WASHINGTON — Runaway college tuition and growing student debt are burdening both borrowers and the U.S. economy, witnesses testified Wednesday at a Senate Budget Committee hearing chaired by Sen. Patty Murray, D-Wash.
The consequences from $1.2 trillion in outstanding loans likely will shape the entirety of young Americans’ financial lives, from being able to buy homes and cars to their choice of careers and whether they can afford to retire.
Tuition and fees at colleges and universities historically have risen faster than the prices of most goods and services. In the past decade, that pace has quickened even further.
Sticker shock has been particularly acute for students and parents in Washington, thanks to the 2008 recession and the Legislature’s decision to cut state funding for higher education and shift more of the cost to students.
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In-state tuition for the coming academic year at the flagship University of Washington in Seattle, for instance, will be $12,394. That’s 2½ times the 2004-05 tuition of $5,181 and a 426 percent increase from 20 years ago.
Collectively since 2008, tuition at Washington’s four-year public colleges and universities jumped by an average of 60.7 percent, or $4,085, in inflation-adjusted dollars, according to a May report by the Center on Budget and Policy Priorities, a Washington, D.C., think tank.
All that prompted a UW student group this week to plead for relief. It issued recommendations calling for lower tuition, more aid and better calibrating of financial-assistance formulas for low- and middle-income households to channel proportionately more help to the poorest students.
In her opening statement, Murray, who grew up in a working-class family in Bothell, recalled that Pell Grants and student loans helped her get through college at Washington State University.
That, however, has become “considerably more difficult than when I graduated,” she said.
Murray said 16 percent of young households had outstanding student loans in 1989, according to the Pew Research Center. By 2010, 40 percent of families headed by someone under 35 had college debts. A typical college graduate owes an average of $30,000.
“Crushing student debt isn’t just hurting borrowers,” Murray said. “There is mounting evidence that student debt is also holding back the economy.”
Excessive student loans threaten far-reaching sectors of the economy, said Rohit Chopra, student-loan ombudsman and an assistant director with the federal Consumer Financial Protection Bureau.
Americans owe more in college loans than any personal debt except mortgages, with monthly payments that sometimes exceed rent. Experts, including Treasury Secretary Jack Lew and the Federal Reserve, have warned of domino effects of unmanageable student loans: suppressed demand for new cars and homes, slower rates of entrepreneurship, smaller retirement savings and even shortage of primary-care doctors as medical students pursue more lucrative specialties.
Some 7 million of 40 million student borrowers have defaulted on $100 billion worth of loans. Chopra blamed that partly on faulty loan servicing, including failure to credit payments or alter loan terms.
Chopra also noted that it’s difficult to refinance student loans at lower interest rates that would make repayment easier. Murray is a co-sponsor of a bill introduced by a Democratic colleague, Sen. Elizabeth Warren of Massachusetts, that would allow refinancing of student loans when interest rates drop.
But one witness, Richard Vedder, director of the Center for College Affordability and Productivity, a Washington, D.C., research group, said lowering borrowing costs does nothing to address the problem’s root cause: the ballooning price of college education.
In fact, Vedder argued, Pell Grants and other federal financial aid exacerbate the problem by providing fuel for price inflation, money that pays for lower class sizes, bigger athletic subsidies, fancier amenities and salaries for college presidents that approach or top a million dollars.
Vedder has estimated that between 1939 and 1978, college tuition rose by an average of 1 percentage point above the inflation rate. In the nearly four decades since then — a period marked by a large infusion of federal tuition aid — the increase has averaged about 3.5 percentage points.
Had the pace of tuition increases remained at levels seen during the earlier generations, Vedder estimated, college costs today would be about 60 percent lower.
For incoming freshmen at UW, that would mean an annual tuition of $4,957 instead of $12,394.
Kyung Song: 202-383-6108 or email@example.com. Twitter: @KyungMSong