As the semester draws to a close at schools and
universities across the country and college applications are submitted, the Treasury Department has released a report that should be food for thought for students scrambling to complete their work and finish
their exams. The new report, prepared in conjunction with the Education
Department, shows that investing in education expands job opportunities, boosts
America’s competitiveness, and supports the kind of income mobility that is
fundamental to a growing economy.
While post-secondary education has become
increasingly important over time, there have also been growing concerns about
the accessibility and affordability of higher education. In particular,
students and their families are bearing a greater share of college costs than a
generation ago. In an effort to help counteract these trends, the Obama
Administration has implemented several new policies to provide relief for
students and their families, including increasing Pell grants, introducing the
American Opportunity Tax Credit, keeping Stafford loan interest rates low, and
expanding “income-based repayment.” This report confirms the critical importance
of higher education, showing the personal economic benefits of attending
college, and includes data and analysis on the broader role of a well-educated
workforce, which is vital to our nation’s future economic growth.
American companies and businesses require a
highly skilled workforce to meet the demands of today’s increasingly
competitive global economy. This report explores the current state of higher
education, with a high-level overview of the market and a more detailed
discussion and analysis of the financial aid system. The report also outlines
the important steps the President has already taken to make higher education
more accessible and affordable.
Key findings include:
Students are bearing a greater share of the college costs than a
generation ago. At public four-year colleges and universities, tuition and
fees as a percent of revenue has doubled since 1987, while the proportion
funded by state and local governments has fallen by about one-third. Meanwhile,
in-state tuition at public four-year colleges and universities has grown by
two-thirds since 2000 after adjusting for inflation.
People with more
education typically earn more and have a lower likelihood of being unemployed.
In 2011, the typical worker with just a bachelor’s degree earned about $1,000 a
week, roughly two-thirds more than those with only a high school diploma. The unemployment rate for workers with a
bachelor’s degree was 4.9 percent, about half of the rate for people with only a
high school diploma.
Source: Bureau of Labor Statistics
(2012). Data are for individuals age 25
and over. Earnings are for full-time
wage and salary workers.
significantly increases the ability of children to move up the economic ladder.
For example, having a college degree means that children born into the
middle three income quintiles are more than 75 percent more likely to advance
to a higher income quintile as adults than those who do not get a college
Source: Brookings analysis of the
Panel Study of Income Dynamics (Isaacs, Sawhill, & Haskins, 2011).
Recognizing these trends, the Obama Administration has implemented
several new policies to provide relief for students and their families The
Administration’s actions include:
Pell grants: The maximum Pell grant increased from $4,731 in 2008 to $5,550
the American Opportunity Tax Credit: This replaced the Hope Credit with a
more generous credit amount (up to $2,500 compared to $1,800), is available for
four years instead of two, and is available to a broader range of families due
to its partial refundability and higher income limits.
Stafford loan interest rates low: The reduced 3.4 percent interest rate on
subsidized Stafford loans was extended for another year this summer, rather
than rising to 6.8 percent as scheduled under then-existing law.
“income-based repayment”: Starting in 2009, student borrowers participating
in the Direct Loan program may qualify for the “income-based repayment” (IBR)
plan, which caps monthly student loan payments at 15 percent of discretionary
income. In 2010 legislation, IBR was made more generous starting in 2014, with
a lower maximum on payments (10 percent instead of 15 percent) and forgiveness
after 20 years (instead of 25 years).
And in Fall 2011, the Administration announced its new “Pay as You Earn”
program that would provide similar benefits to new qualifying borrowers
who will be able to use the program by the end of 2012..
Read the full report and fact sheet
Jan Eberly is the Assistant Secretary for Economic Policy and Chief Economist at the U.S. Department of the Treasury and Carmel Martin is the Assistant Secretary for Planning, Evaluation and Policy Development at the U.S. Department of Education.