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The Massive and Terrible Financial Toll of Student Loan Debt

The Massive and Terrible Financial Toll of Student Loan Debt

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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.

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In September 2019, Dr. Boston retired as CEO of APEI and retired as APUS President in August 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. For four years from 2009 through 2012, APEI was ranked in Forbes' Top 10 list of America's Best Small Public Companies. During his tenure as president, APUS grew to over 85,000 students, 200 degree and certificate programs, and approximately 100,000 alumni. While serving as APEI CEO and APUS President, Dr. Boston was a board member of APEI, APUS, Hondros College of Nursing, and Fidelis, Inc. Dr. Boston continues to serve as a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, and as a member of the board of New Horizons Worldwide. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. In August 2020, the Board of Trustees of APUS appointed him Trustee Emeritus. In November 2020, the Board of Trustees announced that the APUS School of Business would be renamed the Dr. Wallace E Boston School of Business in recognition of Dr. Boston's service to the university. Dr. Boston lives with his family in Austin, Texas.

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