Higher education is a boon to both graduates and Maine’s economy. It increases degree holders’ lifetime earnings, improves business competitiveness, and spurs consumer spending. But escalating college debt and rising rates of student loan defaults threaten to derail the benefits of higher education for Maine’s families and our economy.
We all have heard the numbers about ever-increasing student loan debt across the country. Maine is no exception. Residents of our state carry more than $6 billion in education debt. One in five Mainers owe money for their college education.
Excessive student debt takes money out of Maine’s economy. MECEP’s analysis indicates that education debt held by Mainers could support 6,000 jobs and three-quarters of a billion dollars in consumer spending if it were circulating through Maine’s economy instead of being sent to federal lenders and loan servicers. Research by MECEP shows the $6 billion in student debt also keeps Mainers from buying homes and saving for retirement. A significant portion of these borrowers are even unable to afford basics such as food and clothing or medical care after making a student loan payment. These are just some of the ways Mainers struggle mightily under their student loan debt.[i]
MECEP supports establishing a Maine Student Loan Debt Relief Program and Fund to help Maine borrowers pay down their student loan debt, as proposed by LD 149, “An Act to Authorize a General Fund Bond Issue To Provide Student Debt Forgiveness To Support Workforce Attraction and Retention.”
However, the Legislature should ensure adequate criteria are in place to administer the program to explicitly target relief at Maine borrowers who need it most.
While student loan borrowers with the largest amounts of debt command the most attention in the public conversation about student debt, we now know that it is those with smaller debts who struggle the most. MECEP’s latest analysis shows that those with smaller amounts of debt (under $6,000) default on their student loan 1.5 times more frequently than those student borrowers with larger debt loads (over S24,000).[ii]
Defaulting on a student loan has severe economic consequences, triggering wage seizures, poor credit scores, and debt collection proceedings. 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. Defaulting on a student loan tips struggling borrowers into financial ruin from which they can never recover while putting a significant strain on our state’s economy.
Borrowers who are most likely to default include:
- An increasing number of seniors living on fixed incomes who carry student loan debt for their children or grandchildren. Currently 20,000 Maine seniors, who make up the fastest-growing population of borrowers, carry a half-billion dollars in education debt.[iii]
- Borrowers who graduated with a degree that led to a low-paying career, especially from the notorious for-profit college system who are known to mislead students by misreporting job placement rates.[iv]
- Mainers who did not complete their degrees. Maine has nearly 200,000 adults who started college but, due to the high cost of college or because of work or family obligations, were unable to finish their degree.[v] This leaves borrowers carrying education debt, but unable to obtain higher-paying jobs, thus increasing their risk for default.
MECEP believes one of the Maine Student Loan Debt Relief Program’s explicit objectives should be to reduce the risk of student loan defaults in Maine.
We appreciate that debt relief for borrowers in higher income jobs would benefit our economy as well. Middle- and higher-income borrowers—while they hold more debt—do not face financial ruin and are less likely to default on their student loan. They are still held back by their student loan debt, delaying buying homes or cars or starting a family or a business. Their debt has implications for our economy as well, but in a different way than small-dollar debt holders.
Maine’s program can be designed to address both populations. But we feel that the purpose of the program should be amended to specifically reference small-dollar borrowers at risk of default; a population that is often overlooked in these kinds of student debt relief initiatives.
MECEP has urged the Maine Legislature to consider adding language to LD 149 to guide FAME in its conception and implementation of the program through administrative rule-making parameters that carve out a significant portion of the bond proceeds for small-dollar, at-risk borrowers.
[i] Lake Research Partners. Student Lending Reform: Findings from a Survey of 400 Maine Adults with Education Debt, November 2018. Available at: https://www.mecep.org/new-poll-mainers-struggle-to-pay-down-student-debt-say-loan-servicers-are-making-matters-worse/
[ii] Brookings Institution. The looming student loan default crisis is worse than we thought, January 11, 2018. Available at: www.brookings.edu/research/the-looming-student-loan-default-crisis-is-worse-than-we-thought/
[iii] Consumer Finance Protection Bureau. Older consumers and student loan debt by state, August 2017. Available at: https://files.consumerfinance.gov/f/documents/201708_cfpb_older-consumers-and-student-loan-debt-by-state.pdf
[iv] The Aspen Institute. Worse Off Than When They Enrolled: The Consequence of For-Profit Colleges for People of Color, March 19, 2019. Available at: https://www.aspeninstitute.org/blog-posts/worse-off-than-when-they-enrolled-the-consequence-of-for-profit-colleges-for-people-of-color/
[v] Population Reference Bureau, Analysis of 2015 American Community Survey by the Working Poor Families Project. Available at: http://www.workingpoorfamilies.org/wp-content/uploads/2017/08/Data-WPFP-2017-Chapter-2-PRB.xlsx