U.S. Sen. John Walsh joined educators and students at the University of Montana on Monday to discuss student loan debt and a proposal to cut the interest rate on financial aid packages by half – a move some say could serve as an economic boon.
Walsh signed onto the Student Loan Refinancing Act, which would reduce the interest rate on federal student loans from 8 percent to 4 percent.
The bill was introduced last year by Sen. Kirsten Gillibrand, D-N.Y., and is filed as SB 1066. Walsh, D-Mont., was in Missoula for the first stop on a statewide tour planned around the issue.
“We talk about how important it is to responsibly develop our natural resources, but our most valuable resource in this state is our young men and women,” Walsh said. “We’re exporting our resources because our students are graduating with a significant amount of debt. We think it’s a problem.”
According to the Western Commission for Higher Education, tuition and fees at UM remain among the lowest in the region, at $6,045 per every 15-credit semester. Only Wyoming and Alaska rank lower.
The fees at Montana State University are currently $6,752, though still below the $8,046 average across the 15 Western states.
“Compared to the regional average, UM is some $2,000 lower than the rest of the states,” UM President Royce Engstrom said. “We work diligently at this institution to keep tuition and fees low.”
However, Engstrom said, Montana students run into trouble when their median household income is factored into the equation.
As it now stands, a Montana household contributes more than 14 percent of its income toward paying for college.
“We’re right about at the average, but relative to a Montana income, it’s a very significant investment on the part of families,” Engstrom said. “The kind of help (Walsh) is talking about here is very important to Montana.”
Most agreed that cutting the interest rate on student loans is a good first step, one that could save students thousands of dollars in interest. That could benefit the national economy by freeing students to apply their income to other areas, such as buying homes or cars.
But some said the proposed legislation doesn’t directly address the rising cost of higher education. Costs at UM have increased 47 percent since 2003, the slowest rate behind only Wyoming.
By comparison, Arizona has seen its tuition and fees increase 179 percent since 2003. Costs in Hawaii are up 185 percent and Colorado’s have climbed 144 percent.
“This bill is really an after-the-fact solution, though I do see it as an effective help to the economy in general,” said Kent McGowan, director of financial aid at UM. “If people are paying less in interest on student loans – and they accrue a lot of debt – then it’s more available income to repay that debt early and save money for other purchases.”
James Grunke, executive director of the Missoula Economic Partnership, described the impact of student debt as a threat to workforce development.
If student debt goes unchecked, he said, it could deter future workers from pursuing a college degree at a time when doing so may be more important than ever.
“We can’t be in a situation where the debt is so high students will no longer chose to (go to school),” Grunke said. “We will no longer meet our workforce needs in the future without that. The long-term costs to the U.S. Treasury are minuscule compared to the benefits of having more people working at higher wages.”
While many Montana students rely on loans to help pay for school and make ends meet while in college, experts fear they don’t understand the concept of debt, how it works and the commitment involved in paying it off.
Pat Schlauch, representing the Student Assistance Foundation, asked Walsh to consider making the completion of a financial literacy class part of the bill.
Others agreed that improved financial literacy should play a role.
“It’s critical to the education of our students that they understand what it means to take out a loan,” said Darlene Samson, interim director with TRiO Student Support Services at UM. “They see it as a package deal they have to take, and then four to six years down the road, when they’re out of school, there’re burdened with loan debt.”
Roughly 30 percent of students enter a Montana college unprepared for college-level math. Reducing the time needed to earn a degree could also save money, leading some to push for further investment in high school AP classes and developmental programs, such as Ed Ready.
But some cautioned against pushing students through college too quickly. Students should be permitted to explore electives. Many students also work their way through school, making it hard to enroll on a full-time basis.
Yet laws surrounding Pell grants currently require students to attend full time to qualify for a loan. Some at Monday’s meeting asked Walsh to consider changes to financial aid requirements and lift the cap on credit hours.
“We need flexibility in financial aid and some of these loan packages for students who aren’t full time,” said Mike Reid, vice president of finance and administration at UM. “Maybe six credits is what they need to keep working in the jobs they’re having. Then they’re graduating with a job with experience, and they have a head start on life without that debt.”