As the price tag of postsecondary education continues to rise and outstanding student debt now amounts to $1.4 trillion, it’s critical to ensure Rhode Island parents and students have access to smart college financing options. A little-known mechanism – tax-exempt Qualified Student Loan Bonds (QSLBs) – provides Rhode Island families with a less costly pathway to financing their college dreams.
But as Congressional leaders tackle tax reform this fall, that tool could be on the chopping block. It’s among a list of bonds at risk of losing tax-exempt status in attempts to broaden the tax base and make way for lower corporate and individual tax rates. That would take away an important vehicle for making college more affordable at a time when the cost of higher education is one of the most pressing concerns facing Rhode Island families. As such, throughout the tax reform process, Rhode Island’s Congressional delegation must work to keep this important college-financing tool intact.
Federal loan options, such as the Federal Direct Subsidized and Unsubsidized Loans, are typically a student’s first option for college borrowing but they often fall short of fully covering the cost of a degree. Middle-income families, in particular, need support to help fill the gap.
Rhode Island is among 21 states with nonprofit and state-based student loan providers, many of whom use tax-exempt Qualified Student Loan Bonds to help families manage the cost of college in a way that is transparent, responsible, and based around students’ and families’ specific needs. Because of their tax-exempt status, these bonds, in many cases, allow the nonprofit lenders that use them to offer lower interest rates, lower or no origination fees, and lower monthly payments than what many commercial lenders provide. That helps families save money and students avoid onerous debt loads that they too often carry with them for years following graduation.
Rhode Island’s nonprofit, state-based loan provider, RISLA, offers Rhode Island families low-cost, fixed interest rate loans with interest rates ranging from 4.74 percent to 6.74 percent with no origination fees. Comparatively, the Federal PLUS Loan, often a fallback for families who have borrowing needs outside of the Federal Direct Subsidized and Unsubsidized Loans limits, has an interest rate of 7 percent with an origination fee of 4.276 percent. A parent borrowing $20,000 would save nearly $4,000 in finance charges over a ten-year repayment term by choosing to borrow with RISLA instead.
RISLA also offers a refinancing program that helps families make education debt more manageable by consolidating high-interest rate education loans into a single loan. RISLA offers fixed-rate refinancing loans as low as 3.74 percent with no fees.
Low-cost loans are only one way that the nation’s nonprofit and state-based loan providers help make college accessible. These organizations also offer families and students with college planning assistance, financial aid guidance, and financial literacy coaching – free of cost – as part of their mission. That empowers families with the knowledge needed to make wise decisions about choosing colleges and paying for a higher education.
Nationally, non-profit student loan organizations collectively provided coaching and financial literacy programs for 2.5 million students and families, assisted 1 million students with college applications, and hosted more than 600,000 free programs for students and families on college planning and budgeting.
RISLA’s positive impact on Rhode Island families is extensive. Through its College Planning Center, over 6,500 people are helped each year through one-on-one college planning counseling. During the 2016-2017 academic year alone, RISLA and the College Planning Center hosted over 150 presentations in public high schools and organizations throughout Rhode Island.
Making college financing less daunting for families is especially critical in today’s economic landscape; a recent study from the Georgetown Center on Education and the Workforce reported that 99 percent of jobs added since the recession have gone to workers with at least some college education. Getting an education beyond high school is integral to landing a well-paying, 21st century job, and a college degree offers a strong pathway to opportunity.
To give Rhode Island students the best opportunity for success we have to ensure more families have the tools they need to succeed in higher education. Qualified Student Loan Bonds – and the nonprofit, state-based providers that utilize them – offer a proven way to fulfill that promise. As lawmakers approach the imminent task of revamping the tax code, they must ensure this critical tool is protected.
Robert Delaney is Executive Director of the Institute for Labor Studies and Research and chairs the RISLA board. Charles P. Kelley is executive director of RISLA where he has worked since 1991.