Sen. Tom Harkin, D-Iowa
(Photo: J. Scott Applewhite, AP)
For the first time since the Higher Education Act was introduced nearly 50 years ago, U.S. student loan debt has surpassed $1 trillion.
Many students, parents and financial aid experts are worried about a looming student loan crisis. According to the Project on Student Debt, seven out of 10 students who graduated in 2013 had student loan debt, with an average of about $29,400 per borrower.
“I think the numbers part of it is really the key piece that people don’t always get,” said Felicia Gopaul, a certified financial planner and president of College Funding Resource. “You know, if you borrow $30,000, $50,000, whatever you’re borrowing, that is the number that you’re going to have to pay back.”
In response, U.S. lawmakers have drafted legislation aimed at reducing student debt, providing educational resources and increasing transparency.
One such measure is U.S. Sen. Tom Harkin’s 785-page draft reauthorizing the Higher Education Act.
The Iowa Democrat’s proposal, the Higher Education Affordability Act, includes several amendments to the current financial aid structure that would make it easier for students to pay for college.
Harkin’s plan aims to provide some relief for students by increasing state contributions to public universities, supporting community colleges and expanding programs that allow high school students to earn college credits.
The House of Representatives recently passed three bills as part of the reauthorization, including the Empowering Students Through Enhanced Financial Counseling Act, which requires institutions to provide more loan counseling resources for students.
But Gopaul and other experts say that while these bills are good efforts, they don’t do enough.
“They could go a little bit further with the process,” said Gopaul, referring to the Empowering Students Through Enhanced Financial Counseling Act. She noted that many students who had gone through current entrance and exit loan counseling did not seem to remember it.
Scott Weingold, a financial aid expert and co-founder of the College Planning Network, agreed that while the bill contains some helpful changes, it would likely not make a big impact. He said many students aren’t familiar with the basics of financial aid.
“I don’t think that it’s necessarily going to be a game-changer, per se, for making college more affordable for students,” he said, referring to Harkin’s comprehensive bill.
Even so, these proposals could offer students more resources and transparency than they had in the past by providing them with more funding and educational resources.
Helping students with debt
When President Lyndon Johnson signed the Higher Education Act into law in 1965, he hoped to make higher education more accessible by providing more financial aid to students. Today, as the act is awaiting reauthorization for the 10th time, lawmakers are trying to achieve that same goal on a much larger scale.
By educating students about the risks involved with borrowing, Harkin’s proposal would make it easier for students to stay informed about how much they owe, when they need to repay their debt and what they can do if they aren’t able to make a payment.
The amendments also support students with the biggest financial hardships by offering lower monthly payments, allowing private loans to be discharged in bankruptcy, establishing income-based repayment systems and making the collections process more consumer-friendly.
Although higher education costs are rising, there is still good news for students currently pursuing their degrees: college degrees have never been more valuable. (Photodisc)
Increasing transparency
With the new measures, lawmakers are trying to streamline the financial aid process and make it more intuitive for students and parents.
One bill, dubbed the Financial Aid Simplification and Transparency Act (FAST), proposes to replace the Free Application for Federal Student Aid (FAFSA) with two questions, one about income and one about household size. With this simplified format, applying for financial aid would no longer be such a tedious process.
Because each university presents its financial aid packages differently, it can be difficult to make comparisons and understand disparities. By standardizing the information provided in these letters, lawmakers expect to simplify this process.
In a letter to Congress, the American Council on Education, which supports the new measures, also recommended that financial aid letters be required to include a link to a student loan and debt calculator as well as a glossary of financial aid terms and other disclosures.
“It’s arming the student with more information, so in that respect, I think it’s good,” Weingold said of the initiative to provide more transparency to students.
But he added that if students didn’t take the time to research and compare a broad range of public and private colleges on their own, they would not benefit from this legislation.
A look into the future
Although higher education costs are rising, there is still good news for students currently pursuing their degrees: college degrees have never been more valuable.
When the Higher Education Act was introduced, college graduates earned about $7,500 more in 2012 dollars than high school graduates. In 2013, that disparity grew to $17,500, according to a Pew Research study.
For students who are struggling to get a handle on the complicated financial aid system, this is a silver lining. It means that even in a tough economy, higher education is still worth the investment.
Alexandra Rice writes for NerdScholar, a website run by NerdWallet that helps students and parents make smarter financial choices. NerdWallet is a USA TODAY content partner providing general news, commentary and coverage from around the Web. Its content is produced independently of USA TODAY.
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Filed under: CAMPUS LIFE, VOICES FROM CAMPUS Tagged: federal student aid, financial aid, Financial Aid Simplification and Transparency Act, financial counseling, Higher Education Act, NerdScholar, NerdWallet, paying for it, student debt