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Closing the inequality gap in college savings

MoneyWatch headlines
MoneyWatch headlines 01:09

When Bernie Sanders recently agreed to endorse Hillary Clinton for president, a question popped into my mind: Would Clinton be directly linking college debt to income inequality?

She has embraced a Sanders-inspired plan to cover the cost of college tuition at four-year state schools for families making under $125,000 a year. Although the plan won't cover room and board and doesn't address the underlying high cost of college or poor graduation rates, it's a step in the right direction.

Yet the country need a national dialogue on how to guarantee a debt-free degree. No plan on the table -- whether it's from Clinton or Donald Trump -- completely addresses that objective. And no plan tackles the college savings gap facing the majority of American families.

New study: Student loans are making it harder... 02:14

That's a shame. The greatest factor in the college cost equation is that most families can't possibly save enough to cover higher education bills. Hence the situation where some 70 percent of those seeking a four-year degree must borrow, with an average debt at graduation around $30,000, according to the Institute for College Access and Success.

With the average four-year degree at an in-state public college costing nearly $100,000, according to the College Board, and almost $200,000 at a private institution, it's difficult for most middle-class families to come up with that kind of cash without borrowing. They still have their own living expenses, taxes, health care and retirement to fund.

Such a large cash outlay creates a widening gap between the haves and have nots in society. According to a recent report by Demos, a progressive think tank, mostly white, well-heeled families are more likely to be able to afford debt-free degrees while minority and low-income households have to borrow.

"At public institutions," said Demos report author Mark Huelsman, "81 percent of black students must borrow for a bachelor's degree compared to 63 percent of white students."

Even families with meager financial resources receiving need-based Pell Grants have to take out loans: "Those who receive Pell Grants are overwhelmingly more likely to borrow for a degree as well: 84 percent of Pell recipients who graduate must borrow compared to less than half (46 percent) of non-Pell recipients," Huelsman adds.

While many low-income students don't even bother to apply for college or drop out due to the high cost -- leaving them in debt but without a degree -- nothing has changed on the federal level to help these families. They either hope that they get generous aid packages or save aggressively. Still, they often come up short.

"College savings plans are a great way to build a foothold in the battle against college costs," Huelsman added in an email, "but the fact is that for most families contending with stagnant wages, high cost of child care and other pressures, it's difficult to meet the net price."

For the most part, aid that covers expenses with grants, scholarships, tuition discounts and work-study, has not kept up with the cost of college. Although many (mostly private) colleges have enhanced programs for need-based aid by eliminating loans, one key strategy for families battling college debt is to find which colleges are most generous with nonloan aid packages.

If you're vetting colleges now, start first with a comprehensive list of no-loan schools, which can be accessed through Universities on this list range from Amherst to Yale. Although many are highly selective -- you need superior grades and test scores to get in -- some are lesser known and more flexible such as Colorado State-Pueblo and University of Toledo.

The 10 best colleges for your money
The 10 best colleges for your money

Under these policies, families will still be required to make a contribution toward paying for college and may still need to borrow, although loan amounts may be capped. Your family would also need to qualify for Pell Grants or fall under an annual income threshold of $40,000 to $60,000

Another useful tool is the College Scorecard, which is operated by the U.S. Department of Education. When doing a search on this site, you'll want to know how much aid a school is likely to offer, the graduation rate and percentage of students receiving federal loans. A good benchmark is a graduation rate 90 percent or better and less than 30 percent of students taking out loans.

For example, Colby Collegein Waterville, Maine, which has less than 2,000 students, has a 91 percent graduation rate. Only 21 percent of its students have loans, and they make an average of $53,000 after graduation, according to College Scorecard. All of those numbers are above the national average.

Why is College Scorecard a key tool in closing the inequality gap? Although it doesn't guarantee that families will bypass borrowing altogether, it can help them identify schools that help students avoid debt. High graduation rates and post-graduate salaries are part of that formula.

Ultimately, the college inequality gap can be closed in two fundamental ways: Dramatically boost state and federal subsidies for public universities to assist middle- and low-income students, or help families target schools that are likely to offer nonloan aid packages.

No matter what emerges as the national agenda after the November election, the good news is that there's plenty of free information available that can help pare America's $1.2 trillion student debt burden. It should be a staple of every family's pre-college education.

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