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State lawmakers consider changes to college loan program plagued by defaults
When Emily Bressler was in her sophomore year at Armstrong State University in Savannah, she faced a problem familiar to many college students: A new semester was coming up, and she did not have the tuition money.
“I had federal loans, but I didn’t have enough to be able to pay for the remaining semester, and I didn’t qualify for Pell — my parents made too much — and I was putting myself through school,” she said. “I didn’t want to get private loans, just because I’ve always heard the stories of how interest rates are, like, exponentially high.”
Her advisor suggested she look into applying for a Student Access Loan, a state program with low interest rates and an opportunity for loan forgiveness for people who work in public service, and she thought it sounded like just what she needed.
“When he told me the interest rate was 1%, I thought, 'This is great. Hopefully I’ll be able to get it,'” she said. “Honestly, I wish I hadn’t gotten it, because the SAL loan was the worst possible decision. I had nothing but issues with it from the very beginning.”
Georgia’s Student Access Loan program was established in 2012 as a last resort for students like Bressler who had exhausted their other options. In the last school year, it helped about 5,600 students with nearly $28 million in loans across 78 institutions at public, private and technical schools.
But a recent report from the state auditor found major challenges with the program, including a default rate of about 31% after three years, compared with 10% for federal borrowers. The auditor’s office recommended the Legislature take action to solve the problems 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 Emily Denis, a senior management analyst with the Georgia Department of Audits and Accounts.
Georgia’s approach to needs-based scholarships is unique, Denis said. It’s one of only seven states that provides loans to undergraduate students, while most states provide needs-based funding through grants and scholarships. Georgia’s needs-based scholarship, REACH, receives about $5 million in state funds compared with $26 million for the loan program.
“Through HOPE and Zell programs, Georgia awards more grant dollars per undergraduate student than any other state," she said. "However, compared to other Southeastern states, it devotes a smaller proportion of state assistance to need-based aid. So we devote about 4% of our state funds to need-based aid versus other contiguous states, they give at least 17%.”
About 75% of SAL borrowers also qualify for a Pell grant, indicating financial need. The audit found that students who qualify for a Pell grant and are not financially supported by their families are at the most risk of default at 45%, followed by Pell recipients who do receive family support at 40%. Students who do not qualify 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 scholarships were also less likely to default.
“The nature of a need-based loan program requires GSFA to identify people who need assistance in the short term but are also able to repay the loan in the long term,” Denis said. “These characteristics often don’t intersect.”
Bressler graduated with a degree in health science and went on to earn her master’s degree, but she said it seemed like something was always going wrong with her loan payments.
Three years after getting her degree, she found out that because she had not filled out the correct paperwork, her interest rate had gone up to 8%.
She took a job at a homeless shelter while in grad school because she said a Georgia finance official told her it would qualify her for loan forgiveness, but the next year, the agency denied her application because it was not a state-run homeless shelter. She said she was regularly charged late fees by her bank when two months’ worth of payments would be deducted in one month, apparently for no reason.
“I was in grad school and I was working at a homeless shelter, so making hardly anything,” she said. “I’m using 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 that specifically.”
Bressler said she has since consolidated her loans with a private company offering a lower interest than the 8% she was paying to the state.
Among the auditors’ other recommendations are reassessing the program’s interest rate, considering a lowering of the monthly payment amount and potentially expanding and clarifying the jobs that can qualify for forgiveness.
Another option would be to simply convert the program into a needs-based scholarship and forgive the currently outstanding debt, said Jennifer Lee, senior policy analyst at the Georgia Budget and Policy Institute.
That would help more students, remove the administrative costs of dealing with delinquent payments and benefit the state as a whole, she said.
“If the last economic recovery is a guide, the vast majority of new jobs will go to those with some college education,” Lee wrote in a report. “Evidence also suggests that student loan debts hurt economic activity like homeownership and small business formation. The state’s economy and workforce will be stronger if more hardworking Georgians complete their degrees and credentials without excessive debt burden that drags down the economy. We can leverage all of Georgia’s talent by knocking down small financial barriers to student success.”
No vote was scheduled at Wednesday’s meeting, but committee chair state Rep. Chuck Martin, a Republican from Alpharetta, said changes are coming.
“This was intended to be a beginning of a conversation, not at all an ending,” he said. “I know many times we go to national conventions and you hear something and you kind of get all worked up about it and then nothing happens. This is not what we intend to do here. We intend to look for a solution.”
This story comes to GPB through a reporting partnership with Georgia Recorder.