Text of Commissioner's Testimony

Delivered by Commissioner Richard M. Freeland on October 21, 2013 before members of the Joint Committee on Higher Education at Suffolk University.

Introduction

Thank you, Senator Donoghue, Representative Mark, and the entire subcommittee, for inviting me to participate in the conversation on Student Loan and Student Debt. This is a challenging and complex topic, but one that is certainly worthy of your attention.

Student loan debt has been a topic of national concern since the 1990s, and the sense of urgency around this issue has only grown in recent months. Two-year default rates on student loans are once again on the rise¹, and a 2013 report finds that student debt is leading many young Americans to postpone buying a house, to shift their choice of career, or even to put off marriage². At a time when we need to focus on closing achievement gaps, debt aversion among first-generation and low-income college students is linked with decreased college participation and completion³.

Let me sound the alarm on this issue. As many of you know, I have been committed to the pursuit of excellence in Massachusetts public higher education throughout my tenure as Commissioner. I believe that Massachusetts needs the best educated citizenry and workforce in the nation—and that it is the responsibility of our public colleges and universities to produce the lion's share of the graduates who will vote, pay taxes, and work in our knowledge-based businesses and industries.

The good news is that we are a system on the move—as evidenced by the stunning work underway at our campuses in pursuit of the Vision Project goal of national leadership among state systems of public higher education. We are deeply grateful to Governor Patrick and the legislature for the FY14 investments in our campuses, which are driving new levels of innovation and change.

But make no mistake: the burden of student loan debt could derail us from achieving our goals, with far-reaching consequences for the Commonwealth. This debt not only creates risks and hardship for individual students. When a college degree or certificate becomes a dream deferred, because a student can't afford the cost of a diploma, the impact is felt far and wide. Massachusetts cannot compete effectively in the global marketplace without a well-educated, well-trained citizenry and workforce. Increasing the number of students who graduate from our public colleges and universities is therefore essential to growth. When we take steps to address the loan crisis, then, we are not only helping individuals who are struggling. We are helping ourselves, by investing in Massachusetts' #1 economic asset: brainpower.

Student Loan Debt at Massachusetts Colleges and Universities

So how does this problem look in Massachusetts, and what steps can we take to ensure that student loan levels do not hurt the Commonwealth or its residents?

I’d like to begin my testimony by giving the subcommittee an overview of student loans and debt in Massachusetts at the system-wide and statewide levels. An appendix provided at the end of my written testimony will include more detailed information.

Let’s focus first on Massachusetts’ public campuses, and what we are seeing here is that both the percentage of public higher education students who need to borrow to finance their postsecondary education and the amount these students borrow has risen significantly in recent years⁴.

The amount of student loan debt for public college and university certificate and degree recipients has risen 27% over the past three years. This percentage is consistent across all three segments, although the dollar amount differs.

• At the University of Massachusetts, the average student now graduates with $26,800 in loans, a $5,500 increase in three years.
• State University graduates are not far behind, with the average graduate carrying $22,400, a rise of $4,800 in the past three years.
• While Community College graduates carry less debt than baccalaureate holders, their earning power and thus their ability to repay large loans is also less. Students who earn one- and two-year certificates at our public campuses now leave with $1,400 more debt than they did three years ago.

Looking at the percentage of public higher education students who are graduating with student loan debt, we find that over the past three years:

• Graduates with 1-and 2- year certificates experienced the largest rise, with 49% of this group graduating with student loan debt compared with 31% three years ago.

• The State University segment has now surpassed UMass in terms of the percent of students graduating with debt, with 65% of State University students leaving with student loans, as compared with 61% of UMass students.

Students at the Commonwealth’s private non-profit and for-profit institutions borrow more than those at our public institutions.

• The comparison here is most stark at the two-year college level. The average loan amount for students at Massachusetts private two-year institutions (both non-profit and for-profit) was $11,000 in 2011—140% higher than the $4,600 taken out by public community college students. Note that these dollar amounts reflect the average loan for one year only, rather than the cumulative debt with which students graduate, as was shown in the figures above.

• The percentage of private two-year college students going into debt also greatly outpaces that of public two-year college students, with 37% of community college financial aid students borrowing money, compared with 96% at private for-profit two-year colleges.

Two Key Questions

Against this background of growing debt for a growing number of students, two fundamental questions immediately present themselves:

1. Why is this happening?
2. How big a problem is it?

As to the first question, I am sure the increase in student debt has multiple causes, as does any complex social phenomenon. The country’s recent financial problems, leading to high unemployment and constrained wage growth almost certainly plays a role, as families and individuals are less able to pay for the cost of college. That said, there is one overwhelmingly obvious and clear explanation of the rise in debt, and that is the increased cost of attending one of our public institutions. Over the past ten years, as the state has struggled with its own fiscal challenges, funding for our public colleges and universities has simply not kept up with growing enrollments and rising costs, which has resulted in a steady shift of the cost of education from the state to students. Within my own professional lifetime in Massachusetts, the state subsidy covered about 80% of the cost of attending one of our public campuses; today that figure is down in the 40% range. This decline in state support has forced institutions to increase students’ charges to fill the gap. In the decade from FY2004 to FY2013, mandatory student fees increased:

• 110% at UMass
• 101% at the State Universities, and
• 71% at the Community Colleges.

That reality is undoubtedly one of the major causes of the rise in student debt.

Now for the second question: How big a problem is this rise in student debt?

We in higher education rightly claim that a college degree is a good investment, and every serious study demonstrates huge gains in lifetime earnings from almost any form of postsecondary credential. The group in our state that is clearly struggling to find work are individuals without a college degree; employment rates for those with a college education are actually quite strong. While some level of borrowing may be unavoidable given the realities of public revenues and institutional costs, we clearly have an interest in keeping students debt as low as we reasonably can, and I am hopeful that the Commission on Higher Education Finance, which is being created pursuant to a provision of the FY14 budget will help us establish a sustainable contribution from the state and from families and students. This is something our state badly needs: a well thought out a realistic model for financing the high quality system of public higher education that is an absolutely essential ingredient in any sensible strategy to keep Massachusetts competitive in the years ahead.

What we have at the moment are some indications of the consequences of rising student costs. My public college presidents tell me, for example, that more and more students are attending part time rather than full time, and stretching out their time to degree, in order to deal with increased costs. This is a very problematic pattern, since the likelihood of degree completion is reduced as the time to degree is increases. In addition, and even more concerning, some students are almost certainly being priced out of our system because it has simply become too costly although we do not have hard statistics that show significant reductions in college participation among low income students. The alternative to stretching out the time to degree or dropping out of school altogether, of course, is taking on more debt, and this reality brings us back to the next important question we must consider, which is how we can keep the amount of debt students are required to incur to a minimum.

Strategies to Reduce Student Loans and Debt

With these numbers in mind, the question we are all trying to answer is: what can be done to reduce the amount of student loan debt carried by Massachusetts college students? Six clear strategies emerge.

1. Maintain the FY14 increase in higher education funding. The Governor’s and legislature’s efforts to keep higher education affordable for students and families in the Commonwealth through the higher education increases in the FY14 budget have proven critical to holding the line on the cost of a Massachusetts public college education.
2. Expand support for financial aid. MassGrant is the state’s primary source of need-based financial aid. Prior to the Governor’s and Legislature’s FY14 success in increasing funding to public higher education, MassGrant had languished, with the average award covering just 8% of average tuition and mandatory fees at public colleges and universities, compared with 80% in 1988. The comparative benefits of need-based aid, such as the MassGrant, and merit-based aid, such as the Adams Scholarship, has also engendered considerable national debate.
3. Increase students’ and families’ financial literacy. DHE is exploring a joint initiative with American Student Assistance to increase students’ financial literacy so that students and their families are able to make informed decisions about student loans, and understand their obligation for repayment.
4. Ensure effective oversight, particularly of out-of-state online institutions, so as to prevent deceptive practices that can leave students with large loans, but without the qualifications to obtain the high-paying jobs needed to repay them. The BHE’s For-profit and Online Task Force is focusing on this among other issues.
5. Reduce the cost of college by increasing efficiencies. PACE, the Partnership for Collaboration and Efficiencies, is an effort led by our community colleges and state universities to reduce costs by collaborating on essential functions such as IT, payroll, and procurement. A major focus this year will be moving forward on recommendations for cost savings in IT.
6. Reduce the time it takes for students to obtain a degree. One priority addressed by the Vision Project is reducing the time it takes for students to obtain their certificate or degree. These changes go directly to the problem of student loan and debt. For each additional year a student attends our colleges and universities and borrows money to do so, they are taking on debt which would otherwise be unnecessary--$4,600 on average at our community colleges, $8,300 at our state universities, and $9,200 at UMass. Similarly, improving graduation rates is critical to avoiding the situation where a student borrows money to attend a college or university for some period of time, but leaves without the subsequent economic benefits of having earned a degree or certificate. Four current Department of Higher Education initiatives address these challenges:
• Commonwealth Dual Enrollment Program. Dual enrollment both reduces the amount of time a student requires to earn a degree and increases the likelihood of graduating by allowing high school students to enroll in and receive credit for college level courses at our public campuses. Dual Enrollment has been highly successful but lacks sufficient funding to satisfy demand, and the DHE has been exploring ways to expand this program.
• Transfer policies and common course numbering. For the past five years we have been working to ensure that students don’t lose credits when transferring from one college to another or from a two-year program to a four-year program. As an example, the Nursing Transfer Compact allows a nursing student in a two-year program to transfer seamlessly into a four-year program. The common course numbering initiative currently underway will further streamline the transfer function.
• The Completion Incentive Grant Fund. This pilot program aims to increase college retention and completion rates of low-income students by linking the amount of aid they receive to the number of courses they successfully complete. It is our hope that these grants will prove to assist and motivate students to both graduate in higher numbers, and in less time.
• Developmental (Remedial) Education Improvements. Massachusetts public campuses have pioneered a range of innovations to move students more quickly out of developmental education and into credit-bearing college courses. At its meeting next week, the BHE will vote on efforts to further improve Developmental Math education.

Conclusion

I have submitted my remarks in written form, but please do not hesitate to reach out to me with questions or requests for additional information. Once again, I would like to thank you all for taking the time to investigate an issue of such critical importance to Massachusetts’ college and university students, and for all of your ongoing support for public higher education.

Footnotes

APPENDIX: Student Loans and Debt in Massachusetts

What we are seeing across Massachusetts’ public campuses is that more students are now borrowing more money. Both the percentage of public higher education students who need to borrow to finance their postsecondary education and the amount these students borrow has risen significantly in recent years. From 2008 to 2011, the most recent years for which data is available:

The amount of student loan debt for certificate and degree recipients rose significantly over the past three years.

• University of Massachusetts graduates experienced the greatest rise in the amount of debt, with the average student now graduating with $26,800 in loans, a $5,500 (26%) increase in three years.
• State University graduates are not far behind, with the average graduate carrying $22,400, a rise of $4,800 (27%) in the past three years. 
• While the total amount of debt held by community college graduates remained lower than that of the graduates from four-year institutions, the earning power of these graduates, and thus their ability to repay large loans, is less than those with baccalaureate degrees. Students who earn one- and two-year certificates at our public campuses now leave with $1,400 more debt than they did three years ago, a 27% jump.

In addition to the amounts being borrowed, we are also seeing an increase in the percentage of students who are graduating with student loan debt.

• Graduates with 1-and 2- year certificates experienced the largest rise—an 18 percentage point jump, with 49% of this group graduating with student loan debt compared with 31% three years ago.
• This 49% for certificate recipients is significantly higher than the 28% of Associate’s degree recipients who graduate with student loan debt.
• The State University segment has now surpassed UMass in terms of the percent of students graduating with debt, with 65% of State University students leaving with student loans, as compared with 61% of UMass students.

Comparison with Massachusetts Private Colleges and Universities

Students at the Commonwealth’s private non-profit and for-profit institutions borrow more than those at our public institutions.

• In 2011, the average loan amount for students at private four-year institutions was $14,600—76% ($6,300) more than the average amount borrowed that year by State University students, and 59% ($5,400) more than at UMass. Note that these dollar amounts are smaller than the numbers above as they reflect the average loan for one year only, rather than the cumulative debt with which students graduate.
• The contrast between public and private two-year campuses is even more stark. The average loan amount for students at Massachusetts private two-year institutions (both non-profit and for-profit) was $11,000 in 2011—139% higher than the $4,600 taken out by public community college students.
• The percentage of private two-year college students going into debt also greatly outpaces that of public two-year college students, with
• 37% of community college financial aid students borrowing money in 2011, compared with
• 79% of financial aid students at private non-profit two-year colleges and
• 96% of financial aid students at private for-profit two-year colleges.
• While the percentage of financial aid students who depend on loans is nearly identical at UMass and private four-year institutions—82% and 83% respectively— at our State Universities 87% of our financial aid students are going into debt, the largest percentage among the three public sector segments.