College: At What Price? (Part 1)

I phoned my brother this week.  Amid all the family small talk and recalling of good memories, we somehow found ourselves talking about how we paid for our college education.  We worked every summer and had part-time jobs during the school year.  We only earned minimum wage for most of those jobs.  And minimum wage when I enrolled at the University of Virginia was $2.00 an hour.  Nevertheless, my brother and I ended up with very little debt at graduation.  My loan payment was $90 every three months, and I paid it off in about two years.

 

Of course, you have to consider the other side of the picture.  A full year’s tuition at UVA back then was $415.  I could work twelve forty-hour weeks during the summer, at two dollars an hour, and save more than enough to cover the next academic year’s tuition.  The part-time job during the school year and on winter and spring breaks would cover room and board.  Even after I transferred to a private college, I was able to cover all the expenses with my income/savings and a modest monthly stipend from a Social Security survivor benefit.  I didn’t borrow any money until my last semester, a summer session when I ordinarily would have been working full-time.

 

But beginning in the 1980’s the cost of higher education began to grow exponentially, far outpacing the national inflation rate and the ability of the average student  and his family to pay for even the majority of tuition and related expenses.  Loans became the norm.  MarketWatch reported these trends for the period 2004 to 2014:

 

• The share of funding states provided to public colleges dropped from 62% to 51%
• The share of tuition that colleges asked families to pay increased from 32% to 43%
• The average student debt at graduation climbed from $18,550 to $28,950 (It is well over $30,000 now.)

 

Business Insider cited a study that demonstrated college tuition increased almost 260% from 1980 to 2014, compared to a 120% increase across all consumer items over the same time.

 

Upwards of 44 million people owe $1.3 trillion in student loans.

 

This was an issue during the last presidential election when at least one candidate proposed that college education be offered free to everyone.  Someone has to pay for it, of course, and that provided fodder for the debates: how do we pay for “free” higher education?  The answer seemed to be that we’d just spread the debt and the pain across more people in the form of higher taxes.

 

I doubt the political climate now will allow “free” college education to become a reality.  But the current model of financing it is unsustainable.  What’s the answer?

 

 Economists and social scientists note that the Millennials (loosely defined as those born between 1982 and 2004), with the aid of technology, are forcing change to nearly every industry in the United States, from communication to transportation.  Some believe that banking stands to be impacted more than any other sector of the economy.  “Virtual wallets”, banking apps, crowdsourcing, rotating savings and credit associations…banks will look quite different and face unforeseen competition, especially given the historically high distrust of banks among the under-35 crowd.  Yet banks are a critical part of the loan business.  So are we seeing the seeds sown for the end of financing higher education with massive amounts of student debt? 

 

Innovators see opportunity in crisis; and as they apply their creativity to resolving this national dilemma there may be some new ideas on the horizon for eliminating the student debt crisis.  In next Friday’s post I’ll weigh the pros and cons of one well-known university’s partnership to help its students pay for college.

 

Until then,

 

Roger

 

“The rich rule over the poor, and the borrower is slave to the lender.” Proverbs 22:7 NIV®*

 

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

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