State lawmakers consider changes to default-plagued college loan program
When Emily Bressler was in her sophomore year at Armstrong State University in Savannah, she faced a problem familiar to many students. A new semester was coming up and she didn’t have the tuition money.
“I had federal loans, but I didn’t have enough to pay for the remaining semester, and I didn’t qualify for Pell, my parents were earning too much, and I was going to school,” he said. she declared. “I didn’t want to get private loans, just because I always heard stories about how interest rates are, like, exponentially high.”
Her adviser suggested she consider applying for a student access loan, a state program with low interest rates and loan forgiveness for people who work in government, and she thought this sounded like exactly what she needed.
“When he told me the interest rate was 1%, I thought, that’s great. I hope I can get it,” she said. “Honestly, I wish I hadn’t had it, because the SAL loan was the worst decision possible. I had nothing but problems with it from the very beginning.
The Georgia Student Access Loan Program was created in 2012 as a last resort for students like Bressler who had exhausted their other options. During the past school year, it helped approximately 5,600 students with nearly $28 million in loans at 78 institutions in public, private and technical schools.
But a recent report The state auditor found major difficulties with the program, including a default rate of about 31% after three years, compared to 10% for federal borrowers. The auditor’s office recommended that the legislature take action to resolve the issues alongside the Georgia Student Finance Authority, which oversees the program.
Lawmakers took their first step toward that goal Wednesday when members of the House Higher Education Committee heard testimony from Georgia Department of Audit and Accounts senior management analyst Emily Denis.
Georgia’s approach to need-based scholarships is unique, Denis said. It is one of seven states that provide loans to undergraduate students, while most states provide need-based funding through grants and scholarships. Georgia’s need-based scholarship, REACH, receives about $5 million in public funds, compared to $26 million for the loan program.
“Through the HOPE and Zell programs, Georgia awards more grants per undergraduate student than any other state. However, compared to other Southeast states, it devotes a smaller proportion of state aid to needs-based aid. So we spend about 4% of our public funds on needs-based aid compared to other contiguous states they give at least 17%.”
About 75% of SAL borrowers are also eligible for a Pell grant, indicating financial need. The audit found that students who are eligible for a Pell grant and who are not financially supported by their family are most at risk of default at 45%, followed by Pell recipients who receive family support at 40%. Students who are not eligible for Pell are less likely to default – 24% for those without family support and 21% for those with it. Borrowers who qualified for the HOPE or Zell Miller grants were also less likely to default.
“The nature of a needs-based loan program requires the GSFA to identify people who need help in the short term but are also able to repay the loan in the long term,” Denis said. “These characteristics often do not overlap.”
Bressler earned a health science degree and later earned her master’s degree, but she said it still seemed like something was wrong with her loan repayments.
Three years after graduating, she discovered that because she hadn’t filled out the right paperwork, her interest rate had gone up to 8%.
She took a job at a homeless shelter while in college because she said a Georgia finance official told her it would qualify her for loan forgiveness, but the following year, the agency denied her application because it was not a state-run homeless shelter. She said her bank routinely charged her late fees when two months of payments were deducted in one month, seemingly for no reason.
“I was in college and working at a homeless shelter, so I was earning next to nothing,” she said. “I use all my money to pay for rent, food and my car. So I was really living paycheck to paycheck. I think it was like $120 a month that I had to pay for my student loans, so I budgeted for that specifically.
Bressler said she has since consolidated her loans with a private company offering less interest than the 8% she was paying the state.
Other recommendations from the auditors include reassessing the program’s interest rate, considering lowering the monthly payment amount, and potentially broadening and clarifying which jobs qualify for a discount.
Another option would be to simply convert the program to a need-based scholarship and cancel currently outstanding debt, said Jennifer Lee, senior policy analyst at the Georgia Budget and Policy Institute.
It would help more students, remove the administrative costs of processing overdue payments, and benefit the state as a whole, she said.
“If the latest economic recovery is any guide, the vast majority of new jobs will go to those with a college education,” Lee wrote in a report. “Evidence also suggests that student loan debt harms economic activity like home ownership and small business start-ups. The state’s economy and workforce will be stronger if more hard-working Georgians graduate and graduate without excessive debt burdening the economy. We can tap into all of Georgia’s talent by removing small financial barriers to student success. »
No votes were scheduled for Wednesday’s meeting, but committee chairman State Rep. Chuck Martin, an Alpharetta Republican, said changes were coming.
“It was meant to be the start of a conversation, not the end at all,” he said. “I know we often go to national conventions and you hear something and get upset about it and then nothing happens. That is not what we intend to do here. We intend to seek a solution.