The Vermont House, in a resolution, urges Congress to amend the federal bankruptcy code, providing tax relief for forgiven borrowers.
The J.R.H 27 was written in reaction to an April 6, Wall Street Journal article that revealed that more than 40 percent of Americans who borrow from the government’s primary student loan program are no longer making payments or have fallen behind.
After a 10-year boom in borrowing, driven by hordes of young people escaping the Great Recession by immersing themselves in higher education, more than $200 billion is owed.
Scott Giles, president and CEO of the Vermont Student Assistance Corporation described a dire situation in Vermont:
71 percent of Vermont undergraduates in their senior year of college have student loan debt.
Nearly 70 percent of seniors attending a Vermont institution of higher education have a student loan.
The average Vermonter carries $29,000 in debt which is slightly higher than the national average of $28,950.
In 2015-16 Vermont had the second highest tuition for in-state students at $14,990 as compared to the national low of $4,890 in Wyoming, according to the College Board.
“Vermont students and families are shouldering a bigger burden of college costs than anywhere else in the nation,” Giles told lawmakers on the House Committee on Education. This is at a time when experts know that within five years two-thirds of the jobs in Vermont will require education beyond high school.
“For most families, student debt is a fact of life,” Giles said. He blamed the debt on the failure at both the federal and state level to “adequately fund need based grant aid and to fund our public institutions.”
Since 2008, the General Assembly has not increased funding for Vermont’s college system. For the first time in eight years, the House added $800,000 to the appropriations for higher education which the Senate has reduced to $600,000.
Tricia Coates, director of governmental affairs for the Vermont State College Chancellor’s Office, thanked lawmakers for the additional funds and said that she hoped all $800,000 would make it through the legislative process.
Coates says a decline in state appropriations for higher education has had a direct impact on student debt levels.
“The public in-state tuition and fees for Vermont State Colleges and the University of Vermont are the second highest in the nation,” Coates told lawmakers. “VCS students graduate with a higher debt load than our neighboring peers. The Vermont student needs to finance the bulk of their education through borrowing.”
Both Giles and Coates stressed that the joint resolution encouraging federal action would be a step in the right direction for Vermonters.
Students that borrow federal money for college are currently barred from applying for bankruptcy. The feds also stopped requiring parents or guardians to cosign for student loans. As a consequence, students are left to bear the sole responsibility for loans, and without the option of bankruptcy, the only recourse is getting into an early forgiveness plan or defaulting.
The Legislature wants the federal government to end the practice of taxing former students who have completed a loan forgiveness program. There are several popular repayment plans that allow students to pay down their loan over 20 to 25 years based on a percentage of their discretionary income. At the end of the quarter century, whatever is left over is forgiven, but borrowers can be taxed on that forgiven balance.
Concerns were raised before the House Committee on Education that students considering taking out loans need more debt literacy information and loan repayment options before they go into debt, as well as at the time they leave college and throughout the duration of their loan repayment period.
“The federal student loan default rate spiked after the federal government took over federal student loan servicing,” Giles said.
He believes federal lenders have not provided adequate individual counseling on loan repayment obligations. “There is virtually no reason to default on a federal loan because of all the options available,” Giles said.
The Joint Resolution directs the U.S. Secretary of Education to develop a counseling program that begins with students before they take out loans and follows them through the duration of the loan repayment.
“Pursuing higher education is not a luxury, it’s a necessity,” said Giles.
