Decades ago, federal and state investment in higher education addressed the important concepts of access and affordability for every student who dreamed of earning a college degree. Today, those concepts may be more important than ever before.
When we speak about limited access to higher education, we are acknowledging that a large number of prospective college students do not have a clear path to a college degree even though they have the ability and drive to attain one. Although there may be several common impediments to attaining a degree, paying for college – or affordability – is high on the list. Nearly all of the students at Misericordia University, where I serve as president, require financial aid to be able to afford college.
That is also the reality for most institutions of higher education and students in every state.
Families planning for college first examine their own financial resources. Most do not have enough to pay the entire tuition bill, so they seek other sources, such as grant aid. The borrower does not need to repay the federal Pell grant, the Pennsylvania State Higher Education Assistance Agency (PHEAA) grant and institutional scholarships (those awarded directly by the college or university to the student). Thereby, federal, state and donor sources are key elements to supporting access and affordability for collegians.
Typically, however, the combination of family resources and grant funds fail to cover the entire cost of a college education.
Students close this funding gap with loans. Federal subsidized loans provide a resource that helps to match the student’s need. Subsidized loans currently carry an interest rate of 5.05 percent. In the past, students could look toward the federal Perkins Loan program for additional support. Unfortunately, the federal government closed the Perkins Loan program, which depended on a cost-sharing plan for both the college and federal government. In my view, Perkins was a valuable program and a misplaced judgment to save money by taking it away from students and families with no other form of support.
Once a student exhausts federal subsidized loans, the student must enter the federal unsubsidized loan market with costs that add an additional 1 to 2 percent in interest. After that, the student has to borrow from a commercial lender at a substantially higher interest rate – often more than 10 percent. Some lenders are currently charging 14 percent, making this additional borrowing look more like a credit card bill than an investment in an education.
That is a major problem in need of a solution.
PHEAA has serviced federal loans for many years. As such, Pennsylvania citizens have benefited from the profitability of that work to support the PHEAA grant program, which continues to work well and deserves our continued enthusiastic support. Recently, PHEAA introduced another concept that will decrease borrowing costs for students in the Keystone state. I applaud the innovation and inspiration of our state officials who have supported the new Forward Student Loan Program to lower costs for borrowing after institutional resources and parental help have been exhausted.
The Forward Student Loan Program will have no fees. Approval will be rapid, as PHEAA will already know the students. Rates will be fixed and competitive, given the borrowing power of state government. Students also will receive a .50 percent rate reduction for completing a degree and a six-month grace period to begin payment after graduation.
More students earning degrees makes Pennsylvania increasingly competitive as a place for growing businesses, joining 20 other states that have created plans to provide lower-cost financing to college students. At the same time, PHEAA continues to make a modest profit that can support grants and loans for our students going forward.
Creative thinking by state and federal government officials and related agencies to help address access and affordability will pay off for our students and our state in improved degree attainment, economic growth and a happier citizenry.
Thomas J. Botzman, Ph.D., is president of Misericordia University in Dallas, the oldest four-year institution of higher education in Luzerne County.