For a talented, creative few, there’s David Letterman. For most, there’s a labyrinth of paperwork, hard decisions and painful sacrifices that could have dramatic repercussions on their financial health decades from now.
Paying for college in America is hard. And a fight may be brewing in Washington that could leave college grads paying more—maybe a lot more.
Where does Letterman come in? The late-night comic endowed a scholarship at his alma mater, Ball State University in Muncie, Ind. The Letterman Telecommunications Scholarship—grades don’t count, but proven creativity does—has helped 84 students since the 1985-86 school year, for a total of $448,048.
But when scholarships and grants—outright gifts either from the government or private institutions and individuals—fall short of covering escalating costs, American students turn to student loans. What’s going to happen? What’s President Obama doing about all of this? How did the federal government get involved in financing higher education in the first place? And is college worth it?
First, the history.
"The federal government really didn't get involved in financial aid until the New Deal,” according to Christopher Loss, a Vanderbilt University professor and the author of “Between Citizens and the State: The Politics of American Higher Education in the 20th Century." That's when it launched a work-study program that helped about 700,000 students pay for school by taking jobs like reshelving books and working in the dining halls or the labs.
Congress launched the program in 1933 and discontinued it in 1943 amid evidence the economy was growing enough that cash-strapped students could find part-time jobs, Loss told Yahoo News. It's largely forgotten today in part because it was succeeded, in 1944, by the GI Bill.
"The surprising thing was really the extent and the munificence of the GI Bill. It covered education, unemployment insurance, home and business mortgages," Loss explained. The program helped almost half of the country's 16 million veterans go to school, 2.2 million of whom did so at a college or university. "It frankly has never been equaled," the professor said.
The next major step was the National Defense Education Act of 1958—partly a product of Cold War concerns, notably due to the Soviet Union's launch of Sputnik, the first artificial satellite.
The law "got the federal government involved in the student loan business, providing qualified colleges and universities with funds for that purpose," Loss said.
The Higher Education Act of 1965, part of then-President Lyndon Johnson's War on Poverty, "really married together these three kinds of instruments that had been tried and tested: grants, loans, and work-study," Loss said. "It's still the cornerstone of federal financial aid policy."
Government-provided student loans are hugely popular with the public, with the business sector that craves an educated workforce, and with many policymakers who regard them as an investment. Still, in the Republican primaries leading up to the 2012 presidential campaign, candidates like Rep. Michele Bachmann and Texas Gov. Rick Perry wanted to abolish the Education Department, which has had sole oversight over federal student loans since 2010.
Has the federal role in financial aid ever come under serious attack? Not in the way that it has in the last few years, Loss said.
"For years, loans have been the main source of aid for many students, and now that the economy has been bad—and the payoff of a degree less immediate—new questions are being asked," he said.
In an economic downturn, Loss said, "The debate changes, and you hear more about affordability—and pretty justified concerns about the ticket price and what students are getting from some of these institutions."
Now, the current fight: On July 1, the interest rates on federally subsidized Stafford student loans will jump from 3.4 percent to 6.8 percent. For the estimated 9 million borrowers, that’s about $1,000 more to pay over the life of the loan. It doesn’t sound like much, but experts say that could force some families and individuals to put off college or give up on the idea entirely. And it would squeeze recent graduates who are struggling to pay back what they borrowed but are caught in a tepid job market.
The good news is that it probably won’t happen—a similar fight last year ended when Congress passed a one-year extension of the lower rate. The bad news is that both Obama and Republican lawmakers have proposed fixes that will raise rates.
Obama has repeatedly sounded the alarm over rising college costs. In his State of the Union speech this year, he urged Congress to confront institutions of higher education by making eligibility for federal student aid contingent on providing a quality, affordable education.
“Taxpayers can’t keep on subsidizing higher and higher and higher costs for higher education,” he told lawmakers. “Colleges must do their part to keep costs down, and it’s our job to make sure that they do.”
He hit the same theme in a May 9 speech, saying, “Going forward, colleges that don't do enough to keep costs down, I think, should get less taxpayer support.”
Obama’s proposal would set a new rate each year, but then keep the rate fixed for the life of the loan. Rates would be tied to the 10-year Treasury rate, plus 0.93 percentage points on subsidized Stafford loans, 2.93 percentage points on unsubsidized Stafford Loans, and 3.93 percentage points on PLUS loans for parents.
There would be no cap on the rates, but borrowers could tie their repayments to their income and see their debt forgiven after 20 years of timely payments.
Republican Rep. John Kline of Minnesota, the chairman of the House Committee on Education and the Workforce, has a rival proposal that would see the rate on loans change annually.
Kline's plan would combine the subsidized and unsubsidized Stafford loans into one, setting the rate at the 10-year Treasury Note plus 2.5 percentage points. The proposal would set the rate on PLUS loans at the 10-year Treasury plus 4.5 percentage points.
Under Kline's proposal, the unsubsidized and subsidized programs would be combined at a rate of the 10-year Treasury plus 2.5 percentage points; PLUS loans would tack on 4.5 percentage points to the Treasury. There would be caps: 8.5 percent for the Stafford loan and 10.5 percent for the PLUS.
The Institute for College Access and Success (TICAS), an independent group that looks at college affordability, has concerns about the Obama proposal and the Kline plan, since both would make borrowing to pay for college more expensive than it is today.
The two blueprints are "the kind of fix that doesn’t actually serve the needs of students and families who need the assurance that loans will be affordable over time,” TICAS President Lauren Asher told Yahoo News.
Asher pointed favorably to legislation from Sen. Jack Reed, D-R.I., that would freeze current rates for two years. It would be paid for by closing "unnecessary" tax loopholes, she said. "That buys time to come up with a smart, comprehensive fix at no cost to taxpayers."
It's a big deal. Two-thirds of the class of 2011 graduated with student loan debt, according to TICAS. The average burden was $26,600, and total student loan debt totaled around $1 trillion.
And ... is it worth it?
Here, the Obama White House has provided a pretty useful tool for aspiring college students and their families. The College Scorecard provides an at-a-glance description of individual institutions of higher education, including important nuggets like annual cost, graduation rates and student loan default rates. (If you went to college and want to feel old, put in your alma mater.)
The Department of Labor rounds out the picture by helping students figure out what they can expectfrom different professional fields in terms of salary—obviously a factor given the weight of graduate debt. (The department's Bureau of Labor Statistics also has an online tool.)
A student eager to become a reporter might think twice after consulting the My Next Move calculator. The field's median pay is $35,870 (that's not median entry pay, either). The site reports the glum news that "new job opportunities are less likely in the future" but notes, "This work is part of the green economy." Huzzah?
Podiatrists have a median salary of $118,030, according to the BLS.