Christian Smith had simply accepted that she might be paying off student loan debt for the rest of her life.
That was until she found out about President Joe Biden’s student loan forgiveness program, perhaps the largest of its kind, a plan that would reduce a person’s academic debt by as much as $20,000 if their application was approved.
Smith applied on Oct. 15, the day after the site launched, hoping to receive $20,000 to help reduce her $35,000 in student loan debt. When she received a note from the Department of Education saying her application was approved, Smith began to feel hopeful again.
But in November, Smith was notified, the program, and any potential debt cancellation was on hold as a federal appeals court considers one of several legal challenges brought against the policy.
Now Smith and millions of other borrowers who applied are in limbo. The case, now before the Eighth Circuit Court of Appeals, was brought by six Republican-led states that are arguing Biden’s plan will cost them future tax revenue.
“It’s stressful — the not knowing, the wondering, the waiting, and the hoping,” said Smith, an undergraduate student at the University of Colorado Denver.
On Aug. 24, the Biden administration announced a loan forgiveness plan of $10,000 in student debt for most federal student borrowers, with an additional $10,000 forgiven for those who received Pell Grants to complete their higher education.
The plan also would have limited the payments of borrowers who are on income-based repayment plans to spending 5% of their monthly discretionary income on loans, and would have covered unpaid monthly interest.
The policy is crucial for many borrowers, particularly people of color and those with lower incomes, who have needed to take on unsustainable levels of debt to build their careers and enter today’s economy, according to a report about the financial health of young Americans age 18-34. The report was recently released by the Young Invincibles, a nonprofit focused on political and economic opportunity for young adults.
The cost of attending college has skyrocketed over the years. But federal support has not kept pace. Since 1980, the cost of four-year public college and four-year private college has nearly tripled, even after accounting for inflation, according to the White House website.
Pell Grants that once covered nearly 80% of the cost for a four-year public college degree for students from low-income families now only cover a third of the cost, according to the site.
As a result, many students have had to borrow money to attend college. The typical undergraduate student with loans now graduates with nearly $25,000 in debt, according to a Department of Education analysis. Nearly a third of borrowers have debt but no college degree, often because the cost of attendance was too high.
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The student debt burden also falls disproportionately on many Black borrowers. The typical Black borrower who started college during the 1995-96 school year still owed 95% of their original student debt, 20 years later, according to the Department of Education.
Debt from higher education postpones a person’s ability to move forward in their life goals. Yet, as a person obtains a higher degree, their weekly earnings increase, and their chance of becoming unemployed decreases, according to the U.S. Bureau of Labor Statistics.
The rising cost for higher education
The price of college has risen significantly in Colorado over the past few decades. About 20 years ago, the state’s contribution to the cost of college was about 66% of the total cost to attend, and the student’s obligation was about 34%, said Angie Paccione, executive director of the Colorado Department of Higher Education.
Those numbers have flipped over the last two decades, because of the recessions in 2003 and 2008 and the subsequent COVID-19 pandemic, she said.
When the state has to shift its priorities in terms of where it uses tax dollars, higher education typically takes the first and deepest cut, Paccione said.
Numerous studies establish the sustained disinvestment in public higher education since the Great Recession. According to the Center on Budget and Policy Priorities, the average state spent $1,502, or 16%, less per postsecondary student in 2018 compared with 2008.
According to the same source, published tuition rates for state schools in Colorado increased by more than 60% between 2008 and 2018, with the average net cost of attending a four-year public university reaching nearly a third of the median household income for Black and Latino state residents, and less than one-quarter of the median income for white households.
Property tax dollars fund K-12 education and other federal dollars fund health care through Medicare and Medicaid, Paccione said.
“There’s a dedicated stream of revenue for everything except higher education,” she said. “This goes back more than just decades. Higher ed is a public good. But some people also see it as a private good” that the state shouldn’t necessarily have to pay for, she said.
When the state’s contribution to higher education goes down, schools raise tuition, because there are only two revenue streams for higher education: state funding and student tuition and fees, Paccione said.
“That’s what’s happening right now in the governor’s budget. The cost of inflation has gone up by about 6.5% and so the governor is giving the institutions of higher ed the permission to raise tuition by a maximum of 4%, not to cover inflation, but to at least cover some of the core basic costs of providing that education,” she said.
Gov. Jared Polis is trying to maintain better investment in higher education, Paccione said. Making higher education more affordable — closing the equity gap in higher education attainment for students of color, first generation students and lower income students — and ensuring students are graduating “career-ready” are top priorities for Polis, Paccione said.
Colorado’s tax-limiting Taxpayer’s Bill of Rights, or TABOR, requires money to be refunded to taxpayers during years where there’s a budget surplus, limiting the state’s ability to fund K-12 and higher education, said Caroline Nutter, a tax policy analyst at the liberal-leaning Colorado Fiscal Institute.
Meanwhile, Colorado voters also passed Proposition 121 last month, which reduced the state income tax rate to 4.4% from 4.55%, which means there will be less revenue collected, she said. Reducing the state income tax rate to 4.4% could cost the state about $400 million per year, Nutter said, which could eventually affect budget priorities, and potentially result in cuts to higher education.
Coloradans affected by the pause in loan relief
About 26 million people had applied for Biden’s loan relief program before court rulings halted the administration’s ability to accept new applications.
About 9 million Americans who applied mistakenly received notices in November that said their applications had been approved.
Chloe Knutson, who lives in Denver and attended the University of Arizona, was one of those people.
A $10,000 refund for her student loans landed in her checking account in October. But now that the program is halted, Knutson is worried she may have to return the money, which is luckily still sitting in her account.
Since Biden announced the loan forgiveness program, Knutson has had to defend her good performance in school to seem worthy of the debt relief to people who view the policy as a “handout,” she said.
“I worked all throughout college. I had a job to pay for living expenses,” Knutson said. “I got a full scholarship and I still walked away with debt.”
Supporting students
The total loan amount incurred by all undergraduate and graduate students at Metropolitan State University of Denver, so far this school year, was about $45 million for almost 17,000 students, according to the school. The total loan amount incurred by all students during the last school year from 2021-22 was almost $54 million.
School leaders said they’ll likely be inundated with questions from students once a decision is made about the forgiveness program. The school is preparing to host webinars, open forums and air a podcast to help students borrow responsibly for school and take charge of their future financial decisions, no matter the outcome of Biden’s debt relief program, said Kerline Eglaus, Metro’s executive director of financial aid.
“The reality for students is that these student loans play a big role in financial security, their financial health, and financial wellness,” Eglaus said. “So what I’m hoping to see is that students are taking their financial wellness very, very seriously now.”
Solutions
Data on student loan debt in recent years shows the burdens of paying for higher education have shifted onto those who can least afford them. The Biden administration’s recent policy changes represent a crucial down payment on what must be a longer-term and more comprehensive plan to tackle a rolling crisis in postsecondary education, according to the Young Invincibles report.
“If we are not able to ensure that the students get supported by institutions, we’re going to continue to see drastic gaps in attainment by race, class, geographic location, age and all the demographics we know unfortunately often push folks to the margins,” said Sarah Staron, the Young Invincibles’ Rocky Mountain policy coordinator.
Young people were once told they could achieve the American dream if they worked hard, attended college and secured competitive employment. But that is not the reality for many anymore, Knutson said.
Only 46% of Colorado high school seniors completed the FAFSA/CASFA applications during the 2020-21 school year, meaning the state ranks 47th in the nation for students completing the federal student aid applications, according to the Colorado Department of Higher Education.
The low participation rate means Colorado students leave more than $30 million in federal grant dollars on the table annually, according to the department. To help address the issue the Colorado legislature allocated $1.5 million to the Colorado Opportunity Scholarship Initiative to aid local education providers in implementing strategies to increase the number of students who complete a student aid application before graduating high school.
Staron said students aren’t filling out the applications because they’re difficult to complete.
Now, the Young Invincibles and the Colorado Youth Advisory Council are working on a bill that would make it a requirement that high school students complete the FAFSA/ CASFA applications before graduation with the idea that some students might not realize there’s money available for school that they might not have to pay back. A waiver for students who do not wish to pursue college will be offered.
“We just want to make sure every single person that has the interest or potential interest in pursuing higher education knows what they could be receiving in terms of aid,” Staron said.
The Colorado Department of Higher Education has three loan forgiveness programs for educators that have, at times, received up to 10 times the number of applicants than it can fund, Paccione said.
More loan forgiveness programs could be implemented through legislation and target Colorado workforce shortages — such as those in construction, cybersecurity, health care and early childhood education — to help reduce student debt and create a thriving state economy, Paccione said.
Polis’ budget proposes an increase of $3 million to fund the Colorado Opportunity Scholarship Initiative, a program that provides full ride matching scholarships and wraparound retention services for students whose parents didn’t attend college are first generation students, from low- to middle-income families or are people of color. The increase in funding would help expand the scope of the program, include more participants and retain students who struggle to pay for college, she said.
Nationally, about 78% of college students return for their sophomore year, but the number is closer to 94% for Colorado Opportunity Scholarship Initiative participants, Paccione said.
Paccione said the state higher ed department is trying to find creative ways to make college more affordable, by using state dollars wisely and focusing on ways to ensure graduating students have the credentials to contribute to the state’s workforce.
The cost for school should be based on cost of living and people’s socioeconomic status, said Giovanna Burno, a junior studying linguistics at Metro. But, seemingly, the only way to achieve that goal is through protests or refusing to pay the current prices for college, she said.
“Our society works a lot off of what people are or aren’t willing to put up with,” she said. “If the cost continues to rise, many people who have been most negatively impacted by disparities, won’t be able to pay anyway.”
If Biden’s program fails, Smith said she is committed to figuring out how to repay her loans. But if the program passes, her future job prospects and family planning will be positively affected.
“I just try not to think about it,” she said last week during an interview. “I just try to focus on what I can control, which is my grades, and the other things that I’m doing to try to build the future that I want.”