Student loan debt is now the second largest form of household debt after mortgage debt, totaling about $1 trillion nationwide. In Connecticut, the average debt of a Bachelor’s Degree recipient is almost $28,000. Many graduates of Connecticut private colleges carry over $40,000 in student loan debt. These loan payments are an enormous hardship on young people starting out in life, as well as on parents and families who help repay them.
An affordable college education is fast becoming out of reach for many as lower and middle-class families are forced to take on unsustainable debt levels to afford even the most affordable schools. As a result, more than 30 percent of student loans are more than 90 days delinquent nationally.
This is hardly surprising since grants, scholarships, institutional aid and Pell grants make up less than 40 percent of total federal need for Connecticut students, based on federal student aid application data.
In 2012, there were 18,837 freshman who borrowed an average of $6,655 each. Over four years, this means that a graduating cohort from Connecticut colleges and universities borrows over $125 million, of which approximately $34 million is in private student loan debt.
These high debt levels are made even more burdensome as middle-class students and their families increasingly rely on high-interest private student loans, with interest rates as high as 12 percent.
With more students and families feeling the burden of the cost of a higher education, Governor Dan Malloy and Lt. Governor Nancy Wyman know there is more work to do to help students and families afford a quality, higher education.
— Create a state student loan tax credit to allow residents to take up to a $2,500 tax credit on student loan interest.
— Allow students to refinance student loans at lower rates.
— Bolster the Governor’s Scholarship Program to give high achieving students additional student aid.
The Malloy-Wyman Administration has already undertaken a number of actions to improve college affordability:
— Restructuring the state’s scholarship aid programs to target scholarship funds to those who need it most on a consistent basis over four years of college, while reducing the support previously provided to wealthy private Connecticut colleges.
— Governor Malloy, with State Treasurer Denise Nappier and legislators, established the CHET Baby Scholars Program to encourage parents of newborns to start saving for college early with a state matching contribution of $250.
— New rules have been put in place to make sure parents who save for college are not penalized by state schools in making aid determinations.
— The Malloy-Wyman Administration restructured the Connecticut Higher Education Student Loan Authority (CHESLA) to reduce its administrative costs and provide more ability to reduce costs on new college loans for Connecticut residents.
— The Malloy-Wyman Administration made real investments in the UConn system to expand UConn’s campuses, boost its facilities, and make it a premier science, technology, and math institution. “Next Generation Connecticut” will also deliver more than 250 new faculty positions, enroll an additional 6,580 talented undergraduate students including 1,000 additional STEM students, and add 4,000 new permanent jobs.
— The Governor has even worked to make sure every Connecticut resident can go back and earn their degree. The “Go Back to Get Ahead” program allows Connecticut residents up to three free courses at schools in the Connecticut State Colleges and Universities system to earn their degree.
Over the next four years, the Malloy administration are proposing:
Student loan interest is tax exempt up to $2,500 on federal returns, but states do not have similar provisions. Governor Malloy and Lt. Governor Wyman will propose a piggy-back provision that will enable state residents to reduce their state income tax liability based on their student loan interest payments.
This proposal will be scaled based on affordability, as the federal program is. A meaningful program could be undertaken for approximately $20 million annually.
This proposal would create an incentive for young people to stay in Connecticut or relocate to the state, while providing real relief to struggling families liable for their children’s student loans. Middle-class families and their young adult children would benefit as they rely most on loans to finance college education.
Governor Malloy proposes to change the state rules to allow CHESLA to refinance student loans, using state-backed taxable bonds to provide capital. With CHESLA’s low costs, it will be possible, depending on prevailing interest rates, to offer student loan refinancing with significantly lower rates than many of the high-cost private student loans on the market today.
The average graduate today has private loans totaling around $7,200. A five percent reduction in the interest rate – say from 12 percen to 7 percent– would save $360 per year. For borrowers with higher debt levels, like those with graduate degrees, the savings could be much higher.
In 2013, the new Governor’s Scholarship Program, established under Governor Malloy, created a unified, need-based aid program for state residents, and also replaced the state’s existing student aid programs: Connecticut Aid to Public College Students (CAPCS), Connecticut Independent College Student Grant (CICSG), the Capitol Scholarship, and Connecticut Aid to Charter Oak.
This major reform of the state financial aid system was done to ensure a more equitable method of awarding student aid. Under the new program, a more straightforward and transparent application process not only makes things easier on students and their parents, it also allows recipients to know in advance how much assistance they will receive over the course of their college career.
Governor Malloy and Lt. Governor Wyman will add an additional $10 million to the Governor’s Scholarship Program, allowing for thousands more Connecticut residents to afford higher education.