Student Loans and the State of the Union 2014
January 29, 2014

Last night was President Obama’s big 2014 State of the Union address and education was on the menu. So what was said and what does this mean for those that have student loans? Really, it was more of a recap than a pledge to do more for those already in debt. Most of the major promises made in this SOTU speech were about wage equity for women and getting minimum wage up to a living wage. For those with student loans that are working in lower wage jobs, this is an important consideration, so we’ll talk about what POTUS covered on both these issues.

The President said:

“We worked with lenders to reform student loans, and today, more young people are earning college degrees than ever before.”

The facts:

Yes, more people than ever are earning college degrees. As of 2012, roughly 31% of us have attained Bachelor’s degrees. But the rate of debt acquisition has increased faster than the rise in degrees. Private lenders are still not being as flexible on student loans and the only recent student loan change has been to tie interest rates to Treasury notes, which may not be a good change in the long run.

The President said:

“Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance.”

The facts:

The Economic Policy Institute issued a report this Fall, “Mismatches in Race to the Top Limit Educational Improvement,” that said Race to the Top is not achieving what it intended and questions whether it will succeed in the future. One bright note was that even states who didn’t apply for the grant based program or whose applications were rejected have still worked toward the objectives.

The President said:

“We’re working to redesign high schools and partner them with colleges and employers that offer the real-world education and hands-on training that can lead directly to a job and career.”

The facts:

One program the President has used as an example of this initiative is the Nashville Academies, where students can cycle through different work and college experiences while in high school. What’s interesting is the use of “we” to describe this program, since it’s a local initiative rather than federal. Still, it’s a great program and one that encourages skilled trades as a valued alternative path to a meaningful career. This also allows students to have a more concrete idea of what they want to do with their lives before they ever start college.

The President said:

“We’re shaking up our system of higher education to give parents more information and colleges more incentives to offer better value, so that no middle-class kid is priced out of a college education.”

The facts:

The highly anticipated College Scorecard launched by the government in 2013 does provide information in one dashboard, but it is still not fully functional many months later. The Chronicle of Higher Education’s College Reality Check is a more robust tool. Also of concern is that policies to hold schools more accountable for results such as high graduation and post-grad employment rates for students has yet to manifest.

The President said:

“We’re offering millions the opportunity to cap their monthly student loan payments to ten percent of their income and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt.”

The facts:

The program the President is referring to is Pay As You Earn, but this program is available only to recent graduations that have borrowed since 2011. True, IBR is available to more people, but the real concern is the taxable component of the offered loan forgiveness. After 20 years in PAYE or 25 in IBR, remaining balances are forgiven, but the write off is taxable so the resulting income tax charge could be more than the initial loan balance. That’s not true relief.

In all, there was nothing really new or earth shattering in this State of the Union address about education and there was a little overestimation of what POTUS is doing for students and those with student loans.

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