Testimony: Student Loan Debt, Nov. 7, 2013

November 7, 2013

Written Testimony by Richard Doherty, President of AICUM

Encouraging subcommittee to explore ways of helping students and families control student debt

Subcommittee on Student Loans and Debt

Joint Committee on Higher Education


Good Morning Chair Donoghue, Chair Mark, and members of the subcommittee:


Thank you for the opportunity to testify before you this morning.  My name is Richard Doherty and I am the President of the Association of Independent Colleges and Universities in Massachusetts.  AICUM is comprised of 60 colleges and universities located throughout the Commonwealth – institutions which educate 275,000 students each year and employ more than 84,000 people.


Managing student debt is a problem. It is a problem our colleges are facing head on.  But it is a problem that should not be considered in isolation.  I want to thank you for your hard work and leadership on this important topic.  The cost of higher education and student loan debt is increasingly under great scrutiny and is an area of significant concern to our students, their families, and our college presidents.  Today I will outline some of the many initiatives that our colleges are spearheading on campus to ensure that education remains affordable while still maintaining quality.  However, first I would like to take a moment to discuss the media perception of student loans, which in turn has had an adverse impact on students’ perception of the worth of higher education.


Lost among the stories about student debt crossing the $1 trillion mark and its impact upon graduates, is the impact that these stories have on high school students – especially first-generation students –considering college.  These stories are serving as a deterrent to capable young students who may write off a higher education simply because they do not believe it is achievable without taking on exorbitant loan levels.  It is not until you read past the sensational headlines that one learns that only 0.2 percent of all undergraduates in the United States graduate with over $100,000 in debt and the average student debt at graduation for those students who have debt in Massachusetts is $27,181.  Further, when one considers that nearly 40 percent of students graduate from Massachusetts independent colleges and universities with no debt, the median student debt level in Massachusetts is far lower.


In no way am I trying to diminish the importance of this topic; rather, I just want to provide a different way of interpreting the vast quantities of data that is available. While it is true that total student loan debt has surpassed $1 trillion, that increase is, at least in part, a function of more students choosing to attend college or furthering their education in graduate school rather than a reflection of increasing college costs.  Since 2003, there has been a 16 percent increase in enrollment at private colleges in the Commonwealth – nearly 38,000 new students, including nearly 7,000 more this year over last.


It is also important to note that average net tuition and fees at a private institution are less today than they were ten years ago when adjusted for inflation ($13,600 vs $12,460).  However, despite this stability in tuition and fees, the perceived affordability challenge of college is an outgrowth of the fact that the average family income across the board has decreased over the past ten years, making it more difficult for families to pay for college than those in previous generations.


As I stated earlier, nearly 40 percent of students graduating from an independent institution in Massachusetts do so without any student loan debt.  Of those who do take out loans, it is important to note that graduates of AICUM institutions have one of the lowest 3-year student loan default rates in the country at 5.2 percent.  This is well below the national average of 14.7 percent and less than the overall Massachusetts average of 8.5 percent.  I believe this number is reflective of the high rate of employment for our graduates, the important work of providing financial counseling to our students prior to – and post – graduation, and the expanded number of repayment options available to students from the federal government.


In fact, to use an example of these repayment options, please picture a student graduating today with $28,000 in student loans and a job out of college that has a gross annual income of $35,000; this student will pay approximately $222 a month over 10 years through the federal government’s income-based repayment.  This is less than the average combined monthly bill of a cell phone, cable, and internet service, yet we rarely discuss those payments in a similar light.  I do not mean to make light of either payment – for a young person, they are both significant – but I would argue that with good financial counseling and discipline, they are both also manageable.


That being said, it is important that higher education in Massachusetts continues to explore new methods to provide a more affordable education and ensure that students complete their education on schedule – a critical cost-savings metric.  In recent years, a number of our member institutions have eliminated tuition and fee increases or are trying new pricing models to better reflect the actual cost of higher education, rather than the published price.  It remains uncertain what impact these models will have on prospective students grappling with determining the affordability of higher education for them, but it represents the type of innovative approaches that we should be encouraging.


With respect to the work of your subcommittee and the areas in which the Legislature could take steps which would have an immediate impact in reducing student loan debt, I encourage you to work with your colleagues to restore the buying power of the Commonwealth’s need-based MassGrant Scholarship Program.  In 1988, the maximum MassGrant award covered 80 percent of tuition and fees at a public institution; today the maximum MassGrant award covers less than 8 percent.  This is a stunning reversal that drives students attending both public and private institutions to take on student loans to make up the difference.  In FY14, the Legislature provided an additional $3 million to the state scholarship line-item, bringing it to $90.6 million.  While this is a good start, and our students are most appreciative of your support of that increase, we have a long way to go to even achieve the buying power of the FY2000 budget of $148 million adjusted for inflation.


Last year, the average MassGrant award was $687 – which ranks as the third lowest in the county ahead of only Arkansas and Puerto Rico.  If an educated workforce and citizenry is key to Massachusetts’ future success, then we need to step up our commitment to scholarship funding.  Last year, AICUM colleges awarded over $560 million in need-based aid to Massachusetts students attending our colleges.  That is an impressive increase of $185 million in the last five years.  Similarly, last year the federal government provided $486 million in Pell awards to Massachusetts students, an increase of $221 million in five years.  Conversely, funding for the Massachusetts need-based scholarship programs has declined by $6.5 million over the same five years. It is critical that Massachusetts strives to provide as much help as possible to its young constituents seeking a higher education. Doing so will further entice Massachusetts high school graduates to remain in Massachusetts for college, keeping our homegrown talent in Massachusetts to join the workforce upon graduation.


While it is critically important to provide additional state funding for scholarship programs, I would also encourage your subcommittee to consider the development of a state incentive program to encourage families to begin saving for college at an early age.  Far too many families are waiting until their children are in high school to begin to conversation about saving for college.  Over 30 states give families a full or partial state income tax deduction for their contributions to a 529 college savings account; however, Massachusetts, while offering a state-sponsored 529 account, does not provide any tax deductions or credits for such contributions.


I would encourage this subcommittee to speak with Chairman Rodrigues and Chairman Kaufman about this concept; the Joint Committee on Revenue has a number of bills pending that seek to provide varying levels of assistance to families saving for or paying college tuition. I believe the Committee has performed some cost estimates of tax deductions or credits for a 529 account that may be helpful as you prepare your final report and recommendations.


Again, I want to thank you for the opportunity to testify before you today and for the hard work and dedication of this subcommittee.  You are seeking to address an important and complex topic, and I look forward to continuing to work with you in developing final recommendations.