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American Colleges in Debt Crisis
The explosion of student debt in the last decade is a pernicious trend that the colleges themselves are encouraging.
Kenyon has erected a $70 million sports palace featuring a 20-lane Olympic pool, writes Andrew Hacker and Claudia Dreifus at the Atlantic.com. Stanford’s professors now get paid sabbaticals every fourth year, handing them $115,000 for not teaching. Vanderbilt pays its president $2.4 million.
Alumni gifts and endowment earnings help with the costs. But a major source is tuition payments, which at private schools are breaking the $40,000 barrier, more than many families earn. Sadly, there’s more to the story. Most students have to take out loans to remit what colleges demand. At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors, writes Hacker and Dreifus.
“Borrowing is as much to finance living away from home as for bursars’ bills. Books, travel, and socializing quickly add up. Room and board charges have doubled in actual dollars since 1982 to enhance campus life. Bowdoin’s menu features vegetable polenta and butternut soup, while Penn State provides legal downloads of music numbering two million songs a week.”
But let’s be clear, writes Hacker and Dreifus, it’s not the colleges which are paying for these and similar amenities. It’s the students, mainly by borrowing, which the colleges actively encourage.
One reason why more students are borrowing is that few parents pay all or even most of college costs, a trend underway well before the recession. Last year, a typical family with college-age children spent $3,102 on dining out, but only $2,055 on education. Only half of entering freshmen say their parents had put anything aside; and of those who did, half had banked less than $20,000, writes Hacker and Dreifus.
In 2009, 67 percent of graduates had debt, averaging $24,000 per student, up 6 percent from the previous year, according to the non-profit Project on Student Debt. The numbers are even higher at private institutions, writes Scott Cohn at cnbc.com.
Americans now owe more on their student loans than they do on their credit cards—a first, according to FinAid.org, which has created what it calls the Student Loan Debt Clock. The organization figures America’s student loan debt is growing at a rate of $2,853.88 per second. At this pace, it will surpass $1 trillion in 2012. And there is no sign of the pace letting up. On the contrary, Cohn writes.
“The need to borrow has grown for all types of students at all types of schools,” says Lauren Asher, director of the Project on Student Debt.
“And the amount that students are borrowing is driven by the share of cost that students and families are expected to cover after aid.”
But Asher says college costs are rising faster than family incomes and faster than grants and scholarships. A lot faster.
The cost of a college education is increasing two to three times the overall rate of inflation, according to the U.S. Bureau of Labor Statistics. College costs are even rising faster than the cost of medical care.
“Frankly, one of the big drivers is state budgets,” says Asher. With state finances under pressure, public universities are relying more heavily on their students, raising tuition and recruiting more out-of-state students who pay higher rates.
Add to that a growing system of for-profit colleges and universities, many of which cater to lower income learners, and the demand for borrowed funds is being stretched to the limit. And with the worst job market for graduates in a generation, some worry the whole system could go over the edge, writes Cohn.
However, it’s possible to get a fine bachelor’s degree at a reasonable cost and without going into debt, writes Hacker and Dreifus.
“But students and their parents will have to stop thinking that name-brand prestige assures academic quality. The reverse is often true: professors who are rewarded for research are less likely to spend time with undergraduates. One offshoot of the PhD glut is that excellent teachers have taken positions at two-year colleges and regional branches of public systems.”
There are other siren songs out there. A school’s financial aid adviser isn’t always a freshman’s best friend. While seldom openly stated, their job is to supply the college with as many paying freshmen as possible. Budgets even at schools like Brown and Duke will only balance if over half of their students foot the full bill. Few colleges offer actual cash assistance – at best, like car dealers, they dangle discounts – so they steer less affluent students to loans. So-called aid officers do this for one reason: the money you borrow goes into the college’s coffers. Paying it later will be your problem.