Student loans: deduct interest, refinance, or stay near home?

Matt Pommer • Wisconsin Newspaper Association

The late H. Edwin Young, the University of Wisconsin-Madison chancellor who led the campus during the turbulent Vietnam War years, would quip there are unexpected “dangers” lurking in going to college.

It’s more than just your child’s tuition payment. Your son or daughter might just fall in love and get married to another student who also has a large tuition loan, explained Young, who later served as president of the University of Wisconsin System.

It was Young’s way of trying to focus attention on the students’ financial plight as tuition and collegiate living costs rose rapidly.

The problem continues to grow.

A national report showed that those who got a college degree in 2014 have an average studentloan indebtedness of nearly $29,000. Nationally, student-loan indebtedness is now put at $1.3 trillion. Unlike some other kinds of debt, bankruptcy won’t eliminate repaying the money.

The graduates’ debt load has become a major issue in Wisconsin’s state government. Republicans and Democrats are proposing different kinds of answers to the issue.

Republicans, led by Gov. Scott Walker, want to modify Wisconsin’s personal income tax laws to allow a total deduction for annual interest payments made on the outstanding student debt.

Fiscal experts put the cost to the state treasury at $5.2 million annually. Walker said those with annual incomes between $30,000 and $70,000 would be the major beneficiaries.

Among other items in the Republican approach is a $500,000 package for technical school grants, efforts to promote internships, and requiring colleges during the first semester of enrollment to provide full financial information about the overall costs to families.

Walker is asking for a program of emergency grants to help students complete their degree. It would provide $130,000 for the UW System and $300,000 for technical schools.

The focus on technical colleges reflects Republican efforts to help train a Wisconsin work force. The governor has said there are thousands of unfilled jobs in the state because of the lack of trained, qualified personnel for technical jobs.

Democrats are focusing on allowing the student borrowers to refi- nance their loans at lower interest rates. That would impact the lenders but not the state treasury.

State Sen. Dave Hansen, D-Green Bay, notes that three states including Minnesota are opting for the refinance approach to the issue. Hansen says 60 percent of those with outstanding student loans in Wisconsin are over the age of 30.

Minnesota officials suggest that a person with a $40,000 loan at 8 percent might save between $200 and $300 in monthly payments with refinancing.

Hansen suggests the savings in refinancing might push Wisconsin residents to move to Minnesota and worsen a “brain drain.”

Some solutions to the loan crisis are outside the role of government. Students can reduce the overall costs of a higher education if they take the first two years of school at one of the UW Colleges two-year campuses while living at home. They could then transfer to a four-year institution if they were to seek a bachelor’s degree.

But there is the backside of that approach – graduates actually returning to live with their parents, ostensibly while they work and pay off their student debt.

However, returning to the family nest isn’t new. It was widely used in the Great Depression of the 1930s by those who would become known as the “Greatest Generation” of Americans.

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