NC Budget and Tax Center

NC’s flawed tax schemes fail to address state’s growing student debt crisis

North Carolina’s legislative leaders are pursuing a deeply flawed tax refund plan while leaving some of our state’s most important resources underfunded. Rather than investing the more than $600 million in things like school construction, hurricane rebuilding, or building healthier communities, legislators plan to issue checks of $125 per taxpayer. What’s worse is that those who would most benefit from an infusion of cash are likely to be left out. Nearly one-third of tax payers with the lowest incomes will not receive a refund check.

In addition to this bad idea, state leaders—in the middle of a self-imposed budget stalemate—are looking to piecemeal funding bills as a way to avoid coming to the table and creating a comprehensive budget that funds out state’s needs.

While our leaders continue to debate, very real needs continue to go un- and underfunded. Recommitting to a higher education system that is both high quality and affordable is just one of the many ways state leaders could better spend our money.

A recent report from the Center for Responsible Lending found that over 1.2 million North Carolinians hold $44 billion in student loan debt. Throughout the past decade, North Carolina has seen the second largest increase in student debt across the nation.

The student debt crisis is not only bad for individuals; it is bad for our state’s economy. The financial burden caused by this increase in debt forces would-be homeowners to forgo purchasing a house, delays would-be entrepreneurs from starting a business, and robs people of the freedom to make choices and decisions that contribute to a thriving economy.

The increase in student borrowing is not naturally occurring, but the result of policy choices. From 2008 to 2018, public funding for the University of North Carolina System decreased by 18.6 percent, after adjusting for inflation. Universities responded by increasing pressure on students to fill budget shortfalls. During the same 10-year period, tuition at North Carolina’s public universities increased by $2,293 or 45 percent.

Additionally, while student debt has increased among all borrowers, some people have been disproportionately impacted.

  • Due to existing racial wealth gaps, Black North Carolinians are borrowing at a rate higher than whites. Across the state, communities of color hold higher amounts of debt than predominantly white communities.
  • Because rural communities continue to see higher levels of unemployment and lower wages, loan default rates in rural communities are much higher than the rest of the state.
  • Although women make up 59 percent of the student body at universities in the state, they account for 68 percent of students that borrow more than $26,500 for an undergraduate degree. When women graduate with an average of $2,700 more in debt than men and face a labor market where they earn 26 percent less, they are more likely to default on loans and take longer to repay. Women of color often face even greater challenges than white women.
  • Older Americans are one of the fasted growing grounds of student loan borrowers. Eighteen percent of adults over 60 are delinquent on loans, due to either being forced to go back to school to stay in the labor force, or serving as co-signers for their children or grandchildren.

For-profit colleges serve as another driving force in North Carolina’s student debt crisis. These colleges require students to take out higher levels of loans while offering significantly lower graduation rates. In North Carolina, only 17.7 percent of students at for-profit universities graduated within six years while 75 percent took out loans. Within five years, more than 1 in 4 students default on their loans. These universities have come under fire for targeting students and communities with low incomes, using the promise of higher education to turn a profit for stakeholders.

Although the outlook may seem grim, the Center for Responsible Lending report outlines multiple steps the state can take, such as fully investing in higher education and protecting students from the predatory practices of for-profits.

Education is a public good and for a long time, our higher education system has been a point of pride for North Carolinians. It’s time to restore our commitment to ensuring that our students have access to an educational system that values them and helps them to succeed.

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