Sticking it to the students Part II

U-News Staff

Student loans are a college reality that won’t go away anytime soon.

Of the more than 1,800 spring 2012 graduates at UMKC, 74 percent of undergrads took out loans. Graduating seniors with loans average $28,000 in debt, according to Financial Aid director Nancy Merz.

Graduate and professional students, who are enrolled in costlier studies and ineligible for the Pell Grant, accumulate even more debt.

The $106 million in loans borrowed by UMKC students in 2011, the more current year, is a small chunk of the nearly $1 trillion accumulated by students nationwide, according to data released May 31 by the Federal Reserve Bank of New York.

For student borrowers, the Fed’s other findings aren’t cheery:

Since 2003, student loan debt has climbed $633 billion.

Student loan debt has increased by $293 billion since 2008, whereas other forms of debt have dropped by $1.5 trillion.

Student loan debt is the second-highest form of consumer debt after mortgages, surpassing credit card debt in late 2010.

“There have been a lot of changes in the past 4-5 years,” Merz said.

In 2007, fearing a spike in interest rates, then 6 percent, Congress passed legislation to reduce the interest rate on subsidized Stafford Loans each year until July 1, 2012, when the current rate of 3.4 percent will double if no action is taken by Congress.

Interest rates for Perkins Loans and PLUS Loans, the other major Direct Loans, are fixed at 5 percent and 7.9 percent, respectively.

The Health Care and Education Reconciliation Act of 2010 ended federal subsidies for private banks to grant student loans, making the Direct Loan program the sole source of federal student loans. This, and other bills passed by Congress in recent years, have raised the borrowing limit and made it easier for students to take out loans.

Cuts, cuts and more cuts

Many schools, including UMKC, have faced dwindling state allocations in recent years while enrollment has grown, displacing the cost of attending college on student tuition and fee revenues.

The $74.4 million UMKC received in state allocations for Fiscal Year 2012, ending June 30, is $6 million less than its state allocation in FY 2008.

Over the same four-year period, fall semester enrollment increased by 1,000 students.

Budget director Karen Wilkerson said Missouri law prohibits tuition and fee increases from exceeding the Consumer Price Index, a weighted average measure of consumer inflation, currently at 3 percent.

Wilkerson said UMKC anticipates a 7.8 percent cut, or $5.8 million reduction, in its state allocations for FY 2013. This amount will be finalized when the governor approves the FY 2013 budget, which will take effect July 1.

Earlier projections anticipated 10-12.5 percent cuts, Wilkerson said. That amount was reduced in February when Gov. Jay Nixon allocated $40 million from a national settlement, between state attorneys general and the nation’s top mortgage lenders, to higher education.

“Our practice throughout the UM System is to be somewhat conservative in our budgeting practices, especially because funds can still be withheld even after legislation is signed,” Wilkerson said.

The anticipated 3 percent increase in tuition and across-the-board student fees, expected to generate $3.2 million, won’t cover the entire $5.8 million shortfall.

An increase in enrollment will add a projected $1.5-2 million to the school’s coffers.

The remaining difference, Wilkerson said, “will be addressed through a variety of expense reductions, including salary savings from vacant positions, layoffs and service reductions.”

An official hiring freeze, however, is not in the works.

Mel Tyler, vice chancellor of student affairs and enrollment management, said UMKC has worked to keep ancillary fees low compared to other urban public research universities.

“I think our ancillary fees are very reasonable,” Tyler said. “We’re in the lower quartile of those institutions.”

Wilkerson stressed that UMKC has pursued less aggressive tuition increases than other regional schools, making it an attractive option for tuition-conscious students.

She also said that precautions have been taken to cushion students from the effects of the cuts.

“We have aggressively pursued alternatives to close the gap in order to maintain high academic standards and support systems for student success,” she said.

No relief from Congress

The Congressional Budget Office projects a $6 billion shortfall from a one-year freeze on subsidized Stafford Loans at their current rate.

If no action is taken, 7 million students will accumulate an additional average of $1,000 each in debt.

The debate is not revolving around whether or not they should keep them from rising but how the $6 billion bill would be paid for. Proposals from both parties have met partisan opposition.

In May, Senate Republicans rejected Democratic proposals to close tax loopholes for S corporations, backed by President Obama, in a 51-43 split vote in which several Democrats sided with the GOP.

“For the second time this month, they voted to ask millions of students to pay an average of $1,000 each rather than close a loophole that allows the very wealthy to avoid paying their fair share,” said White House Press Secretary Jay Carney.

Republicans would like the money to come out of a public health prevention fund created under the Affordable Care Act of 2010.

“The Republican proposal is paid for by stripping Americans of life-saving preventive health care,” Senate Majority Leader Harry Reid (D-Nev.) said. “The Democratic proposal is paid for by closing a loophole that allows wealthy Americans to dodge their taxes. It’s easy to see the two proposals were not created equal.”

Senate Minority Leader Mitch McConnell was quick to rebuttal, arguing that Senate Democrats are more interested in producing a scapegoat than reaching across the aisle with a viable plan.

“We already know how this story ends,” McConnell said. “So why are Democrats forcing us to vote on their failed proposal yet again? Because, as I’ve said, they’re more interested in drawing our opposition — of creating a bad guy — than in actually solving the problem.”

The Obama administration has repeatedly called for student loan debt relief, making it a priority issue this past spring.

In 2008, students overwhelmingly supported Obama, who was favored 66-32 percent over opponent John McCain by voters ages 18-29, according to CNN’s 2008 exit polls.

Feeling the pinch

For many students, taking out loans is necessary to cover the cost of tuition. Needless to say, student borrowers are not excited by what could happen July 1.

“Loan interest rates are high as it is,” senior psychology student Ashlee Waugh said. “I am stressed with the amount I will be paying back without the additional interest tacked on. I only have a year of school left, so I would have to accept the higher interest rates and stick it out until I graduate.”

Merz believes that taking out loans is a worthwhile investment for many students, citing studies that show higher earnings for college graduates than those without a post-secondary degree.

“A lot of kids have to borrow,” Merz said. “If you have a degree, no one can take that away from you. I’m thankful we have a system where students can borrow to go to school.”

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