Editorial: New state loan program for college students misses the real crisis
The loans, funded by the state, are aimed at kids in school who are tapped out on financial aid and don't have parents or others who can provide backing for a loan. Without access to private credit, these kids risk having to drop out of school, being already indebted but without the degree to get the kind of job needed to pay off their loans.
So Frerichs' product is designed to be a cheaper — and safer — alternative for Illinois college students in this kind of situation than trying to find a private lender on their own. Fair enough. This alternative may be helpful for some students.
The option is the latest in a program Frerichs launched two years ago to tap taxpayer money he manages as treasurer for loans to Illinoisans to attend schools in-state, whether private or public. The treasurer's office tells us they collaborate with outside lenders, who underwrite the loans and take all the risk of defaults with no cost to the state. They pay an interest rate, currently 3%, to the treasurer's office, providing a fixed return to the state just below the state's typical return on its bond and fixed-income securities.
For the no-cosigner loan, Frerichs' office is partnering with Funding U, a for-profit fintech company based in Atlanta. Interest rates range from 7.99% to 9.49% (hefty numbers but not inordinately high at the moment, unfortunately).
If students default, our understanding is that Funding U manages the collection process and, potentially, takes the loss. But this is still a state-sanctioned program and, if only for the sake of optics and trust, Frerichs' office must guarantee that students are not becoming saddled with (or pressured into) loans of a size they cannot possibly pay back. The state has a moral obligation to do so, given that borrowers will see the treasurer's name on this program. Student interests have to be protected, as do taxpayers.
Which brings us to the problem of high tuition costs, especially here in Illinois. The state has tried to address this by providing free tuition at the University of Illinois Urbana-Champaign for families at a certain income threshold. Starting next fall, free tuition will be available to households earning $75,000 or less.
We've written before about out-of-control college costs. Frerichs' new program isn't a solution to unaffordability. It's a symptom thereof.
In Illinois in particular, college is becoming unaffordable for too many kids who'd like to pursue degrees, and cost is driving our young people out of state. Nearly half of the Illinois high school graduates who go on to college are pursuing degrees out of state, according to research from the Illinois Board of Higher Education. Their top six destinations are all in the Midwest: Indiana, Wisconsin, Iowa, Missouri, Michigan and Ohio.
By comparison, IBHE notes that in 2002, just 29% of four-year, college-going high school graduates enrolled outside of Illinois.
Every student who chooses Indiana, Wisconsin or Missouri over Illinois represents not just a lost tuition dollar, but often a long-term economic loss. Many students stay where they study, taking their talents, energy and tax contributions elsewhere. In the long run, Illinois' refusal to address college affordability is helping to export its future workforce.
A lot of other people are trying to fix the problem, including Gov. JB Pritzker who championed legislation allowing community colleges to offer four-year degrees. That innovation has stalled, leaving students fewer affordable choices.
As we've said before, increasing the supply of high-quality, four-year degree options is good for everyone except the existing four-year public universities, which is no insignificant caveat.
Still, we like options. More choices for students means schools have to compete for applicants. Competition means providing good programming and keeping costs low for would-be attendees. But the governor's legislation didn't advance.
At private schools such as Northwestern University and the University of Chicago, tuition can be as much as the down payment on a home.
Illinois' flagship public university — Illinois at Urbana Champaign — is inordinately expensive for Illinoisans themselves, particularly compared with the in-state charges for other Big Ten schools.
In-state tuition at the University of Wisconsin in Madison last year was just $10,006. At Champaign-Urbana, tuition ranged from $18,046 to $23,426 depending on what degree program a student pursued. In-state tuition at Illinois' flagship university is four times what it was in 2000.
When you factor in housing and food costs, plus books, supplies and other expenses, the total cost is over $40,000 a year. For an in-state student.
All of this often leads to students graduating with tens of thousands in debt. Now imagine one of those students took out loans and majored in communications. The average salary for a class of 2025 communications major is $60,353, according to the National Association of Colleges and Employers. When you factor in rent, car payments, utilities, food and other basic living expenses, you can see how that money doesn't go especially far in a city such as Chicago.
It's no wonder many young people are starting to question the value of a college degree.
Another loan program provides greater access to college financing, but it isn't going to do anything to tackle the high — and growing — cost of attending college in Illinois. And these high costs are leading to a new generation of students saddled with decades of high-interest debt.
So more financing options are fine. But we need state leaders to focus on making public colleges truly affordable — not forcing vulnerable young people deeper into debt.
Submit a letter, of no more than 400 words, to the editor here or email letters@chicagotribune.com.
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