By now, most folks have seen the numbers on the Biden Administration’s initiative to forgive a substantial portion of outstanding college student loan balances: up to $10,000 or $20,000, depending on the type of loan; eligibility income ceilings of $125,000 for individual earners and $250,000 for families; more than 40 billion eligible borrowers; total taxpayer cost of forgiveness totaling $400 billion; and on and on.
The numbers have been eye-catching and have created substantial polarization on the overall issue, from euphoria for those who would benefit from the windfall to enmity on the part of those who’ve already paid their student debt or those who never incurred student debt in the first place. Opinions among those in this latter category are intensified by the irony that, as taxpayers, they would foot the bill for this government handout without having a say in the process.
And to further complicate the air around this issue, the final decision on whether the Biden administration’s plan will even happen now rests with the U.S. Supreme Court, a circumstance prompted by legal challenges filed by parties opposing the loan forgiveness move. Legal arguments over the Administration’s plan will not be heard until the end of February and, depending on the length of the court proceedings, final resolution could be weeks or months away.
In the meantime, students awaiting determination on this thorny issue will simply tread water, dealing with the anxieties associated with the future of their debt. And it’s not an insignificant issue, with the average individual federal student loan debt hovering in the $30,000 range. In fact, the total outstanding student loan balance—nearly $1.75 trillion—is shared by well over 43 million borrowers, with over half of all four-year college students have taken on debt by the time they leave school.
How did we get to this point?
The building of a $1.75 trillion debt has many causes, but one of the more amazing aspects of the student loan situation is perhaps the mostly overlooked root cause…the steadily escalating cost of higher education. USAFacts.org, a not-for-profit nonpartisan civic initiative, observes that “the price the average college student pays for a year of school has risen 59% since 2000.” There’s probably quite a bit of conjecture on the reasons why this is so, but that’s an issue for another day. For now, and in the context of student debt, let’s focus on another aspect of how the cost of college translates to the problem soon to be before the Supreme Court.
A recent study conducted by the Government Accountability Office (GAO) put a spotlight on college costs, specifically with respect to the information provided to prospective students in the form of financial aid offers. The GAO concluded that over 90% of the colleges sampled in the study were unclear when communicating the net price of attendance…something that clearly weighs heavily in the making of the commitment to enroll.
Half of the colleges in the study were found to have underestimated the net outlay families were committed to, while another 41% did not estimate a net price at all. Said another way, the basis many families use to make their decision on college attendance—the financial aid offers extended by colleges—often do not reflect the true cost of obtaining the education, an omission that ultimately leads to progressively amassing debt along the way when the smoke clears and the full costs become evident.
The GAO conclusions are based on a set of “best practices” developed in response to a request from the House Committee on Education and Labor to review college financial aid information and assess the clarity and completeness of the information provided. To meet this assignment, a set of 10 best practices were designed to measure to what degree a representative sample of colleges provided clear and standard information in a manner that would enable families to determine, for comparison, the full, true, and ultimate cost of attendance—a major ingredient in their commitment decision.
The best practices, which are explained in detail on page 7 of the official GAO report, were grouped into two main categories: (1) informing students about how much they will need to pay for college, and (2) providing critical information about the aid that is available to help students pay for it. Since many families acknowledge that what they will end up paying for college is the most important piece of information they need to understand, standardization of the true cost picture is essential to their financial planning.
The very real problem, and the link to the current student loan forgiveness debate, is that not knowing the ultimate cost can, and obviously does, result in debt creep as additional loans are added to the burden with the passing of time.
GAO Encourages Congressional Attention
In its concluding comments, the GAO report noted that Congress “should consider legislation requiring colleges to provide all students offered federal student aid with financial aid offers containing clear and standard information that follow best practices.” Recognizing the criticality of the college financing issue and, by extension, the notoriety of the current student loan forgiveness dispute, a bipartisan assemblage of U.S. Senators has assembled in support of S.1452 (Understanding the True Cost of College Act of 2021) introduced by Sen. Chuck Grassley (R-Iowa) last year.
Sen. Grassley, in commenting on the GAO report, noted, “It’s disturbing that so many colleges are misleading students by leaving out important details, conflating loans and grants and even understating total costs. Previous attempts to create voluntary standards have been unsuccessful, with students literally paying the price.” S.1452 calls for the Department of Education (ED) to develop standard terminology and a format for financial aid offer forms based on recommendations from representatives of certain groups, including students, veterans, and institutions of higher education (IHEs).
S.1452, of course, will not resolve the student debt forgiveness argument, but making it clearer what the total cost of college will be would go a long way toward understanding the commitment a family is making. Having a clearer understanding would enable families to more effectively arrange finances, and will help them make the final decision on the value of the commitment they’re making.