By Watson Scott Swail, President & CEO, Educational Policy Institute/EPI International
This week, President Obama unveiled new programs to alleviate the debt burden on college and university students. The first program allows students to consolidate all their college loans into one, US Department of Education Direct Loan. Although the Department is the only originator of student loans in the US since 2010, there are still millions of loans that are owned and serviced by private banks from the FFEL (pre-July 1 2010) days. Obama is offering students a chance to bring them all together under the federal government, saving taxpayers money and also reducing the complexity of student loans for students. As an incentive, the loan interest rate will be reduced by up to half a percent.
Second, Obama is proposing lowering the percentage of discretionary income required of borrowers from 15 percent to 10 percent for graduates enrolled in an income-contingent repayment program. Thus, graduates with student loans only would have to pay up to 10 percent of their discretionary earnings toward their loans. After 25 years, if the student still has loan debt, it will be forgiven by the federal government.
Both of these are positive policy moves. The first allows for greater savings in the student loan industry, and the second provides a better option for students with high debt in low-earning jobs.
However, none of these policies change the affordability game. Student loans are a necessary evil for college-going students, and data continue to suggest that taking a loan and going to college is the best option for student’s career and social growth. But tinkering with the loan rates and repayment options does not change the long-term problems associated with college costs.
There are many critics who suggest that it is important to provide low-interest rates with zero interest payments while in school to make loans and college going more affordable for students. I don’t disagree that this is important. But all of this is going on without thought of the elephant in the room: the cost of tuition, fees, and room and board at America’s colleges and universities. While we continue to fight over interest rates, Direct and FFEL loans (well, that fight is over…), and repayment, consolidation, and default options, the cost of college continues to increase at 7-8 percent per year.
This week, The College Board released their annual Trends series on Student Aid and College Prices. Tuition and fee prices for 2011-12 rose 8.3 percent from the previous year, or 6.0 when adjusted for inflation. Over the past decade, annual tuition increases were 5.6 percent BEYOND THE RATE OF INFLATION. By the way, 10-year annual rate for private, non-for-profit institutions was only 2.6 percent (inflation adjusted).
This elephant is standing right in front of us, ladies and gentlemen. The average tuition, fees, and room and board at a public four-year institution in 2011-12 is $17,131 (in-state), up 6.0 percent above inflation from 2010-11. The total charge for out-of-state students is $29,657.
If a student who started college this year completes his or her degree in four-years (a big if, unfortunately), they, and/or their parents, will pay $74,942 in today’s dollar. And that’s the average, meaning that 50 percent of students will pay more; 50 percent less. That is still a lot of money, no matter how anyone cuts it.
We can argue whether it is too much or not enough (but I would love to have that argument!). However, the issue is that it is definitely getting too high by any means or imagination. By the fall of 2021, the inflation-adjusted annual cost of attendance at a public four-year institution will be over $32,000 (yes, that would be in today’s dollars!), and two years later will have doubled from today’s cost (2023-24: $34,470).
Sit back and imagine right now. This isn’t about you. This is about your son or daughter who, for arguments sake, just had a child this fall. If everything goes to plan, little Britney (sorry that your kid named their child that; take it out of their inheritance) will enter a four-year public institution at 18 years of age in fall 2029. Her annual cost of attendance will be $48,898 a year. Let’s be clear: that is in today’s dollars. By her fourth year, the annual burden will be $58,238. In total, if she is prudent, works hard, and doesn’t drop a slew of classes, the total, four-year cost of attendance will be $201,801, at a public institution of higher education.
Then consider this. Your son or daughter, of course, has done well enough that they do not qualify for federal grants, and certainly not zero-interest loans. And scholarships? Good luck. Britney is smart, but there are a lot of smart and talented people out there. She’s a middler.
But incomes are not increasing. There is an increase by age, of course, but incomes continue to stagnant and even decrease in some fields. Let’s really hope your child isn’t unemployed, because then it may come back to you, Grandpa or Grandma. Watch those retirement savings now…
Think $50,000/year now. In today’s dollars. That’s the elephant in front of us. It’s comfortable sitting in your living room. And it has no plans to go anywhere. None. Because no one is tacking this issue of rising college costs.
The President’s efforts this week are laudable. But they tinker. We need a sea change in how we think of higher education, dear readers. The current system is broken. It just doesn’t compute anymore. Cost of attendance of $75,000 or $200,000 isn’t play money anymore. That’s a lot of coin to send your kid to campus for beer bashes. Yes, it is personal growth, but the cost is so darn high now.
Well, enjoy your weekend. You and your pet elephant.