Ohio Polithon Team 2 – Student Debt Proposal

Executive Summary

Trailing second only to mortgage debt, student debt has reached a record high of $1.2 trillion. Now, more than ever, college students are facing the tough decision on whether or not to take out loans in order to obtain a higher education. As of 2012, on a national level, 71% of all students (1.3 million) who graduated from a four-year college had student debt, and the average amount of debt of a graduating senior was $29,400. This is 200,000 more students and $5,950 more than in 2008. On par with the national averages, the state of Ohio yielded 69% of its graduating students leaving school with an average of $29,037 in debt in 2012. The state has the the sixth highest share of debt-burdened graduates, and the ninth highest student debt total. On top of this, Ohio higher education funding remains lower than pre-recession levels despite increasing enrollments.

A solution to this problem extends far beyond reallocating state budget funds back to higher education. To combat this, a team of PolicyDisruptors with various educational, experiential, and political backgrounds have put together a broad, comprehensive plan in order to battle student debt. The proposed policy tackles the issue pre-, during, and post-enrollment. It was also necessary to develop a solution that affected demographically different students: low income students, middle class students, students who attend public institutions, students who attend private institutions, etc. Our policy consists of several points that aim to pragmatically attack this crippling problem and alleviate the financial burden so many students and graduates are facing.

  • Corporate Investment in Education

      • Increase competitiveness of Ohio firms by arming them with incentives to hire graduates and participate in the repayment of student loans
      • Improve employee retention rates for Ohio companies who invest in the education of their workforce

  • Family and Personal Investment in Education

      • Seed OH-529 college savings accounts for young Ohioans
      • Increase the number of ways Ohio families can contribute to OH-529 accounts
      • Improve state income tax deductions for student loan repayments

  • Pre-enrollment and Post-graduation Financial Literacy Education

      • Standardized high school guidance counselor training materials
        • Expand guidance counseling to include a variety of post-secondary educational options, including professional and vocational schools, and work to combat the stigma around these options
        • Summary of prospective majors and careers through a “truth in advertising” campaign to include Ohio employment career outlooks (present and projected)
      • Increase financial literacy in high schools to ensure complete understanding of the following, with education continuing into college:
        • FAFSA
        • Various forms of student aid, including:
          • Grants
          • Scholarships
          • Loans
        • Avoiding predatory lending
      • Educate and assist graduates with enrollment in optimal student loan repayment plans

  • Inter-school Partnerships and Statewide Reciprocal Agreements

    • Increase interaction between four-year, two-year community, and vocational schools in close proximity to each other
      • Eliminating stigmas of attending any of the above
      • Allowing smooth transitions between any of the above
    • Increase young professional attraction and retention by extending the reach of reciprocal tuition rate agreements with neighboring states

Complete Proposal

Corporate Investment & Incentives

To help aid in employee retention, engagement and loyalty at Ohio companies, especially those with large and mostly minimum wage workforces, we propose that companies directly pay for the college degrees of their employees. Following this model, businesses headquartered in Ohio would receive tax breaks for engaging in this public-private partnership. Employees who work at the company for an amount of time to be determined by the employer would become eligible to receive funding for their education at any Ohio state institution, community college or trade school up to a limit set by the employer.

This model incentivizes employment in Ohio-based businesses and rewards work-study situations that grow student skills while contributing to the state and local tax base. In order to receive the employer aid for higher education, the employee would have to agree to minimum service commitments to the business, to be decided by the business. Examples could include minimum hours per week or minimum number of years post-graduation.

This direct program would enhance workforce retention and reduce recruiting, hiring, onboarding and training costs the employer incurs. To maximize the success of such programs, employers should be recommended to provide their employees training in professionalism, college preparedness, financial literacy and other hard and soft skills to prepare them for success in their post-secondary education and in the employer’s workforce.

On the other end of the spectrum, employers who require new employees, either directly or indirectly, and at any level of the organization, to have college degrees should be partially responsible for the student loan debt incurred by those new hires when they matriculate to the organization as the employers have in effect socialized and externalized a significant cost component of their workforce training.

Our solution however is positive in its dividends for Ohio businesses and thus the State of Ohio. We recommend that the State of Ohio incentivize private employers to repay a percentage of their employees’ student debt in return for tax breaks. This would supplement the existing federal debt forgiveness / income-based repayment program for public service workers.

Offering student loan reimbursement programs ultimately improves employee retention and recruitment efforts as well as employee productivity. An important aspect of any such program should be that it does not specify a dollar cap on the potential employer tax credits. A dollar-for-dollar credit would maximize the economic value of such a program.

Encouraging Family & Personal Investment in Funding College Education

The Ohio Tuition Trust Authority was created in 1989 to provide a tax advantaged investment option for Ohio families to save for their children’s college education. Its operations are entirely funded by fees assessed to investment accounts, making it a self-sustaining agency supporting the public good. Today it markets and manages direct (self-managed) and advisor-led 529 college savings accounts under the CollegeAdvantage brand.

Under current state policy, each contributor to an OH-529 account can deduct up to $2,000 per beneficiary, per calendar year, with unlimited carry forward in future years on their Ohio state taxes. The deduction is not limited to the parents of the beneficiary. Any person contributing to a beneficiary’s account is eligible to take the deduction: parents, grandparents, other relatives, even family friends. Each contributor who is an Ohio taxpayer can take the Ohio state tax deduction. Estate taxes can also be effectively reduced by contributing to an OH-529 account. When the beneficiary uses the funds for qualifying higher education expenses, the disbursements are 100% federal and state tax free.

In 2014, Cuyahoga County launched a pilot program in which the County would automatically open a college savings account for each Kindergarten student in the County and deposit $100 into each of these accounts. The goal is to encourage healthy family investment in higher education early on in a student’s life, when the benefits of compounding interest can be maximized. If the account is unused, the initial $100 is returned to the County and any additional contributions returned to whomever made them.

We propose that a similar program be launched at the state level, in partnership with the Ohio Tuition Trust Authority, to seed OH-529 college savings accounts for Ohio students. The Trust Authority would be directed to partner with Ohio public schools to verify Kindergarten enrollment and provide account information to parents of verified students. If the initial deposit was $50, projected funding requirements at current Ohio birth rates would be ~$7M per year. This should be treated as an operating budget line item and funded by Ohio’s recurring surplus, projected this year to yield over $970M. An additional ~$3M should be budgeted in year one to support administrative setup of the program.

Further we propose that an option be added to Ohio state tax return forms allowing taxpayers to opt to directly deposit a percentage, or all, of their yearly tax refund into an existing CollegeAdvantage account.

To combat the existing student loan problem, we also propose a new state tax deduction, without caps, to cover the entirety of student loan payments made in a given tax year.

Financial Literacy

Navigating the complex patchwork of collegiate loan and scholarship programs can be a difficult and unfamiliar process for incoming students. Nationally, nearly $3 billion in unconditional federal aid money went unspent last year due to under-application by eligible low-income students.[1]  This is due in large part to the time-consuming Free Application for Federal Student Aid (FAFSA) process, as well as a general cap in financial literacy among students.

Furthermore, even high-achieving low-income students have difficulty making the most of the college application process – they consistently under-apply to selective schools, and to college in general, relative to their higher-income academic peers.[2] At every step of the college process, low-income students suffer from a lack of the informal guidance that is usually offered by school counselors, parents and peers.

Unfamiliarity also makes low-income students prime targets for exploitation by for-profit “colleges,” many of which are unaccredited and practice predatory lending and enrollment tactics. Students at for-profit institutions face the highest debt burdens of any type of post-secondary students.[3]

All of these problems could be alleviated through better financial education that gives students a transparent assessment of the costs they will face. Even simple interventions can yield dramatic improvements – in 2012, Indiana University began sending personalized letters to each student detailing what their debt situation post-graduation would look like. The result was that students in the IU system borrowed $31 million less over the course of the following year.[4]  We recommend that the state of Ohio adopt this practice as a mandated standard for all universities in the state — all students should receive, at minimum, an annual statement from the university with their outstanding/projected debt and a survey of repayment options.

Ideally, however, these interventions should begin as early as high school. We recommend the creation of a standardized “College Financial Literacy” program for all Ohio public schools. This program should help students with the FAFSA process, teach them best practices in searching for and applying for scholarships, and inform them of the many options for loans and repayment after graduation. Money should be set aside in the state education budget for this program, and it should be made mandatory for all Ohio public schools. Acknowledging that there are already some fragmented Ohio not-for-profit organizations tackling this issue, these organizations should be invited to collaborate on the curriculum of such a program and, where appropriate school resources are not available, be funded to operate such programs for the benefit of all Ohio students.

Additionally, the Ohio legislature should augment the federal government’s recent efforts to make for-profit colleges more accountable[5] by cracking down on fraudulent marketing strategies (many of which target veterans and financially struggling individuals) and promulgating the Department of Education’s new college ratings system in public schools.

Better Guidance Counseling

College entrance counseling should go beyond informing students of their financial options, however. Given that prospective students  are about to make one of the biggest personal and professional choices of their lives on the cusp of adulthood, they should be given as many tools to make  informed decisions as possible. We recommend three areas of concentration for the state government: Making employment and earnings data by college major more readily available, creating forecasts for degree completion once students are in college, and improving the stigma against non-bachelor’s-degree education options (e.g. trade and professional schools).

Many incoming and first-year students make the decision of what subject to major in based off of very little information. Students have a right to know what their expected job prospects after graduation will be like, even if this information is not perfect. Ohio higher education institutions should be encouraged to publish and prominently display statistics on employment and earnings outcomes for each major. To ensure the accuracy and timeliness of this data, money will be set aside in the state education budget to connect colleges with industry consultation groups for this purpose.

Guidance should continue into the critical first year of college, when students are most likely to drop out or switch majors. Innovations in analytics software like Civitas and Predictive Analytics Reporting (PAR) have allowed educators to predict, to an astonishing degree of accuracy, how likely students are to complete a major based off of their grades in the early concentration classes.  While this data should not be treated as destiny, it can help students make an informed decision about what major is the best fit for them while it is still early enough to easily switch. Therefore, we recommend that the state create a Higher Education Analytics Database (HEAD) that will be shared with — and supplied with input data by — Ohio colleges.

Students should also be informed of the options outside of a traditional four-year degree. Vocational training and industry-specific professional education remain viable and affordable options for many students, but they carry an unfair stigma, especially in communities where a bachelor’s degree is the norm. Rather than confining vocational education to “technical” or “career-track” high schools, Ohio educators should work to make it part of the mainstream education system through outreach and industry partnerships.

Funding Student Loan Repayment Options Counselors through Community-based Organizations (CBO)

In the United States, there are 22 million people eligible for Income-Based Repayment (IBR) for federal student loans. Income-Based Repayment (IBR) is the most widely available income-driven repayment (IDR) plan for federal student loans that has been available since 2009. However, only around 2 million student loan borrowers nationally are enrolled in IBR plans. In Ohio, there are hundreds of thousands of students who could benefit from enrollment, but there needs to be a state-funded intervention to get qualified Ohioans the relief they deserve. The following recommendations provide a solution to the issue:

Community Loan Refinancing Counselors (CLRC)

Similar to the intervention strategy of Enroll America that got Ohioans enrolled in healthcare, we recommend the state funds Full-time and Part-time community loan repayment options counselors.  These primary duties would include obtaining a list of qualified Ohioans for IDR, increase enrollment in IDR and other federal repayment programs, and provide financial literacy for Ohioans with student debt. The information and services provided would be similar to that which was provided temporarily by a coalition of CBOs and advocacy groups in May 2015 in an effort known as The Borrowers’ Hotline.

Community-based Organizations hosting CLRCs

CBOs are more connected within communities than state agencies. It would crucial to the success of this program that the CLRCs are based in CBOs that already have established bases and connections to universities. These partnerships could also build the capacity of our CBOs by providing staffing support to their programs while also enrolling people in IBR plans. CBOs could submit proposals on how they could host CLRCs and how their network could expand the reach of the program.

Inter-school Partnerships

If there exist community colleges or trade schools near a public institution, the said institutions should form partnerships. This would occur as a means to share opportunities and resources for the students of each of the institutions. This allows the students’ needs for further education to be fulfilled in an efficient and holistic manner regardless of the specifics of the additional education desired. In comparison to the current disparate system, this would give students a seamless transition between these different, but equally important, types of institutions. If a student decides, or are deemed by an institution, that they are not yet ready for their current level of higher education, a closer integration between institutions increases the likelihood that they won’t get lost in the shuffle and will continue some sort of education. Partnerships of this nature currently exist on an ad hoc basis between a few universities, namely Columbus State / Ohio State and Sinclair / Wright State, but we suggest making these partnerships an integral part of the state’s education plan.

By additionally sharing Student Activity resources, students can feel that they are getting a “college experience” regardless of the type of institution that they attend. This should help to eliminate the negative stigmas that exist surrounding community colleges and trade schools. In turn, elimination of this stigma should help to better distribute workers into the fields that are in need of workers, which would have positive outcomes for the economy. These institutions would not be sharing or offloading to each other the teaching workloads or program requirements, so there should be no perceived degradation of image for the individual institutions.

Statewide Reciprocal Agreements

Acknowledging that Ohio offers superior higher education offerings which dovetail with the state’s goals of encouraging young professional retention and attracting young professionals from nearby states to study, work and reside in Ohio, we propose the statewide extension of reciprocal tuition agreements with neighboring states.

Hamilton County universities such as the University of Cincinnati have for years been working independently to extend metro tuition rates (very close to in-state rates) to bordering states such as Kentucky and Indiana. The Ohio Board of Regents should be directed to study the work of these universities and create a common framework that will allow students from neighboring states to attend any Ohio university under their jurisdiction at rates similar to in-state tuition, contingent upon the neighboring states providing the bulk of the necessary funding and similar arrangements for Ohio students to attend subsidized college in their state.

References

[1] http://www.nerdwallet.com/blog/nerdscholar/2015/FAFSA-college-money-left-on-table/

[2] Doetsch, 2014

[3] http://www.demos.org/publication/debt-divide-racial-and-class-bias-behind-new-normal-student-borrowing

[4] http://www.bloomberg.com/news/articles/2014-07-03/here-s-how-indiana-university-students-borrowed-31-million-less

[5]http://www.ed.gov/news/press-releases/obama-administration-announces-final-rules-protect-students-poor-performing-career-college-programs

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