HARRISBURG – March 20, 2019 – A bold and innovative plan to help students and their families save thousands of dollars, pay down crushing student loan debt and better deal with the high cost of borrowing was unveiled by Sens. Vincent J. Hughes (D-Philadelphia/Montgomery), Katie Muth (D-Montgomery/Chester) and Lindsey Williams (D-Allegheny) today.
The plan, called the PA Student HELP (Higher Education Lending Protection) Act, is a multi-pronged effort which allows students to refinance high-interest debt and provide tax credits for those who have outstanding student loans. The plan also includes incentives for employers to help pay down student loan debt of their employees.
The refinancing program – aimed at curbing excessive student debt – would be funded by up to $1 billion in bond financing.
“It’s plain and simple: students face crushing loan obligations once they complete years of higher education,” Hughes said. “Not only is the expense of postsecondary education sky high, but the cost of borrowing to meet tuition and living expenses financially cripples graduates for years.
“Ignoring the problem only makes it worse as more students and their families struggle to pay for necessities. That’s why we have to take bold action through an aggressive plan like PA Student HELP.”
The sponsors said PA Student HELP is expected to save a student who carries an average amount of debt in Pennsylvania ($36,000) more than $10,000 over the span of a 20-year loan repayment. The program would slice more than 2 percent off the blended federal loan repayment rate of 6.25 percent (federally subsidized and unsubsidized loans and Parent Plus loans).
Under the plan, students with even higher amounts of debt would save substantially more over a 20-year repayment, especially if private lending is used to finance higher education. For example, students carrying $50,000 in student debt and a 10 percent interest rate through a private lender would save $43,085 from PA Student HELP. The current average rate range for private student lending is over 10 percent – more than double the proposed 4 percent PA Student HELP loan rate.
“I have first-hand experience that the cost of borrowing for higher education has become a crisis. People like me are swamped with high debt paired with high interest rates and limited options,” Muth said. “My experience mirrors that of tens of thousands of other students who face huge student loan repayment bills.
“PA Student HELP is a comprehensive program that would deliver immediate financial relief for tens of thousands of students.”
The senators said that PA Student HELP — once fully implemented — will help an estimated 28,000 students refinance their high interest student loans.
“Students face tough choices and are willing to go into debt to pursue education opportunities,” Williams said. “However, the high cost of borrowing and inability to refinance student loan debt creates a ripple effect in the economy. I know that when your student loan payment is twice as much as your rent, you struggle with small purchases and cannot even attempt to purchase a home.”
“We need more options with favorable rates to reduce payments and generate thousands of dollars of cost savings. Those options and savings will be available for thousands of students if PA Student HELP is adopted.”
Currently there is an estimated $68 billion in outstanding student loan debt in Pennsylvania. The state has the highest student debt per capita in the United States. Over 1.8 million Pennsylvanians carry student loan debt.
Hughes, who serves as Democratic chair of the Senate Appropriations Committee, said bond costs for Student HELP when fully implemented would be approximately $80 million annually. The cost, he said, would be reduced by the increased economic activity resulting from the release of additional capital into the market and enhanced spending by students with more disposable income. The refinancing program would be administered by the Pennsylvania Higher Education Assistance Agency (PHEAA).
In addition to the refinancing program, the proposal establishes a student loan tax credit where individuals with student loan debt would also be able to seek up to $500 per year tax credit against their Personal Income Tax liability to help manage student loan costs. Up to $10 million in tax credits per year would be available.
Employers would be encouraged to help employers with debt by making make direct contributions into a 529 account, apply payments toward reducing outstanding student loan debt of an employee, or allowing the use of the cash equivalent of unused carryover days for an employee to be applied to outstanding student loans. These payments would be exempt from state and local taxation for the employer and employee.
The lawmakers said refinancing, tax credits and employer participation are only few of the features of PA Student HELP Act. The program would also boost transparency by requiring higher education institutions to present the estimated four-years cost of study upfront. In addition, the plan would establish a student loan ombudsman to guide students, parents and guardians through the loan process.
Williams said it is vitally important to detail a four-year estimate of the cost of higher education, loan rates, repayment options, default rates and estimated monthly payments.
“Reform of higher education financing would not be complete without protection for borrowers,” Williams said. “I struggled to find out the true cost of my higher education, including what I would pay for textbooks, laundry, and transportation. Schools must be completely candid with students about all the expenses they will incur.”
“A combination of help with borrowing costs, greater transparency and employer participation in paying down debt is a key to addressing the student debt crisis,” Muth argued. “For too long, students have been blocked from understanding the full cost of an education.”
PA Student HELP also requires that post-secondary institutions compile and submit student loan information to the state Department of Education. The state banking department would compile information on private lending options, including rates and repayment plans.
Nationwide more than 45 million people owe more than $1.5 trillion in federal student loans. Studies show that by 2020, 63 percent of jobs in Pennsylvania will require some level of higher education.
The senators said they modeled their refinance proposal from a similar refinancing plan now in operation in Connecticut.