(2018-07-13) Affordability Benchmark For Higher Education

Affordability Benchmark for Higher Education

What’s missing from the conversation is a clear and common understanding of what “affordable” means to students and families. To address that gap and reset the conversation around college affordability, Lumina Foundation today released the Affordability Benchmark for Higher Education—a framework that clearly defines college affordability in terms of what families and students can and should pay.

The Rule of 10

The Affordability Benchmark assumes families and students pay for college across three dimensions—family savings as a percent of income and for a set number of years, and students’ work while in school. For college to be affordable, students and families must be able to cover its cost across all three dimensions. The Affordability Benchmark proposes that contributions from each source be capped as follows:

• Families save 10 percent of their discretionary income;
• Saving over 10 years; and
• Students work 10 hours per week while attending college.

10 hour a week contribution from students’ work, which amounts to about $3,625 per year, would be feasible. A family making an average of $100,000 might be able to contribute $51,500 based on saving 10 percent of income over 10 years.

What Is Discretionary Income and How to Calculate It | Student Loan Hero

When it comes to federal student loans and IDR plans, discretionary income works a little differently. Rather than looking at your individual expenses, the U.S. Department of Education considers your discretionary income to be your gross — after tax — income minus the poverty guidelines for your family size

Each plan differs slightly, but for most IDR plans, your loan servicer will set your discretionary income as the difference between your income and 150 percent of the poverty guideline.