when I came back to the States, enrolled in a respected graduate school. I chose it over top five schools because it was cheaper, but still in the top 10. During grad school, in a market that encourages free intern labor, I only accepted paid internships, and only took out enough in student loans to cover tuition and keep a roof over my head. Regardless, after accruing interest while abroad and paying for a graduate education, I found myself in $100,000 of debt (more than half of it my graduate tuition alone).
I knew what getting a master's degree was going to cost me, and I carefully planned how to make it work after graduation. In my case, and in the case of thousands of my generation, PSLF was the only option that made financial sense. After I graduated last May, I applied for 75 PSLF-eligible jobs and finally got one. I make slightly over $50,000 per year, and my corresponding income-based payments are about $430 per month. If I were on the regular 10-year repayment program and not an income-based plan, my payments would be nearly $1200 per month (which is half my take-home salary).
Thank goodness for income-based repayment plans, right!? Well, now we get to the fun part.
Of my $430 per month, a whopping $16 goes to the principal. The rest is interest, because interest on a hundred grand is fat. This year, $192 will go towards the principal of my $100,000 in loans.
If you haven't noticed, this won't add up to much over time. Despite the fact that I anticipate earning more money in the next 10 years, there is no way I'll make enough to bring my debt down to under $57,500 total. I was counting on PSLF to give me relief after 10 years of payments, and if the cap passes, I might be obligated to pay for another 15 years. The scary part is, I don't even owe that much. Lawyers and doctors often come out of school with between $200,000 and $300,000 in debt after being forced to go to expensive schools to be competitive enough to get a job at all.
Worst is that the provision currently makes no mention of grandfathering anyone in to the original PSLF terms. There are people who started their public service careers in 2007 or 2008 to take advantage of the program and now the carpet could potentially be pulled out from under them. No one has even been able to see the fruits of the program because 2017 is the first year anyone would be eligible for forgiveness. Without a grandfather clause, everyone who was relying on PSLF will be out of luck, and back in a degree of debt that will severely affect their future financial choices and capabilities. People have planned their lives around this program, and ¾ of the way to what they thought would be freedom from debt, they could be left with loans nearly as large as when they began paying in the first place.
If this proposal passes as is, I fear the benefits of education will not outweigh the burden of debt for most Americans. Education is a key component to the economic success of a country, but in America, it is becoming a more of a financial hindrance than a career gain.
PSLF is one of the only programs that makes it possible for people whose parents couldn't substantially offset the cost of education to obtain advanced degrees and not default on payments. The proposed provision will negate its value, and people will notice. Fewer people will choose to obtain higher education.
PSLF was created to drive people to pursue public service careers as teachers, social workers, public defenders and doctors, among others. Ironically, if forgiveness is capped, it might not be worth $57,500 to become one.
Average tuition and fees for in-state student: $9,022 in 2011-12 Increased: 20.5% from a year prior and 98.3% from five years prior The worst could be yet to come for students in California's public universities. If California residents vote against state tax increases in the November elections, the school system will have to come up with money fast to fill the $375 million budget gap that would ensue, says Dianne Klein, a spokeswoman for the University of California's Office of the President, which is the headquarters for the 10 UC campuses. Under that scenario, tuition could rise 20.3% for the second semester of the upcoming academic year. Much of California's growing college-cost burden has been placed on out-of-state students. The 10 most expensive campuses for out-of-state students in the U.S. are all in California, where tuition, fees, room and board in total ran up to roughly $51,000 last year, according to the Chronicle for Higher Education. Klein says that despite the rising costs, overall applications to the UC system are going up; she also says that because of the system's financial aid programs, about half of all UC undergrads pay no tuition.
Average tuition and fees for in-state student: $9,428 in 2011-12 Increased: 16.8% from a year prior and 101.7% from five years prior Since 2008, Arizona's public universities have laid off faculty and staff and eliminated academic programs in order to make ends meet. This year, state funding will total $708 million, compared with nearly $1.1 billion for the 2007-08 academic year, says Katie Paquet, spokeswoman for the Arizona Board of Regents. As tuition costs have risen, the largest universities in the state have rolled out lower-cost ways that students can attain a Bachelor's degree. This fall, Arizona State University will open a new campus in Lake Havasu City, where annual tuition for state residents will cost $6,000, nearly 40% less than at its campus in Tempe. Also, Arizona's largest universities -- ASU, University of Arizona and Northern Arizona University -- are offering students who transfer from community colleges a lower-cost way to complete their Bachelor's degree; in some cases, students will be charged the cost of tuition during their freshman year in community college rather than the tuition the four-year school charges when they enter it. "Our goal is to provide more options to students across the state at varying price points," says Paquet. Separately, for the first time in two decades, Arizona State University and the University of Arizona have frozen tuition for in-state undergraduate students for the upcoming academic year. Tuition for out-of-state students will rise by roughly 3%.
Average tuition and fees for in-state student: $6,808 in 2011-12 Increased: 15.9% from a year prior and 74.2% from five years prior Beyond tuition hikes, Georgia college students are also facing cutbacks to a popular state scholarship program. Last year, the state reduced the amount of money it doled out to students through its merit-based Hope Scholarship, amid concerns that the program was underfunded. The program, which used to cover 100% of tuition costs at the state's public colleges for qualifying students, covered roughly 87% last year; this year, as tuition continues to rise, the scholarship will cover 81% to 85% of costs in the university system. The state is also looking at cutting direct funding to higher education. Georgia Governor Nathan Deal recently proposed a $54 million cut through June 2014, which if enacted would reduce spending over that period to roughly $1.7 billion. A decision is expected early next year. John Millsaps, spokesman for the University System of Georgia, says public institutions have had to shift much of the cost burden onto students as state funding dwindles. Over the past seven years, state funding went from covering 75% of the cost of educating students to 50%, he says.
Average tuition and fees for in-state student: $9,484 in 2011-12 Increased: 15.7% from a year prior and 67.3% from five years prior Unlike most states, Washington doesn't have an individual income tax; instead, it relies on sales taxes for much of its revenue. Income from that source slumped during the recession, leaving the state with less money to go around. To make up for the shortfall, the state granted permissions to its public universities to raise tuition, and students have felt the impact: Six years ago, it cost roughly $5,700 on average for an in-state student to attend a public college in Washington. That's hovering around $10,000 this year. In June, the University of Washington announced a 16% increase in tuition and fees for the upcoming year, following a 20% increase last year. The state is covering just 30% of the cost of educating its students, the lowest share ever, says Norm Arkans, a spokesman for the University of Washington. He says the institution's relatively low tuition and fees provided some leeway to raise costs, but adds that the strategy isn't sustainable in the long term.
Average tuition and fees for in-state student: $6,044 in 2011-12 Increased: 13.7% from a year prior and 65.8% from five years prior Few students have been immune to tuition spikes in Nevada. During the five academic years ending this past spring, Nevada raised tuition and fees at its community colleges by 48% on average, one of the highest increases in the country, according to the College Board. Costs at four-year public colleges rose 66% over the same period. And midway through the last academic year, the state approved an 8% tuition increase for all undergrads, which will kick in this fall. Still, despite the increases, the cost to attend a public college in Nevada remains lower than the national average, says Dan Klaich, chancellor of the Nevada System of Higher Education.
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