Wall Street Journal reporter Josh Mitchell has an excerpt from his upcoming book, The Debt Trap: How Student Loans Became a National Catastrophe, in this week’s The Atlantic.
Mitchell outlines the story of Thomas, a student whose college experience began at a public two-year college, The Marion Military Institute. Thomas later transferred to the flagship University of Alabama campus after one semester.
Pell grants and a scholarship covered Thomas’ tuition and living expenses at Marion. In order to attend the University of Alabama, he had to borrow money.
Mitchell writes that the University of Alabama made a conscientious decision 10 years before Thomas matriculated to increase tuition to out-of-state students and expand enrollment in order to increase faculty compensation. These changes would also help to cover shortfalls in funding from state legislators. There was never an analysis of whether the increases in tuition and related borrowings were going to impact students’ and their families’ ability to ever repay those expenses.
As late as 1980, the monies received from student tuition were only 20% of revenues at public universities like the University of Alabama. By 2019, student tuition comprised nearly half of all revenues at state universities.
In 2003, Alabama’s board hired a new president, one that they recruited to make Alabama a national university. He needed money to fund his vision for the university, and the state legislature had rejected previous requests for increased funding.
The president and the provost decided to raise tuition and expand enrollment. They concluded that there were not enough college-eligible in-state students, so they would have to recruit outside of Alabama.
Out-of-state students would pay up to three times as much tuition per student as in-state students. Many of those students would have to borrow to pay the higher, out-of-state tuition. Because of federal loan program caps for undergraduates, many of their parents had to take out loans as well.
Alabama hired three dozen recruiters to boost their out-of-state student enrollment. In order to attract these students, the president used Disney World as a model. Wealthy students outside of Alabama had their own bedroom at home, so 10 new student residences were built along with a new recreation center, academic buildings, a new baseball field, and an expansion of the football stadium.
The goal to build a national brand also included recruiting students with higher GPAs and SAT/ACT scores. The university hired Ruffalo Noel Levitz, an enrollment management consulting firm, to build a recruiting strategy utilizing tuition discounts to attract students with attractive GPAs and test scores. At the same time, the consultants helped to determine the price points and discounts needed to attract students as well as to maximize university tuition revenues.
Thomas could have gone to a Florida public institution and saved a lot of money. However, the University of Alabama was his first choice. He was able to attend through the university’s skillful use of student loans and the Parent PLUS program loans. The federal government charged higher interest on Parent PLUS loans so it could make a profit.
Despite many roadblocks, Thomas earned his degree from the University of Alabama in May of 2018, but at what cost? At graduation, he and his family owed $153,000 in student loans.
His student loans represented $30,000 of that total, but his mother and brother had signed for $123,000 in Parent PLUS loans. By late last year, the accrued interest on the PLUS loans increased the amount due to nearly $160,000.
According to Mitchell, Thomas’ situation is not unique. Last year, the parent of a typical Alabama graduate who borrowed owed $55,000 in Parent PLUS loans at graduation. That was on top of their child’s student loan debt, which ranged from $17,000 to $27,000 depending on the program. As an educator and college parent, I urge parents to avoid utilizing Parent PLUS loans. Any college worth attending should be affordable for its students to attend by utilizing the regular Federal Student Aid program, merit scholarships, or endowment scholarships.
It’s clear that more transparency about student debt is needed. At the end of the story, Mitchell writes that Thomas is considering going to law school to get a higher-paying job in order to pay off his mother’s and brother’s Parent PLUS loans. I hope he reads my article about the really high debt to earnings ratio for law school grads before going down that road.
I pre-ordered Mitchell’s book a month ago. If the book is as good as this excerpt, I hope it’s a best seller, especially for parents of children who are still in high school.