The College-Cost Hurdle

'Income-contingent loans' offer the best means of clearing it

COLLEGE costs continue to escalate with no relief in sight. Although the rate of increase of tuition charges has slowed in the past few years, it still continues to outpace the Consumer Price Index. That situation is unlikely to change given the labor intensive nature of higher education and the need to provide new technology and renovate aging buildings.The College Board reports that last year tuition at public colleges increased by 12 percent with private insitutions posting increases of 7 percent. The top 10 private institutions, in terms of cost, all have charges that exceed $22,000 for tuition, mandatory fees, room and board. Even with these increases, with the exception of a few private colleges and universities that are highly selective in admissions, most institutions of higher education find themselves in a deteriorating financial condition at a time when fewer parents are able to meet the tuition charges. Knowing a bargain when they see one, middle and upper-middle income parents have started to send their children to public universities and colleges, displacing lower and lower-middle income students at the institutions. Facing tighter budgets, many states have capped enrollment, reduced financial aid, and increased tuition. Thus, many students find themselves unable to pay private school tuition while facing a "no room at the inn" situation at public schools. There is, however, a solution to the dilemma. It is called the "income contingent" loan which is a market-driven approach. Briefly stated, students would be able to borrow funds for their education, paying them back after graduation as a surcharge to their income taxes. Rep. Thomas Petri (R) of Wisconsin has proposed a plan which would permit students to borrow up to $70,000 ($29,000 for undergraduate programs). Repayment would start once the person became employed, with the annual amount of repayment tied to the income of the individual but not to exceed 19 percent of such income for the highest earners. The repayment period would never be for more than 25 years. Typically, a graduate with an annual income of $40,000 would have a repayment obligation of $2,700 a year. The loan would be handled through the payroll system, like Social Security taxes, making the repayment process very efficient. Sen. Bill Bradley (D) of New Jersey has joined the above effort to establish a loan plan. Under his approach, loan amounts would be held to $10,000 a year with repayment to take place for as long as 25 years using a system that allow students to tie the repayment to a percent of their income. The plan also sets minimum and maximum repayment amounts depending on the borrower's income. Ultimately the loan plan would be self-supporting. THE approach would make higher education a cross between a consumer product and a debt-funded investment. Anyone admitted to college would be eligible, making it an equal opportunity vehicle. The cost would be borne directly by those who have gained financially from their college education. Another advantage would be a significant reduction in the level of involvement of the federal government in the finances of higher education. The cost to the taxpayer is large and growing, and yet the problem of providing full access to higher education goes unsolved in spite of the millions spent by the government. With the tax collection system already in place, the addition of the loan repayment feature would not be difficult. The plan would also have a significant impact on state budgets which presen tly subsidize all students at state colleges and universities, irrespective of their personal financial position. The time has come for income contingent loans for a number of reasons: * Persons who stand to benefit from higher education should be held responsible to pay for it. Studies have shown that college graduates can expect lifetime incomes to exceed those of non-graduates by $600,000 or more. * It would enable the free market to replace the federal government in the allocation of higher education services to society. * If quality higher education is to continue to exist, colleges and universities must have a reliable source of income to support their operations. * It is unrealistic to assume that persons can finance a major investment such as higher education out of savings or current income. Products or services that offer long-term benefits should be paid for on a correspondingly long-term basis. * Repayments of loans tied to income will appropriately assign the cost to those who benefit economically from their educational experience. * Savings in the federal budget from reduced funding for financial aid, made possible by the availability of income contingent loans, can be applied to more pressing societal needs or reduce the budget deficit. * Since students will be asked to assume greater financial responsibility for the cost of their education, there will be pressure on institutions of higher education to hold down costs as students become more aware of the real cost of their education. With costs rising and the squeeze on family and government budgets, the income contingent loan is the best alternative to ensuring access and affordability of higher education for all Americans.

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