Affordable, but Not Free

Report suggests state-federal partnership to keep student loan payments at or under 10 percent of graduates’ income and estimates cost of doing so.

June 7, 2017

Recent proposals to make higher education tuition- or debt-free have had huge price tags attached -- hundreds of millions of dollars, in the case of plans put forward by Hillary Clinton and Bernie Sanders during the 2016 presidential campaign. But a report released today lays out a very different approach to college affordability, with a much smaller -- and arguably more attainable -- sticker price.

According to a new report from the State Higher Education Executive Officers association, state and federal governments would have to put up a combined $34 billion a year, after a four-year build-up period, to make SHEEO’s definition of “affordable” college a reality for all postsecondary students, be they full- or part-time, traditional age or adult. This contrasts with many of the current state and district plans for free community college or public higher education, which limit participation to full-time students and/or recent high school graduates.

In this case, “affordable” is defined as graduates using no more than 10 percent of their discretionary income a year toward student loan repayments. Much of the $34 billion -- half of which would be paid for by states, half by the federal government -- would be aimed at need-based financial aid for students coming from low-income backgrounds who don’t have the chance to save money for college. The report suggests states fund the plan with increases to higher education appropriations over the course of four years, by an average of 5 percent each year.

“The SHEEO model takes a different approach [from savings-based or debt-free models]. Our proposal is that students should not have to pay more than 10 percent of their income toward loan repayment. So it’s forward looking,” said David Tandberg, principal policy analyst at SHEEO. “The benefits of college accrue after you graduate, therefore we should look at affordability in regards to income postgraduation.”

Definitions vary as to what affordable college means, as does funding for higher education in each state. SHEEO’s model defines college affordability from the perspective of the graduate being able to repay loans.

“Students in the lowest income quintile, they do not come in with resources. Saving is often nearly impossible, or it is impossible, and we don’t want them to be overburdened with work while they’re there,” Tandberg said. “It may make more sense to consider that their incomes will rise once they graduate.”

“It’s one way of looking at it,” Tandberg said. “We provide the detailed state-level data so that people can look at their own states and consider for themselves how they might approach affordability. … Maybe it’s free college, maybe it’s the Lumina rule of 10 model, maybe it’s a different one.”

In 2015, amid a flurry of tuition-free and debt-free college models being thrown around by Democratic politicians, the Lumina Foundation -- which also funded the SHEEO study -- developed a framework to try to define what affordable college might mean. The framework -- filled with caveats, and meant to be more of a baseline to define affordability rather than a one-size-fits-all prescription -- established a model called the rule of 10 as one way to define affordability.

Under the Lumina model, families would be expected to save 10 percent of their discretionary income for 10 years to meet their contribution to their children’s college education. (Families earning less than 200 percent of the poverty level wouldn’t be expected to pursue this part of the model.) Students, on their end, would be expected to work 10 hours a week while in college.

The Lumina model estimated that a family earning $100,000 a year could contribute $51,000 based on savings, and students would earn $3,625 during the school year.

The SHEEO model, which highlights the Lumina report as a comparison, doesn’t have the savings or work requirements in its assumptions. It’s also about three times as expensive as the Lumina model, though it also includes nontraditional and part-time students, which Lumina omitted.

State by State

SHEEO also works with the assumption that the federal government will match state contributions to higher education to reach the affordability thresholds. The data show that some states are better positioned than others to meet SHEEO’s model.

Broken down by state, Alaska, for example, is looking at just over $275,000 of additional spending in the first year of implementing the model for traditional students, not including the amount that the federal government would pitch in. By year four, that cost is still under $1 million. On the other end of the spectrum, Texas would be looking at more than $350 million in the first year, and more than $1 billion in year four.

The estimated cost devoted to traditional college students comes in just under $12 billion in the fourth year of implementation. The Lumina model carries a similar total cost after adding the estimated state-by-state contributions, however, it doesn’t account for nontraditional students.

The cost for reaching SHEEO’s affordability threshold for part-time and adult students, however, is $21.8 billion.

“There’s not as much done for these students, so often they don’t qualify for traditional financial aid programs,” Tandberg said. “Maybe they’re not taking enough credit hours. Or the existing financial aid program is only for students that are either going full-time or are going directly out of high school.”

The appropriations hikes required for states to reach their part of the model’s $34 billion mark -- on average, increasing higher education spending by 5 percent each year, for four years -- are “not insignificant,” but also “manageable” for many governments, according to the report. By comparison, over the course of the 2015-16 academic year, the federal government provided about $28 billion in Pell Grant funds and $18 billion in college tax credits. States provided about $12 billion in student financial support.

“We recognize that it’s a very large number, and that’s important in and of itself, because it’s an indication that we have not done enough on affordability,” Tandberg said. “Five percent, while significant, isn’t beyond the realm of possibility.”


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