Paying for College

It’s graduation season and all eyes are on the Class of 2016. Armed with diplomas, freshly minted graduates are set to make their way in the world.

For some, that may mean entering the military, getting a job or volunteering for public service. For most high school grads, the next rung on the ladder means continuing their education. Obtaining some post-secondary education, whether it is short-term skills training or a two- or four-year degree, can open up opportunities for better paying jobs, careers and lifelong income.

However, one of the biggest factors facing college-bound students is figuring out how to pay for it. It’s a big investment with a big price tag. The average annual cost to attend a four-year public school is around $28,000. For most students, paying for tuition, room and board takes a combination of funding streams to pay the bills – from employment, to personal savings and financial aid.

From my senior assignment on the Senate Finance Committee, I work to secure savings tools that help students and families get a head start on saving for college. I led the way with the first legislation to make distributions from 529 college savings accounts for qualified education expenses tax-free. The 529 college savings accounts are simple, safe and affordable. More than $3 billion is invested in College Savings Iowa. Last year, the average account balance was $17,898. Consider that a family who puts away $25 a week for 18 years would invest $23,400 into their account. They may accrue as much as $42,000 over that time period to use for college. Now consider if they borrowed $42,000, they would end up repaying $60,000 with interest.

So, last year when President Obama proposed scaling back this popular savings tool, I sponsored and got passed and enacted legislation to improve and expand 529s to make the program even more flexible for families, such as allowing for tax-free withdrawals to buy computers for college, transferring the plan to another family member and redepositing refunds from colleges without penalties. Public policy ought to empower people to start saving money as early and as often as possible. Relying exclusively on borrowing put students at risk to graduate with excessive debt.

It’s understandable why paying for college is a widespread concern. Going to college costs more than ever before. Keeping higher education affordable and accessible is a big deal to the next generation. And it’s a big deal for America. Society needs the next generation to become productive, contributing members in our communities.

While it may sound good to some, opening the Federal Treasury’s spigot will not solve the student debt burden. As with any federal government program, there is a danger the more something is subsidized, the faster and bigger it grows. A better solution all-around is to give individuals tools that allow them to save more and borrow less. For example, student borrowers need to know exactly how much their tuition will cost, down to the penny. Don’t borrow a penny more than it takes. That’s why I’m pushing for reforms to simplify the federal financial aid system to make it more transparent and user-friendly for students to compare costs and financial aid between colleges.

Big spenders still push for more bureaucracy and more subsidies. They think Washington knows best. They are wrong. And here’s why. A few years ago, I supported reforms to link the interest rate on federal student loans to the 10-year Treasury note. Prior to this change, Congress set the interest rate. For the majority of student loans, it was set at 6.8 percent from 2006 to 2013, while some students were offered a better deal on a portion of their loans. Critics went crazy at the time, arguing the change would cost families dearly and be a total disaster.

Guess what? Since we tied student interest rates to the market and not the whims of Congress, undergraduates have saved more than $50 billion that they would otherwise have paid in interest over the life of their loans. That’s a tremendous amount of savings. In fact, for four years in a row, students taking out Stafford loans will see rates at least two percentage points below the previous 6.8 percent rate.

Once again, today we see misinformation distorting the debate on student debt. Some are saying student borrowers cannot refinance their loans, like home mortgages may be refinanced. This red herring is a disservice to students and families who are sacrificing to scrimp and save for college.

Federal taxpayers already support more than $100 billion in student loans at rates below anything available in the private market. However, once a student graduates with a good job and good credit, a number of banks offer refinancing options at lower rates and nothing in the federal student loan program prohibits borrowers from refinancing their federal student loans if they can find a better deal. What the big subsidizers really want to do is to put taxpayers on the hook to underwrite even more of the loan through a new loan rate offered by Uncle Sam.

With that said, I would like to empower student borrowers to take advantage of more refinancing options. In fact, I’m working to expand the pool of lenders who are able to offer refinancing for student loans. Together with a bipartisan, bicameral coalition of lawmakers, I’m urging the IRS to clarify that non-profit lenders may use their tax-exempt bonding authority to refinance student loans. Specifically, we are seeking removal of certain barriers to give students and parents more options to refinance at lower interest rates.

As members of the Class of 2016 begin their climb up the ladder, the last thing they want to be saddled with after graduation is a mountain of student debt. Considering that the next generation is already stuck with a raw deal with the $19 trillion national debt, I’m working to give borrowers more opportunities to pay down their student debt with a better deal.