MECEP economic policy analyst James Myall contributed to this blog post.
There was a student loan crisis before the pandemic, now it is even worse.
Despite gains in recent years, state cuts in funding for higher education have pushed more of the costs of college to students, forcing them to borrow more to pay for their education.
COVID-19 and widespread job losses have made matters even worse: Maine borrowers say they have had their debt placed in collections, despite federal protections designed to limit this credit-killing tactic. They’ve struggled to continue paying down private loans that are ineligible for federal forbearance.i
As state policymakers look to shape an equitable and speedy recovery from the pandemic recession, they must prioritize relief for education debt holders and take steps to ensure any Mainer who wants a college education can receive one without a sentence of crippling debt.
Education debt has grown as state spending on higher education declined
The state share of the cost of higher education has been on a downward trajectory since the 1980s, with students and their families picking up a larger and larger share of the cost. To cover the gap, Mainers have been saddled with ever-growing education debt — debt that stifles spending and hurts Maine families and our economy.
The student share of tuition revenue at Maine’s public institutions has increased by 27 percentage points since 1990, with students and their families covering almost half the cost of tuition in 2019.
With costs already high, COVID took a toll on Maine borrowers
Even before the pandemic, massive education debt had become a prerequisite for Mainers who wanted a college degree:
- Today, 65 percent of all jobs require some form of higher education.
- In the 1980s, a student could work a minimum wage job for one summer and earn enough to pay for a year of college tuition. Today, it takes working full-time for 56 weeks to pay for a year of college classes.
Mainers carry $5.8 billion of education debt with 10 percent of borrowers defaulting on their loans. A 2018 MECEP analysis found that one in five Mainers with student loan debt has had their wages or income tax refund garnished or their social security check taken away to pay for their student loans. And despite the CARES Act banning the practice, borrowers still saw wages and federal tax refunds garnished last year despite the moratorium.
Borrowers and Maine’s economy were already dragged down by Maine’s large education debt burden. All those loans stifle consumer spending and cost Maine roughly 6,000 jobs. Student loans prevent Maine families from getting ahead in their jobs, jeopardizes retirement security, and reduces economic activity.
National studies have revealed that because of the pandemic, education debt borrowers are facing even more hardship: Many are out of work and without the income to meet their payments. They are confused about whether they are eligible for federal relief measures and how to apply for them. And many are unable to access them because of poor administration of the programs by the US Department of Education.
Lawmakers can take steps to reduce education debt burden for Mainers
There are a few commonsense steps lawmakers can take this year to address the education debt crisis:
- Bolster the State of Maine Grant program, which provides need-based financial aid to students at Maine’s colleges and universities. Increasing the State of Maine Grant would help Mainers enter and complete higher education, regardless of their personal circumstances and decrease the need for education loans. Right now, savings from fewer education tax credits are accruing to the state as federal student loans are in forbearance. These dollars are usually spent on supporting the cost of college and Maine should continue to put them to use that way by increasing funding for the State of Maine grant program.
- Create a program to forgive relatively small student debts, which cause a disproportionate share of hardship. MECEP’s research shows that the student loan borrowers most at risk are those with less than $6,000 in loans. These small dollar borrowers were often unable to complete their degree due to affordability or work or family obligations, but are stranded with debt, or they have graduated from programs that lead to jobs that tend to pay less. Small-dollar loan forgiveness can benefit more than half of Maine borrowers by either clearing their debt or reducing it by half.
Lawmakers also must protect existing higher education funding and avoid cuts that would threaten affordability and access and increase debt loads.
The pandemic has revealed many of the barriers in our system that kept low- and moderate-income Mainers from sharing in our state’s prosperity. Education debt is one of those barriers. These steps will help Mainers reap the benefits of higher education, boosting families and our economy.