Erica Cardenas

Treasury report champions investment in higher education

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A new report recently released by the U.S. Department of Treasury, with the U.S. Department of Education, demonstrates the economic case for higher education as a source of both economic opportunity and mobility for the nation. 

As the President calls on Congress to keep interest rates low for the 7.4 million borrowers who are expected to take out subsidized federal students loans next year, these data confirm that higher education is critical for socioeconomic advancement. In fact, interest rates on new subsidized loans were set to increase from 3.4 percent to 6.8 percent on July 1. However, just a few days before the deadline, Congress voted to extend the 3.4 percent interest rate for another year.

As state budgets have repeatedly come under stress, state support for higher education has declined as a share of funding for public higher education, increasingly pushing students and their families to depend on affordable loans and education grants through federal financial aid. 

The report states that the economic returns from higher education are large, and have increased dramatically in recent decades. Some key findings demonstrate that:

  • There is substantial evidence that education raises earnings. The median weekly earnings for a full-time bachelor’s degree holder in 2011 was 64 percent higher than those for a high school graduate ($1,053 compared to $638.)  
  • Higher education is important for intergenerational mobility. Without a degree, children born to parents in the bottom income quintile have a 45 percent chance of remaining there as adults. With a degree, they have less than a 20 percent chance of staying in the bottom quintile of the income distribution.
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Additionally, the report notes that state and local funding for public four-year institutions of higher education has declined from almost 60 percent of their revenue in the late 1980s to slightly below 40 percent in recent years. And, because of this declining support from state governments, public institutions have increasingly relied more on tuition as a source of funding. 

Recently, President Obama challenged governors across the nation to do their part to help educate our nation’s students. 

As for covering the costs of higher education, federal aid represents 55 percent of all financial aid to undergraduates at two- and four-year institutions. 

Pell Grants help to make college more affordable for students who come from middle-class and working families, while the Stafford Program provides loans to enrolled students and their families to ensure that access to higher education is within reach.  

Some key data indicate that:

  • Pell Grants provide eligible undergraduate students with funds for higher education. The Obama administration has increased the maximum Pell Grant by over $900 and provided support to over 3 million additional students.
  • Stafford loans are part of the federal student loan program for undergraduate and graduate students. Forty-four percent of all Stafford loans are subsidized, meaning that students do not pay interest while in school; for unsubsidized loans, the student is responsible for paying interest while still enrolled.

The full report can be accessed via the U.S. Department of the Treasury’s website at treasury.gov

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