WASHINGTON (CBSDC/AP) — A new survey shows that millions of people have defaulted on their government-backed student loans.
According to the New York Times, a study by the State Higher Education Finance found that one in six borrowers with a college student loan balance is in default, with nearly 6 million people across the nation falling 12 months behind their payments.
The Times reports that the amount of defaulted loans totals $76 billion, which is more than the yearly tuition bill for all students at public universities and colleges.
“Somehow the nation and its educators must come to grips with these realities and create effective responses to them,” the study states. “Colleges and universities must find ways to reduce student attrition, the cost of instruction, and time to a degree, while improving instruction and increasing the numbers of students who graduate ready to be productive citizens.”
In what the study calls the “new normal,” students and their families will have to continue to make greater financial sacrifices in order to get an education at a college or university.
Tuitions and fees for four-year public colleges grew by 72 percent above inflation over the past decade, averaging $8,244 last year, according to the College Board, which represents more than 6,000 schools. Student loan debt in the U.S. has hit $914 billion; the average borrower owes more than $24,000, the Federal Reserve Bank of New York says.
The Times reports that the Department of Education has hired collection agencies in attempt to recover the money from the student loans that were defaulted, paying nearly $1.5 billion to do so.
The high cost of education and the lack of money to pay back student loans due to the scarcity of jobs has become a main campaign issue for both President Obama and Republican challenger Mitt Romney.
In 2008, voters age 18 to 24 sided with Obama over GOP candidate John McCain by a 66-32 margin. A Gallup poll taken in July and August found that same age group preferring Obama over Romney by 56 percent to 36 percent, an edge that Republicans would love to erode further.
Obama would let the current $5,550 per year maximum Pell grant increase to $5,635 next year, as scheduled under current law. That figure has grown by more than $900 since 2008 for a program that is the largest source of federal aid for students, serving more than 9 million of them.
Obama would make permanent the American Opportunity tax credit, created as part of his 2009 economic stimulus program. The credit provides up to $2,500 a year per student for college costs but is due to expire Jan. 1. Renewing it would cost an estimated $13 billion next year alone.
Obama has also proposed tying some federal aid, including Perkins loans and subsidies for students’ work-study jobs, to schools’ abilities to curb tuition increases. The president’s proposals continue “the administration’s commitment to keep college affordable for students and their families,” his 2013 budget blueprint said.
Separate plans by presidential nominee Romney and his running mate focus more on containing federal costs.
In a May paper, Romney argued that even as federal spending for higher education has grown, the costs of attending college and student debt have ballooned. Obama initiatives making the government the direct source of federal student loans, creating the American Opportunity tax credit and boosting Pell grants have not worked, it said.
“Flooding colleges with federal dollars only serves to drive tuition higher,” said Romney’s education paper, “A Chance for Every Child.”
It said Romney would improve college access and affordability: “A Romney administration will tackle this challenge by making clear that the federal government will no longer write a blank check to universities to reward their tuition increases.”
Romney would eliminate duplicative federal college financial aid programs, direct Pell grants to “students that need them most” and put the program on a sustainable long-term path, the document said. It provides few details.
He would put private lenders back in the business of issuing federally backed student loans, let companies compile data about lending and colleges for consumers and help families save for higher education. The paper says little about how.
Campaigning in March, Romney was asked by a voter what he would do to make college more affordable. Romney replied that while it might be popular for him to answer that he would provide students with government money, “what I’m going to tell you is shop around.”
Rep. Paul Ryan, the Wisconsin Republican who is chairman of the House Budget Committee, wrote a House-approved 2013 budget that would let the American Opportunity tax credit expire in January. It would freeze the maximum Pell grant at $5,500 for the next decade and it suggests rolling back some subsidies for studentborrowers and recent provisions making the grants more widely available.
Ryan’s budget says the Pell grant program, currently costing about $36 billion a year, is unsustainable.
“Urgent reforms are necessary to enable the program to continue as the foundation of the nation’s commitment to helping low-income students gain access to higher education,” budget documents say.
Obama also proposed keeping interest rates at 3.4 percent for subsidized Stafford loans for undergraduates. After initial Republican hesitation, Romney endorsed the idea and Congress eventually approved it. Ryan’s budget would have let the rates double to 6.8 percent, as was scheduled under previous law.
(TM and © Copyright 2012 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2012 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)