The college debt debate

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Our national debate about college debt, supercharged by President Biden’s intent to forgive substantial sums and change the repayment rules, is complicated by what “we know that just ain’t so” (a quote dubiously attributed to Mark Twain).

The federal student loan system does not work for everyone. Many have been caught in a spiral of repayment/deferment/forbearance/delinquency and, for some, default. Many have been victimized by predatory institutions that aggressively seek students’ loan proceeds but give little or nothing of value in return—nothing but a persistent, crippling debt obligation.

Knowledgeable observers assert that the system needs major surgery, not a butterfly bandage. A politically expedient salve is likely to delay thoughtful reform, allowing the underlying problem to grow in complexity and severity.

Some assumptions deserve scrutiny, however. Consider the following widely accepted beliefs:

■ “The cost of college has nearly tripled since 1980, even when adjusted for inflation” (New York Times, 9/12/22)

■ “An entire generation is now saddled with unsustainable debt in exchange for at attempt, at least, at a college degree.” (President Joe Biden, speech to the nation, 8/25/22) and “[the cost of college is] not a cost that the average American household can handle.” (same article: New York Times, 9/12/22)

■“An education is a ticket to a better life.” (same speech: President Joe Biden, speech to the nation, 8/25/22) also “Good jobs require a good education. That is why we are going to make public colleges and universities tuition free” (Senator Bernie Sanders, Bernie Sanders Official Website)

‘Net’ tuition v. ‘sticker price’

The posted price of college and university—the “sticker price,” to borrow from the auto business—has risen dramatically in recent decades. As reported by College Board, the average posted price of tuition and fees for 2021-22 was $38,070 at private four-year institutions and $10,710 at the publics, up from $25,200 and $5,390, respectively, in 2000-01 (2021 dollars).

Complicating the story, however, is the rapid rise in grants to students from the institutions themselves.

Daan Braveman

Daan Braveman, retired president of Nazareth College, has long been troubled by the temptation to raise the sticker price and grants offered to prospective students (effectively discounting the posted tuition).

“Net tuition has actually gone down for private schools. What students are paying in tuition and fees has steadily declined since 2006. College and universities increase the sticker and increase the discount,” he says.

U.S. Department of Education data show that net tuition fell slightly from about $15,200 in 2001-01 to $15,000 in 2020-21 (2021 dollars).

Why have nearly all college and universities played this game with tuition?

“There was this assumption that if you charge more, if your sticker price is higher, you must be better,” Braveman says.

A similar phenomenon has occurred in public higher education, although the increase in “sticker price” in public higher ed was steeper with posted tuition doubling, which compares to a 50 percent increase in private higher ed. This is also reflected in a very rapid increase in out-of-state tuition. Net tuition paid grew from about $2,500 in 2000-01 to nearly $2,900 (2021 dollars).

Cost of attendance has still risen over the period as room and board costs have increased by about one-fourth from 2006-07 to 2020-21. The “net cost of attendance” for private four-year schools rose from an average of $31,370 to $32,720 (again, adjusted for inflation). Students attending public four-year schools saw net cost of attendance rise to an average of $19,230 from $17,510.

Net price varies substantially by income (family and student income for “dependent” students and student income for independent students). The net price per year for full-time students with income under $30,000 exceeded $9,000 in public institutions and topped $20,000 in private schools (2019-20). The federal loan programs are a critical path to college attendance for students in the lowest income bracket.

Student loan debt varies considerably by race and ethnicity. The Education Data Initiative reports that Black college grads owe an average of $25,000 more than white college grads, $52,000. Eighty-six percent of Black bachelor’s degree recipients participated in the federal student loan programs v. 68 percent of White graduates and 44 percent of Asian grads.

American Indian and Alaska Natives are the most likely to have monthly payments greater than $350, with Black borrowers second.

We perceive that a college education has become more burdensome, despite the “net tuition” data discussed above. How come?

■ The steady increase in sticker price may have backfired for higher ed as nearly everyone holds an exaggerated belief about cost increases.

■ Braveman points out that technology has affected the cost of products and services differently. Manufactured goods have fallen in price while services, heavily dependent on labor, have not.

■ Stagnant wages for the young have made it more difficult to earn the funds needed to attend college.

■ State support for public education has fallen in many (but not all) states. Free tuition at the City University of New York or in the California state system, both of which ended in the mid-1970s, still live in memory, prompting calls for the revival of similar policies.

Is college worth the cost?

Even if net tuition has been stable or rising slowly, a college degree remains expensive. On a purely financial basis, it is not always worth the cost, particularly if you factor in the lost income and career development entailed by spending four years out of the workforce.

A disclaimer: Education is about more than simply getting a job. Many jobs that don’t pay well can still provide the foundation for a satisfying career. Moreover, a well-rounded education can expand horizons and improve an individual’s capacity to make well-founded life choices.

A nonprofit called Foundation for Research on Equal Opportunity has done the math for on the “return on investment” to college.

FREEOP ran the numbers and its report is worth reading. What did they find?

■ The median bachelor’s degree for on-time graduates earns a lifetime net ROI of $306,000.

■ Some degrees—think engineering—bring a substantially higher financial return.

■ Yet many degree choices cost more than they bring in earnings. Many students are better off financially by NOT going to college.

In 2013 the Brookings Institution explored this issue in a study titled, “Should Everyone Go to College?”  They came to a similar conclusion—“By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice.”

Oren Cass of the Manhattan Institute argues that our focus on college is simply unfair, a comment that has been echoed in the discussion of President Biden’s college debt plan. In an essay published in the New York Times in 2018, Cass asserts that “We spend too much money on college students and not enough on everyone else.”

“Federal funding for higher education has grown by 133 percent in the past 30 years . . . the annual total exceeds $150 billion.” Yet, says Cass, “Annual federal funding for a non-college, vocational pathway, at both the high school and postsecondary levels, totals $1 billion.”

While college graduates earn more than high school grads on average, well-paid high school grads earn more than poorly paid college grads, as Cass demonstrates with figures from the Bureau of Labor Statistics.

Is college debt ‘unsustainable’?

A recent New York Times article on the debt proposal opened by focusing on Nika Booth, a federal student loan borrower who owes over $130,000. By leading with this example, the reporter subtly implies that Ms. Booth is somehow typical.

She is not. In 2019-20, public college and university grads averaged $26,700 in debt; students graduating from private schools owed $33,600 (College Board). Students can assume substantially more debt in graduate school, however.

Over half of all current borrowers owe less than $20,000. Only 16 percent owe $60,000 or more but are responsible for 38 percent of the outstanding debt. And Ms. Booth’s level of indebtedness is shared by only 7 percent of borrowers.

College debt is not an unsustainable burden for most—the median salary for college graduates ages 25-34 is nearly $60,000, nearly $23,000 more than the median for individuals with only a high school diploma.

Most are capable of servicing a typical college loan.

Kent Gardner is Rochester Beacon opinion editor.


Should college be free?

A recent Rochester Beacon survey asked respondents to select their preferred student debt policy. The option receiving the strongest support endorsed a sliding scale of tuition support. Only 16 percent join Sen. Bernie Sanders in supporting free college for all.

Question 1: Should tuition and fees for a four-year college or university degree be taxpayer-supported? Select the policy that best matches your preference.

The survey elicited several comments. Many are repeated below. Some have been edited for length.

■ A blanket approach to student loan debt forgiveness is not in the national interest.  A case could be made for considering forgiveness for victims of deceptive and misleading institutions, but any resulting costs should not be borne by the taxpayer.

■ A college degree should be financially within the reach of every American. But I do not like the idea of taxpayers subsidizing private universities with huge endowments.  Restrict the tax credits to public universities and HBCUs. I am also concerned with the equity for those who choose not to attend college.

■ A four-year college degree has become essential in nearly all fields. Public colleges and universities should be accessible to all in the same way that k-12 education is.

■ Access to education could be assured by free community college, but loans or grants for additional education must be understood as a student’s responsibility, save for public policy considerations.

■ America is behind in key areas especially STEM, we need to encourage and make it easier for people to pursue these careers, including vocational trade schools so we can be competitive.

■ Better to ensure that everyone pays their fair share through taxes on the back end than by trying to means-test college tuition on the front end.

■ Capping the escalating cost of higher education should also be a priority.  These costs have risen at a much higher rate than overall inflation.

■ College costs are out of control. Any steps taken to help reduce the rise in college costs should be welcomed.

■ Community college education should be free for all Americans. For those pursuing BA/BS degrees taxpayer support should be graduated by income with forgivable loans equal to in-state public institution tuition available for those earning less than the median with the forgivable loans eligible for forgiveness after graduation and two years of employment.

■ Except for private schools. Public colleges and universities should be free.

■ Four reforms: academically warranted, means tested, and capped. An additional reform would be to allow student loan debt to be discharged in a bankruptcy. Those needing relief shouldn’t be bailed out without paying a personal price.

■ Free also for vocational training… college is not for everyone… the trades are just as important to our society.

■ I attended college without loans but I worked my tail off to do it and didn’t have the chance to do things like spring break and study abroad due to my work schedule. I went to school fulltime at a highly residential school, worked as an RA and had two additional paying jobs plus two summer paid jobs and an internship. It doesn’t seem fair that I sacrificed for that and now have to pay for others.

■ I don’t believe everyone should go to college but those that want to should have the opportunity. I also believe that any college assistance should be also available to education in a trade.

■ I don’t think taxpayer support should apply to all institutions attended.

■ I got an excellent education at UCLA including a Masters degree and only had to pay $38.44 per month for 10 years to pay off my student loans. I also worked a number of part-time jobs continuously while in school. My education enabled me to “follow my nose” in my career, make some highly nontraditional choices with my life, knowing my strong core skills meant I would never have to worry about finding good work and being financially solid.  It pains me deeply that so many young people who are willing to work hard do not come out of school, including college, with the same freedom from significant debt and ability to follow their hearts in their work.

■ In a perfect world, 2 or 4-year college tuition and fees should be free for all Americans. It’s been pretty clear for decades that a college degree is the new high school degree, and that’s always been free. This is about education in the form of citizenship, not just simple acquired knowledge. Given this is not a perfect world, Biden’s proposal is a practical solution for a very broken system. Also, remember that the individual states have greatly decreased their funding of state universities over the last few decades. This could be considered a replacement of that.

■ It is simple, when you borrow money you pay it back. What is next, forgiveness of all auto loans?

■ My 4 siblings and I never asked for any bailouts. We all paid for our college tuition by working.  Students can apply for grants given by the school and other private organizations.

■ Taxpayer support be available at public universities only, private school tuition should not be subsidized.

■ The entire higher education system funding model is broken — students and their parents are fed “aid packages” that include loans that they should never be given, which subsidizes the beautiful campuses and other amenities. The problem is NOT just federal loans — it is the many private loans offered that are not well controlled.

■ We have a military budget closing in on $1 TRILLION a year ($801B in 2021) to build things that pretty much never get used. And I know because I worked for a huge defense company for 30 years. We can’t spend some of this ridiculous amount of money investing in the education of the next generation of Americans? Are you kidding me?

■ How does this address the poor graduation rate in our K-12 journey? When you don’t get a high school diploma, it doesn’t matter if it’s free, they cannot even apply. We are addressing education for those who have been able to attend. We need to address the education crisis for where it is, we need to educate those who are left behind.

Question 2: Currently, borrowers choosing income-driven repayment are assessed 10% of discretional income annually, with the remaining debt forgiven after 20 years. The new plan cuts the annual payment to 5% with the balance forgiven after 10 years. Select the response that best fits your opinion of the policy change.

Again, respondents left many thoughtful comments, some of which follow.

■ Those young folks with soul-crushing student debt need help.

I do not endorse reward of bad choices. I do support forgiveness related to specific public service jobs, and medical based forgiveness plans

■ I think the new policy is a good step, but it’s like putting a band-aid on a gaping wound. It also creates some very concerning incentives for colleges to raise their tuition prices to immense levels, then encourage their students to borrow as much as possible (since it will all be forgiven in 10 years, regardless of whether you borrow $50,000 or $500,000). This process has already played out in law school tuition and, absent a government-imposed price cap, I suspect it will be seen in undergrad tuition soon as well.

■ Restructuring repayments, and increasing employment opportunities for recent grads is a far superior solution. Give a man a fish vs get him a job so he can feed himself for life.

■ Students can work, apply for grants and borrow money which is to be paid back.  Also probably 50 percent of students attending college should be studying a trade in high school. Then they can go to work! Many end up working in a job that does not require college.

■ This policy will liberate energy and entrepreneurs that our country badly needs.

■ We have all had to earn our way. Future generations need to understand the value of their education and the cost of that education. Forgiveness of debt does not teach this.

Respondents left additional insights in the section reserved for “open ended comments”. A representative list follows.

■ A look at our current vacancy for qualified workers indicates the need for dramatic enhancements for producing the ever changing educational needs for technical jobs. The country benefited greatly with the advent of the GI bill, and now we need another enhancement to help the employment numbers.

■ By not providing a college education to academically qualified young people, the United States is putting itself at an economic and military disadvantage against countries that cover the cost of university education. It is short-sighted for the United States to base the quality of its workforce on the income level of 18-year-olds.

■ No easy answers for the questions about the cost of education. I’d read articles that spoke to endowments and how that money is used. I do believe colleges need to pay good wages, provide health care plans for staff and provide state of the art facilities. I do wonder about the costs of sports facilities and the balance between academia and that

■ Student loan debt forgiveness may be good politics, but it is not good policy. The measure does nothing to change the root causes of excessive student loan debt in the long term nor does it help reduce inflation in the short term.

■ The issue that is not addressed in the survey is that the Federal loan program does not vet “for profit” schools, many of which issue worthless degrees and/or go out of business, leaving the students with significant debt to repay. (ED: The issue with for profit schools is complicated and deserves separate treatment.)

■ The program would never make any list of “good ways to help Americans particularly the neediest.” It is regressive, it does not alter the underlying problem, has little accountability for the schools or recipients, creates massively perverse incentives to further increase tuition without an expectation that the marginal cost of attendance for students will change, and is yet another policy enacted recklessly, demonstrating a continued decline in American institutional competency.

■ We are the most financially powerful nation the world has ever seen by a very large margin. The way we reinvest in our country, be it social services, health, infrastructure, or education, is nothing short of disgraceful.

■ Access to higher education and training in the trades, health care field needs to be more financially viable, especially for those from disadvantaged circumstances.

The Beacon welcomes comments from readers who adhere to our comment policy including use of their full, real name.

4 thoughts on “The college debt debate

  1. I always enjoy Mr. Gardner’s data-based approach to presenting an issue. In this case he has done a masterful job breaking down the data. It is noteworthy that the median student loan upon graduation is less than the cost of a new car. Unaddressed in this analysis is the impact of student lending on both those who borrow, attend, and never graduate. This phenomenon includes trade school attendees as well as those who go to college. I have read analyses that say that category of borrowers has an average debt of less than $10K and the total of those loans is more than half of the total debt outstanding (about $1.6T). Can Mr. Gardner address that data and inform us on the impact?

  2. One way to reduce the cost of college is to reduce the super adequacy of facilities including housing, etc. When I was in college facilities were very basic but functional. I was happy to be there. The other issue is the large endowments that many of the college’s have. As an example, Harvard’s endowment was $55 billion. The University of Rochester endowment is over $3 billion. RIT’s endowment is well over $1 billion. The total endowment of all universities and colleges is approximately $500 billion. More of these endowments should be used to reduce tuition.

  3. I’m not sure that Harvard has a game plan for a $55B endowment! Endowment earnings are used to selectively reduce tuition for favored applicants and to sweeten the pot when recruiting star faculty.

    In the higher ed equivalent of the zombie apocalypse, the institutions with massive endowments will be the survivors!

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