WIXLIB

The Consequences of Student Loan DebtReach Beyond the IndividualThe following statistics are an aggregation of surveys that vary in sample size and statisticalvalidity. The results included below are meant to illustrate the array of other financial challengesborrowers face in incurring student debt.Student Debt Has Deep Impacts on Short-term Financial Stability 58% of borrowers attribute a decline in credit score to student debt.17 13% said it caused a failed credit check for apartment applications.18 6% reported having wages or social security benefits garnished because of studentdebt obligations.19 55% of college graduates with student debt say it forces them to delay saving foremergencies.20 Four in 10 people still paying off their loans say they are struggling financially.21Student Debt is a Roadblock to Long-term Financial Security Among young student borrowers, those with student loan debt have half the retirementsavings at age 30 of those without.22 Research shows that it is the presence, not merely the size, of student debt that discouragesretirement contributions.23 83% of young student loan borrowers in repayment who have not purchased a home listedstudent loan debt as a factor for delaying them from purchasing one.24 On average, they noted a 7-year delay between the time they wanted to buy a homeand when they were able to purchase one.Student Debt Affects Career and Life Decisions More than half (53%) of student loan borrowers noted debt as a factor in choosing whichcareer to pursue.25 61% of student loan borrowers who had hoped to start a business said student loan debtaffected their ability to do so.26 On average, 22% of student loan borrowers noted that they delayed moving out of theirparents’ home for two years due to student loan debt.27Student Debt Perpetuates and Exacerbates the Racial Wealth Gap 70% of black borrowers are at risk of default.28 20 years after starting college, a typical black student still owes 95% of their total debt,compared with 6% for white students.29 Approximately 40% of black borrowers drop out with outstanding debt and struggle to payback the amount. 30 Disparities in student debt outcomes place borrowers of color and their communities at agreater disadvantage in terms of accumulating and maintaining wealth.Student Debt Poses Risks to the Broader Economy Consumption decreases when consumers have debt-to-GDP ratios that exceed 60%.31The debt-to-GDP has steadily declined since the Great Recession, however, it currentlysits at 76%, which could present a risk to aggregate consumption.32 While economists are unsure about the broader economic effects of household debt,research shows it depresses homebuying, auto sales, and other consumption, whichcould slow economic growth.33 According to the Federal Reserve, larger negative economic effects are possible if studentloan payments crowd out household spending.34

ASPEN INSTITUTE FINANCIAL SECURITY PROGRAMHOW STATES CAN SOLVE THE STUDENT DEBT CRISISWhy People BorrowTraditionally, borrowing to attend apostsecondary institution has been a commonsense and advantageous decision for manystudents. Research has long shown thatpostsecondary degrees lead to better shortand long-term economic outcomes, largely dueto improved job prospects and increased pay.35However, rising tuition costs in combination withincreases in costs of living have complicated theeconomic outcomes of borrowing.Unfortunately, the increased reliance onstudent loans to fund higher education hascome with downstream consequences thatborrowers and policymakers did not anticipate.Increasing student loan debt can have rippleeffects that trap individuals in long-termfinancial distress, permeating to disrupt thegreater financial stability of households andcommunities. As shown in the previous section,the latter scenario of financial instability is thereality for a growing populationof students and borrowers.Not Just Millennials — Adults of All AgesTake on Debt to Pay for Higher 4AGES45-5960 ALLADULTSPercentage of Adults Reporting HavingStudent Loan Debt for Their Own EducationData Source: acts-aboutstudent-loans/Rising Costs Exacerbate the StudentDebt CrisisA key factor in the student loan crisis is the risingcosts of higher education. From 2008 to 2018, theproportion of per-student costs covered by statefunding dropped from 71% to 54%.36 At the sametime, the proportion of per-student costs paid forby students increased from 29% to 46%.The extent that reductions in state spending onhigher education contribute to higher out-ofpocket college costs depends on other competingstate funding priorities. With the exception ofVermont, all states are required by constitutionor statute to balance their budgets on an annualbasis, meaning rising costs in one area mustbe offset by lower spending in another or byhigher revenues.40 These constraints requirestate lawmakers to make difficult decisions whendividing limited funds. For example, multiplestudies have suggested that decreases in highereducation funding have been associated withincreased funding for Medicaid and other publicwelfare programs.41Decreasing per-student state funding is frequentlycited as a primary contributor to the spike in costs.State funding for public colleges and universitiesfell by 7 billion between 2008 and 2018, afteradjusting for inflation. During that time, theannual tuition of 4-year institutions rose by 36%( 2,651).37Within the field, there is debate about thedegree to which state funding has contributedto rising costs.38 Some scholars have suggestedother drivers of rising costs, including generousfederal funding (often in the form of studentloans) that has not provided adequate incentivesto control costs.39Regardless of the causes of the crisis, we know thecurrent costs of pursuing a postsecondary degreeare unsustainable for many students. And, despitethis ongoing debate, we have enough sense ofthe scope of the crisis to prompt state action toaddress it.5

ASPEN INSTITUTE FINANCIAL SECURITY PROGRAMHOW STATES CAN SOLVE THE STUDENT DEBT CRISISSOLVING THE STUDENT DEBTCRISIS: GOALS FOR STUDENTDEBT RELIEFNote on MethodologyThe solutions included in this brief are theproduct of a landscape analysis that theAspen Institute Financial Security Programconducted of states and how they areattempting to address mounting levels ofstudent debt. Aspen FSP reviewed stateeducation department websites to identifywhat state solutions are currently beingimplemented, as well as reviewed selectproposals in state legislatures. In addition,FSP interviewed more than 20 state leadersand policy experts to better understand theproblem and the tactics that can be utilizedto decrease student debt at the state andlocal level. Given time constraints, Aspen FSPreviewed some research on the effectivenessof solutions but did not conduct a fullliterature review of each solution. The optionsincluded in this toolkit are not exhaustive butare meant to serve as a resource for states,with a range of solutions that vary in theirdifficulty to implement and expected impact.As part of a two-year deep dive on the causesand ramifications of consumer debt, Aspen FSPidentified a set of goals for student loan reformsand programs that would increase the financialsecurity of borrowers. Solutions to the crisisshould boost borrowers’ short- and long-termfinancial security, and that can only be done witha full understanding of the different ways in whichstudent loan debt threatens households’ financialsecurity. In evaluating solutions, EPIC prioritizedthe following qualities: Postsecondary education must be made moreaffordable for students and more equitable in bothcosts and benefits for people of color. Solutions must reduce the financial burden andhardship of students as well as increase the wellbeing of people with unaffordable student loan debt.The scan made one thing clear: states can takemany different actions to address this problem.Below are three categories of solutions states canpursue, based on where they interact with studentsand borrowers along the student debt lifecycle,from before loan origination through repayment.THREE STEPS STATE LEADERS CAN TAKE TO DECREASE STUDENT DEBT BURDENS1. Reduce the out-of-pocket cost ofattendance, particularly for low-incomeborrowers and borrowers of colorTarget prospective students who have yet to enroll in postsecondary education. Reduce the out-of-pocket cost ofattendance, reducing the need to borrow and minimizing thedebt burden post-graduation.2. Protect students as they navigateexisting debt, particularly forlow-income borrowers and borrowersof colorTarget borrowers navigating existing debt regardless of theirmatriculation status. Help borrowers understand their studentloan terms and repayment options, provide legal protections, andprotect borrowers from accumulating more debt than necessary.3. Decrease existing student debtburdens, particularly for low-incomeborrowers and borrowers of colorTarget borrowers who have already accumulated debt. Helpborrowers reduce the size or negative impacts of their existingdebt burden.The solutions featured in this brief are organizedby the goals above. Each solution is accompaniedby real examples that states have proposed orenacted. The examples are followed by analysis ofdesign features, and some include an analysis offeatures that could be detrimental and should becarefully considered, if not avoided altogether.The menu of solutions is grounded in AspenFSP’s priority of identifying solutions that improvethe overall financial security of individuals andfamilies, with careful consideration given to howsolutions would impact low-income borrowersand borrowers of color.6

Goal #1Reduce the Out-of-Pocket Cost of Attendance,Particularly for Low-income Borrowers andBorrowers of ColorThe solutions in this section target students whohave yet to enroll in higher education and aremeant to reduce the overall cost of attendance,minimizing debt burdens post-graduation. Thesesolutions are generally aimed at reducing thestudent-borne costs of tuition and fees, housing,transportation, books, and personal expenses.Assigning Award AmountsBased on NeedWashington’s College Grant program givesaccording to family need 43 Award amounts are prorated by incomecategory and part-time enrollment. To be eligible, a student must come from afamily whose income does not exceed 70percent of the state’s median family income(MFI), which currently is 61,500 for a familyof four. Current funding allows full awards tostudents at or below 50 percent of MedianFamily Income (MFI). Those with incomesbetween 50 and 70 percent MFI receive aprorated award. The maximum award values for full-timeenrollment in 2018-19 range from 2,823 to 9,745, depending on the type of institutionattended. Washington College Grant is funded bythe General Fund and the OpportunityPathway Account, which receives a portion ofWashington’s Lottery proceeds.Ideally, these solutions would address all associatedcosts of enrolling in a postsecondary program—anddo so for full-time and part-time students. However,this would be costly and could require multiplestrategies to succeed. This overview includes bothcomprehensive solutions to reduce the total cost ofattendance and strategies for reducing the cost ofspecific line items for students.Solutions listed in this section include: NeedBased Aid & Grant Funding, Free CollegePrograms, Dual Enrollment Programs, 4-yearCommunity College Programs, Mandatory FAFSAInitiatives, and College Savings Accounts. Eachsolution is listed with a description of the program,an example of existing state policies and/orproposals, and design considerations.NEED-BASED AID & GRANTFUNDINGGrant programs provide direct funding tostudents to offset the cost of attendance,minimizing the debt burdens students take onin attending postsecondary programs. Grantprograms can be structured in a variety ofways and can be designed to target specificdemographics of students.Targeting Aid TowardUnderrepresented GroupsSolutionsThe Washington College Grant is Washington state’srecent update to its former “State Need Grant.”42The grant offers tiered, targeted need-based aid tostudents from low- and middle-income householdsand the maximum award amount covers full tuitionat any in-state postsecondary institution.7States also can structure grant programs tosupport specific demographics of borrowers.Tennessee’s Minority Teaching Fellows Programallows minority teachers to receive an award of 5,000 per year for students who pursue a teachercertification at an eligible Tennessee collegeor universities.44 The Minority Teaching FellowsProgram is unique in that it targets a traditionallyunderserved demographic of students andprovides a substantial grant award to those whoparticipate. Few states have grant programs forstudents of color and this kind of targeted aidwould be effective if replicated at scale. Thisprogram could be strengthened by removingthe requirements that the loan must be repaid

ASPEN INSTITUTE FINANCIAL SECURITY PROGRAMHOW STATES CAN SOLVE THE STUDENT DEBT CRISIS Eligibility requirements: While eligibilityrequirements and restrictions can make a programmore affordable, they can also inadvertently restrictaccess for students who would most benefit fromfinancial aid. Such restrictions include:in the event that the recipient does not meet theprogram requirements or is not employed at aneligible school.Supporting Students withDependents The State of California employs a generousamount of student aid as one of the top statesgiving students grant money to attend college. Inthe 2019, California signed into law a significantbudget expansion that included increasedfunding for the Cal Grant. The increase includes 96.7 million in additional funding specifically forstudents with dependents.45 Academic performance & GPA requirementsStandardized testing requirementsLimiting grant awards to specific majorsCommunity service requirementsDrug-free requirementsPost-graduation requirementsLow-Income Borrowers,Pell Grants, and Student DebtThe rise in costs of postsecondary educationhas coincided with a decrease in availableneed-based aid. For students of low-incomefamilies, Pell Grants play a crucial role indecreasing the cost of attendance. WhilePell Grants are still the largest source ofgrant funding for students, they are coveringa decreasing percentage of total costs. In1975, Pell Grants covered almost 80% of astudent’s total costs of attendance, on average.Today, Pell Grants cover just under 30%.49The decrease in Pell Grant funding coveragetranslates to an increased reliance on othersources of funding, the most notable beingpublic and private loans. Today, 84% of PellGrant recipients graduate with student debtcompared with 46% of non-recipients.50Design ConsiderationsBroadly, grant programs are effective indecreasing costs for students and minimizing debtburdens. Grant programs that target students ofcolor are even more effective in addressing shortand long-term racial wealth disparities.In establishing and/or expanding grant dollarsfor students, states should consider the followingfactors to help increase college affordability forthe most vulnerable students: Focus on low-income households: A study bythe Federal Reserve Bank of Minneapolis finds thatfocusing financial aid on low-income households isboth cost-effective and could boost the economy.46In practice however, a significant number of stategrant programs are structured so students from highincome households qualify and receive awards.47 Guaranteed funding: Consistent and adequatefunding for state-based grant programs is essential.Some states appropriate funding every few years,while others provide different amounts of fundingeach year. To ensure program stability and promoteaccess to the most financially vulnerable, it isimportant for states to prioritize consistent fundingwhen creating grant programs. Emergency and completion grants: Unexpectedexpenses or financial challenges can be a seriousbarrier to completion and force students drop outof school before obtaining a degree. Creating grantfunds for students who encounter an unexpectedspike in expenses protects students from droppingout. Wake Tech in North Carolina offers a grant ofup to 1,000 that students can tap during financialemergencies.48FREE COLLEGE PROGRAMSFree college programs (also known as tuitionfree or “Promise” programs) are state, institutionled, or federal initiatives that cover the costs ofpostsecondary programs for students. Theseprograms provide aid to students on a “first-dollar”or “last-dollar” basis. First-dollar programs applythe award amount first, contributing to majoreducational costs upfront, which allows studentsto use other financial aid like federal aid dollars tocover living costs and additional expenses. Lastdollar programs are built to cover a gap in funding.They are often limited to covering tuition costs onlyand kick in once a student has exhausted all otherfinancial aid (e.g. Pell Grants and other state aid).518

ASPEN INSTITUTE FINANCIAL SECURITY PROGRAMHOW STATES CAN SOLVE THE STUDENT DEBT CRISIS 4-year program eligibility: Many free collegeprograms are limited to 2-year institutions. Stateshould create free college programs that extendto both 2- and 4-year degrees to give students,particularly students from low-income households,the flexibility to pursue the education that best fitstheir needs. Eligibility requirements: In establishing eligibilityrequirements, states should be clear on the purposeand goal of those requirements. For example, whileGPA requirements may be well-suited for merit aidprograms, they run counter to the free college goal ofmaking college more affordable and accessible to allstudents. Data collection and publication: Tracking andreleasing data on program participation andoutcomes and disaggregating this data by race andincome allows states to learn from their free collegeprograms so that they can be tweaked over time tohelp students with the greatest need.SolutionsMore than 15 states

15 years, total outstanding student debt has grown six-fold and now hovers at over 1.5 trillion.1 Student debt has significant short- and long-term impacts on individuals, their communities, and the broader economy. Those with outstanding student debt are struggling to keep up with their payments.