It’s almost impossible to pick up a newspaper or magazine these days without reading an article about the affordability crisis in higher education. For the past twenty years, tuitions have increased at a rate about twice that of the consumer price index. Many institutions cite the national statistics on the value of a college degree as the justification for charging increasingly higher tuition.
During the same twenty year period, the grants provided under federal student aid programs (FSA) did not increase at the same average rate as tuitions. Therefore, an increasingly higher percentage of college costs were paid through loans and not grants. Last academic year, loans constituted some fifty-six percent of total student aid while grants accounted for only thirty-eight percent.
Today’s students find themselves in a bind. Many of the elite schools have tried to remedy the problem by establishing income standards below which a student and his/her family would not be burdened with loans. Princeton, for example, touts a “no-loan financial aid” program. Harvard, Duke and Stanford promise that no parental contribution will be required for tuition costs from families whose total annual income is below $60,000. For a list of schools that claim to meet full student financial need, see the September 2006 issue of US News & World Report. Unfortunately, only about 259,172 of the estimated 17,958,000 students enrolled in college attend those schools. Even more challenging is the fact that while the FSA grants did not increase at rates mirroring the tuition increases, neither did the FSA loan programs. The 2007-2008 FSA loan caps range from $7,500 to $8,400 per year. The average private college tuition over the same period was $22,218. Students attending non-elite institutions are compelled to borrow private loans to cover the difference/gap between tuition and FSA subsidized loans. A 2006 USA Today article states that during the 2005 – 2006 academic year, college students borrowed a record $17.3 billion in private loans, up 913% from only a decade ago. According to the article, federal subsidized student loans have a fixed interest rate of 6.8%; private loans companies have no limits on how much interest they may charge on loans to students. Some do have variable rates of up to 19% but others place no limit on the amount of interest a student can expect to pay over the life of his private student loan.
My advice to prospective students and their families is that they evaluate the expected benefit of a college degree versus the cost of the college education. If you believe you have the ability and patience to be a medical doctor, you may not care as much about the cost of the college that you attend versus someone who aspires to a mid-level management job in business (note: my intention is not to endorse either career). Loans have to be repaid and FSA loans are exempt from bankruptcy restructuring.