At the end of 2016 the total outstanding national student loan debt exceeded $1.4 trillion, and that debt grows by $2726.27 every second according to MarketWatch by StartClass. There are 43 million borrowers with an average debt of $37, 172. These startling statistics lead people to ask why the debt has reached this mass, how students are coping with the costs now and in the future, and what aids for relief are available.
Higher education is highly valued by many students and their parents with good reason. Bob Broshous, Dean of Admission at the University of Dubuque, says that a college graduate will most likely earn $1,000,000 more in a lifetime than someone without a degree (personal communication, February 7, 2016). There are many more opportunities for employment with a college degree, and many professions require a degree for jobs that don’t always actually use that education. Job satisfaction is higher for college graduates, and there are often more benefits in the kinds of jobs requiring a degree. Also, the skills learned in college help graduates to make better choices and communicate more effectively, as well as think analytically. Therefore, for many the value of higher education supersedes the difficulty of paying for that education.
Admissions counselors prepare students for the reality that each year of their college experience will bring higher costs and fees. The University of Dubuque, a private university in Dubuque, Iowa, points to inflation as a key factor in that rise. Inflation for consumers is around 2% per year, but inflation for higher education runs somewhat higher, up to 6% (Clark, 2016). Additionally, some public universities are mandated by state legislatures to keep tuition costs level, but that often means that fees increase more than tuition. There are fees for athletics, building maintenance, libraries, graduation, and supplemental costs for certain courses. These can amount to thousands of dollars per year at some schools, but many colleges are rolling fees into tuition or bundling various fees to help prepare students to plan more accurately for their funding needs.
One of the most prominent reasons public universities give for higher costs is the loss of state funding. State legislatures have cut education funding in favor of other increased mandatory budget items like Medicaid. At the same time that funding has decreased, spending has increased. For example, there is competition for new students, so some institutions are building new buildings, ramping up student services, and spending more on athletics to attract new students. The demand for higher education has increased, which also brings higher costs.
Another reason for higher costs for many colleges and universities is an increase in non-teaching staff. For example, increased student services call for added staff. Technology adds staffing needs, as well as equipment needs. The number of people in administration has also risen as have competitive salaries for the highest administrative positions.
There are other factors that have affected the cost of an education. The 2007 recession hurt everyone, and colleges and universities were hit hard. For some it meant less income from their endowment, and for others it meant using endowment to survive. Replacing lost endowment is still a high priority as is increasing endowment to better secure the future. Another factor is the use of in-house scholarships which can mean that their cost is passed on to other students. Also, particularly true for larger schools is the problem of class availability. Because of enrollment limits, some students are finding it hard to complete their education in four years. An additional year or more is costly. This is less true in smaller schools such as the University of Dubuque. There are other costs that college students have to bear such as room and board and book costs, which have risen dramatically over the years.
Rising costs affect students while they are in school as well as after they graduate. Many full-time students are working at jobs outside of the classroom, some being nearly full-time. Hunger is a real problem for many students who often turn to food banks for some of their needs. Students and graduates often live with their families to save on expenses, and that is a way that families who might not be able to financially support their students otherwise can help. Some students decide to pursue a two-year degree to manage their debt load, while others drop out because they can’t pay, though many colleges have staff to work with them on finding ways to support their education.
Effects on the futures of graduates are far-reaching. For many the dream of home ownership is put off because saving for a down payment is not possible while paying off loans. Getting married and starting a family are often postponed, and sometimes with long-term repayment schedules of 20-25 years, parents are still paying off college debts when their own children are ready to enter college. Entrepreneurship is also delayed, as is saving for retirement. Some students choose jobs (as well as majors in college) by the amount of income the jobs will provide leaving lower paying jobs unfilled. There are a number of graduates who default on their loans, which affects the economy. The risk to their credit rating is significant, and the government has the power to sue, and garnish wages, tax refunds, and federal benefits.
Is there any good or hopeful news that graduates can look toward? Legislation to bring relief to students and graduates is being discussed on both state and national levels. Several of the candidates in the recent election proposed free higher education. President Trump has proposed a 12.5% cap of earnings on repayment programs with a maximum loan term of 15 years; after that period, any remaining debt would be forgiven. Another connected piece of legislation under consideration is the elimination of forgiven loans as taxable income. The Student Loan Fair Prepayment Act would make it easier to pay off loans or make extra payments by directing extra payments toward outstanding fees first and then applying the remainder toward reduction of the loan principal. Some graduates with older high-interest federal loans have trouble refinancing those loans. New legislation would make it possible to refinance such loans at lower current rates instead of having to go to private lenders.
There are other programs in place that offer assistance. One of these is the Public Service Loan Forgiveness Program. This program forgives loans for people who are in certain service jobs. Maryland has a SmartBuy program with funds set aside that help students purchase homes by putting 15% of the purchase towards the repayment of student loans. In New York resident families who earn less than $125,000 have free tuition at public colleges, and there are other schools and states that are following suit.
On a hopeful note for borrowers are several programs that assist employees and families. According to USA Today, a few companies, such as Staples and Hewlett Packard, are adding the benefit of helping employees pay down their student loans. In addition, there are savings plans that give advantages to families saving for their children’s education. One of these is the 529 College Savings Plan which allows parents or grandparents to make contributions to an investment plan for college education for a designated student. The plans vary from state to state, and investments can be made in other states where performance and fees are better. The contributions may be tax deductible as are the earnings. The Coverdell Education Savings Accounts are similar to 529 accounts except that they allow money to be spent for elementary and high school expenses. Also, there are education deductions that some families or independent students can take that will lower taxes.
Having a college education is a valued commodity for many people, but rising costs for higher education have made it difficult to obtain without incurring serious debt. There are numerous reasons why the costs have risen sharply: inflation/recession, loss of state funding, competition for new students, and increased numbers of students/staff. This has had a staggering effect on students while they are in school and after graduation. However, there are programs designed to assist graduates, and new legislation being considered holds promise for even more help. It requires a whole different kind of education for parents and students to navigate the road toward achieving the dream of a college education.
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