 The
quagmire of college finances
| It seems that
everyone sees college finances in America as a problem that needs to be solved.
Last month, the Pew Charitable Trusts, an independent nonprofit
organization, announced it would fund a $3.5 million initiative to research ways
to reduce student debt.
The reason behind this initiative: Two-thirds of
college graduates are burdened with student debt nowadays, compared to less than
half of college grads in the early 1990s. My first reaction
was, why don't they just use that $3.5 million to defray existing student-loan
debt? But that's a silly idea. In the 2003-2004 school year alone, more than 12
million Perkins and Stafford loans were taken out by students. If that $3.5 million
were divvied up, everyone who took out loans that year would get about 29 cents
per loan. That wouldn't even pay for a first-class stamp to mail in a payment. Actually,
the Partnership to Reduce the Burden of Student Debt, as this initiative is called,
is potentially a great idea if something good comes out of it. The plan of the
initiative
is to work with leading experts to "identify practical policy options and ways
to pay for them with current taxpayer dollars." There's a crying
need for research that results in practical policy options. You need only read
the title of a July report
from the U.S. Government Accountability Office to realize this. The report's title:
"Student aid and postsecondary tax preferences: Limited research exists on effectiveness
of tools to assist students and families through Title IV student aid and tax
preferences." OK, so the title of the report doesn't exactly
roll off your tongue. Here's a loose translation: Students have access to grants
and loans and their families can use education-related tax breaks, but the federal
government really doesn't know if these things help them much. A
student-aid overview
If you have a couple extra hours, the GAO report
is actually an interesting read. It explains the historical background of student
aid beginning with the Higher Education Act of 1965, the genesis of the student
grant and loan programs. This was pretty much the basis of student aid for three
decades. Then, in the late 1990s, Congress came up with several new laws designed
to provide education-related tax credits, tax deductions and tax-exempt savings
programs to help families with college costs. The common denominator: The more
recent changes all involve taxes. In a nutshell, rather than
help students with funds only while they attend college, as is the case with grants
and loans, the newfangled "tax preferences" help families and students before,
during and after the college experience. For example, the tax-exempt savings programs
-- Coverdell
education savings accounts, 529
savings plans and prepaid tuition programs -- give families vehicles that
help them save for college costs before college, while children are growing up.
When their children are in college, many families can take advantage of the Hope
credit, the Lifetime
Learning credit or a tuition
deduction (scheduled to expire in December 2005). After the student graduates,
up to $2,500 in interest on loans can be deducted each year until student loans
are paid off. | 
