Student Loan Crisis

[Hopeful]

A lot of news has been directed to the rising costs of colleges and level of student debt. When I graduated I think I had a total of $7,000 of loans, which was easily paid off once I started working. Now it seems not uncommon to hear of debts close to $100,000.

Once thing I think does not get discussed often is the correlation between these easy to get loans and the sky rocketing college costs. As students are able to easily acquire high student loans, colleges seem far too eager to raise prices to take advantage of the "easy" money. It would seem that if the student loans were reduced or limited colleges would be forced to bring tuitions more in line.

It reminds me of the housing bubble in the late 2000's. Banks were practically giving money away to people they knew couldn't afford it. As a result the housing prices sky rocketed in correlation to this easy money.

 

[copyright1997reloaded]

Econ 101: Subsidizing a good increases demand and shifts the supply/demand intersection point resulting in higher prices.

This chart tells the story: https://www.aei.org/wp-content/uploads/2016/08/pricesnew.png

 

[Nick12]

Yes, some students are saddled by student loans. But if one got off one's high horse and hustled and made extra cash this would help pay off the loans faster. While I was in school, I worked as a janitor, washed dishes at the campus cafeteria ( and ate for free and the ARA manager allowed me to take back food to my residence that was going to be thrown out) , typed papers for friends for cash, was a bouncer/ doorman at fraternity parties, shoveled snow for peoples homes, to name a few of money making ventures. Perhaps I missed out on the sun and fun of students spending mommy's and daddy's money but I felt it was all worth it.

 

[bingybear]

I had NDSL back in the day. Like you the amount was more reasonable. However, don't forget what tuition was back then. Big difference back then and now. I borrowed a small fraction of tuition and books cost. People now are borrowing all tuition, books, living expenses. I worked 3 minimum wage jobs (approx 60 hr/wk) as an under grad. I did not try to fund a life style.

Go back to when the recent student loan issues started. There were many people warning about this problem early in it's existence. Yes loans were too easy to get. Too much money was available.

So I agree they made it too easy to borrow too much. This also allowed colleges to charge more since people could borrow it. This will be interesting to see how this unwinds.

I helped my kids get thru college without debt ...

 

[CardsFan]

As an example of tuition inflation:
Northeastern University in Boston (my alma mater). Tuition only (I lived at home and commuted)
1973: $1,800/year
1978: $2,200/year

2018: $51,500/year

So, in 40 years (1978 to 2018) the price has inflated by a factor of 23. Meanwhile, general inflation has gone up 2.85x.

Something is definitely out of whack.

 

[Hopeful]

As an example of tuition inflation:
Northeastern University in Boston (my alma mater). Tuition only (I lived at home and commuted)
1973: $1,800/year
1978: $2,200/year

2018: $51,500/year

So, in 40 years (1978 to 2018) the price has inflated by a factor of 23. Meanwhile, general inflation has gone up 2.85x.

Something is definitely out of whack.

I agree. When I hear most people talk about the problem, they seem to say that the rising tuition is causing the high student debt. I would argue it is the easy availability of high student debt that is causing the rise in tuition.

 

[CardsFan]

Yes, some students are saddled by student loans. But if one got off one's high horse and hustled and made extra cash this would help pay off the loans faster. While I was in school, I worked as a janitor, washed dishes at the campus cafeteria ( and ate for free and the ARA manager allowed me to take back food to my residence that was going to be thrown out) , typed papers for friends for cash, was a bouncer/ doorman at fraternity parties, shoveled snow for peoples homes, to name a few of money making ventures. Perhaps I missed out on the sun and fun of students spending mommy's and daddy's money but I felt it was all worth it.

That was much easier 40 years ago. I worked a co-op job 6 months per year to pay tuition. A weekend job provided spending money.

And loans were much easier to pay back. My starting salary out of college was 8x my last years tuition.

I agree. When I hear most people talk about the problem, they seem to say that the rising tuition is causing the high student debt. I would argue it is the easy availability of high student debt that is causing the rise in tuition.

I agree. Of course, it is supply and demand, and people are willing to take on that debt.

 

[wmc1000]

Econ 101: Subsidizing a good increases demand and shifts the supply/demand intersection point resulting in higher prices.

This chart tells the story: https://www.aei.org/wp-content/uploads/2016/08/pricesnew.png

How is it cars "only" inflated 2.1% in price? How is that 2019 Honda Accord only 2.1% higher than the price of a new 1996 Honda Accord?

 

[Aerides]

Another look at that chart - almost everyone here complains, rightfully, about the rising costs of healthcare - and yet college has risen twice that.

No, you can't pay for anything close to your college costs by washing dishes. The math no longer works.

A 200% increase in 20 years. And the resulting first years salaries when you graduate have barely budged. It is a problem, and telling young folks "oh get a side job and man up" is not even close to a solution.

 

[Nick12]

Another look at that chart - almost everyone here complains, rightfully, about the rising costs of healthcare - and yet college has risen twice that.

No, you can't pay for anything close to your college costs by washing dishes. The math no longer works.

A 200% increase in 20 years. And the resulting first years salaries when you graduate have barely budged. It is a problem, and telling young folks "oh get a side job and man up" is not even close to a solution.

Point taken. But respectfully if one does not sacrifice and make efforts to pay down loans then it's just another problem down the road.

 

[USGrant1962]

Yes, a big part of the problem is that government policies plopped a big pile of easy money in front of these institutions, and naturally they took it.

See "rent seeking" - https://www.investopedia.com/terms/r/rentseeking.asp

 

[Z3Dreamer]

But yet, professors at local state university (15,000 undergrad) claim they don't make much. Some say that a full, tenured prof makes $60,000 to $80,000 whereas Associate Profs get $5,000 per course, no benefits. They could be lying to me but I have been to a number of their houses and they are not living a fantastic lifestyle. They claim that more and more classes are taught by Associate Profs.

Using some assumptions about average class size, benefits, etc, instruction would not be more than 50% of the cost. Would be considerably less.

Point is: Where is the money going?

 

[MichaelB]

How much is that education really worth?

The value of a post secondary education has never been challenged, and only quantified in broad averages. Families and high schools have been conditioned to embrace the value without question, but also without actually quantifying it.

One of the most clever marketing ideas in our recent history was when University sposnsored lending to students was termed “financial aid”. Unlike banks with mortgages, the universities sponsor the lending but have no stake or liability in the outcome. If universities were required to accept some portion of liability for the lending supporting their attendance, my guess is enrollment would immediately decline.

There are hundreds of websites designed to assist prospective families and students to search for and select universities and look for funding but virtually no tools or methodology to systematically assess cost and expected future income and make rational, cost-effective choices about field of study, real affordability, and post-secondary options.

 

[Nick12]

But yet, professors at local state university (15,000 undergrad) claim they don't make much. Some say that a full, tenured prof makes $60,000 to $80,000 whereas Associate Profs get $5,000 per course, no benefits. They could be lying to me but I have been to a number of their houses and they are not living a fantastic lifestyle. They claim that more and more classes are taught by Associate Profs.

Using some assumptions about average class size, benefits, etc, instruction would not be more than 50% of the cost. Would be considerably less.

Point is: Where is the money going?

If you visit some of the athletic facilities in the SEC conference or ACC conference, the areas rival a few NFL facilities. There are big money boosters that fund their alma maters, but that's just a piece of the pie.

 

[USGrant1962]

But yet, professors at local state university (15,000 undergrad) claim they don't make much. Some say that a full, tenured prof makes $60,000 to $80,000 whereas Associate Profs get $5,000 per course, no benefits. They could be lying to me but I have been to a number of their houses and they are not living a fantastic lifestyle. They claim that more and more classes are taught by Associate Profs.

Using some assumptions about average class size, benefits, etc, instruction would not be more than 50% of the cost. Would be considerably less.

Point is: Where is the money going?

The money is mostly going to non-faculty administrators. From https://www.nytimes.com/2015/04/05/opinion/sunday/the-real-reason-college-tuition-costs-so-much.html

By contrast, a major factor driving increasing costs is the constant expansion of university administration. According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions.

Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase.

I read recently that the University of California system has over 200 diversity administrators, with the diversity/inclusion Vice Chancellor making over $400K.

 

[marko]

Unlike banks with mortgages, the universities sponsor the lending but have no stake or liability in the outcome. If universities were required to accept some portion of liability for the lending supporting their attendance, my guess is enrollment would immediately decline.
.

But I suspect grades would also mysteriously improve dramatically.

 

[Bamaman]

My starting tuition in 1968 was $117.50 per semester, and it went all the way up to $192.50 my senior year. Back then, we had the choice to either go to college--or go to Vietnam after being drafted. Needless to say what the preferable choice was.

I would have like to have gone into an electrician apprenticeship at the IBEW. But they were much more selective than the colleges at the time. And skilled apprenticeships didn't get the waiver from the draft.

I hate to see all the student loan debt outstandings, especially for majors for low paying professions. A physician buddy got his student loans paid when he was about 55 years old. Too bad that much of the paybacks were for food and living expenses for 4-5 years. If I had student loans, I'd live like a monk until they were paid in full.

 

[jollystomper]

But yet, professors at local state university (15,000 undergrad) claim they don't make much. Some say that a full, tenured prof makes $60,000 to $80,000 whereas Associate Profs get $5,000 per course, no benefits. They could be lying to me but I have been to a number of their houses and they are not living a fantastic lifestyle. They claim that more and more classes are taught by Associate Profs.

Using some assumptions about average class size, benefits, etc, instruction would not be more than 50% of the cost. Would be considerably less.

Point is: Where is the money going?

Anecdotally I agree with you. I have seen this at the private university DW teaches at. She is an adjunct professor, and every year they try to get her to teach more classes, at $4K per course per term, no benefits. She refuses and only teaches what she is interested in and what amout of time she wants to give to teaching. In the 20 or so years she has taught, she has seen her department go from a minority of adjuncts to a majority. A "perk" of being a full professor seems to be having to teach fewer classes.

As was stated above, the majority of the money goes to administration... also to facilities. And, at least for state schools, the highest paid people in many cases are various coaches. The argument is that the sports brings in a lot of money and subsidizes other functions.

Also, there are now MANY more majors to choose from. At my Ivy League school, when I attended there was a choice of around 40-50 majors. Now they offer over 200. One can argue what benefit some majors are worth having, in light of their usefulness outside of academic realms.

 

[Bestwifeever]

...

One of the most clever marketing ideas in our recent history was when University sposnsored lending to students was termed “financial aid”. Unlike banks with mortgages, the universities sponsor the lending but have no stake or liability in the outcome. If universities were required to accept some portion of liability for the lending supporting their attendance, my guess is enrollment would immediately decline....

Yes. And why touch the college’s endowment or its earnings (highlighted in a lot of college marketing) when you can have students borrow the money from other places (some of which doubtless are paying the college for referrals) and call it “financial aid” as you note?

 

[Chuckanut]

So I agree they made it too easy to borrow too much. This also allowed colleges to charge more since people could borrow it. This will be interesting to see how this unwinds.

I helped my kids get thru college without debt ...

+1 on all the above.

Helping one's children, or any person for that matter, to get a good education is the best gift we can give them.

 

[Spock]

Lies, Damn Lies, and statistics.

"The average student loan debt in 2017 was $34,144 per borrower, according to Experian's State of Student Loan Debt report from August 2017."


Adjust that figure for inflation from the year I graduated and the debt is comparable.

Have you seen college "dorms" these days? Compared to the squalor of student housing in the 1980's and todays dorms are palaces.



Sure there are stories of the art history major graduating with 200K of debt and working at the coffee shop. Guess nobody in their family can do math.

 

[samclem]

But I suspect grades would also mysteriously improve dramatically.

Maybe not. Grade inflation is a real thing already--there's very little counterbalancing force to combat it. The customer wants a high grade, the customer is the ticket for getting the copious govt "financial aid" dollars into the school's coffers, give the customer what he/she wants.
OTOH, if the student is not putting in much effort/has little aptitude AND the school shares part of the risk if he/she bombs out in the real world, then realistic, honest grades are a useful tool for the school. Get him/her on academic probation then disenrolled early before he/she can rack up even higher loans that won't be repaid.
Aligning the student, school, and lender's goals (e.g. a well educated student with skills that employers are willing to pay for) will be good for everyone. That doesn't mean colleges have to be trade schools. Emloyers are willing to pay for graduates with a demonstrated ability to think critically, write well, stick with the study of difficult subjects, etc.

 

[Stonewalker]

As an example of tuition inflation:
Northeastern University in Boston (my alma mater). Tuition only (I lived at home and commuted)
1973: $1,800/year
1978: $2,200/year

2018: $51,500/year

So, in 40 years (1978 to 2018) the price has inflated by a factor of 23. Meanwhile, general inflation has gone up 2.85x.

Something is definitely out of whack.

Those numbers really put it into perspective. Thanks!

 

[Breedlove]

Probably going to make folks mad but I think that college education for every kid is way over rated . I also think that if these sports programs at colleges were gone that would help . Paying a head FB coach 7 million dollars . The gym I used to go to had a whole group of kids that started college but quit ….didn't know what they wanted to do . We paid 90k for 4.5 years at a private school for our son ( School and room and board car and all ) So now they want to forgive the kids that owe thousands and quit . Duh , can I please have my 90K ...my son finished worked all four years , today he owes nothing ! We have colleges on every corner what are they teaching ? My nephew and niece both teach HS. both laugh because these counselors can get college money for a kid that really has no interest in going to school but at the same time a young couple both working are having a hard time getting a loan to buy a house for themselves. Pardon me this raises my ire .

 

[copyright1997reloaded]

How is it cars "only" inflated 2.1% in price? How is that 2019 Honda Accord only 2.1% higher than the price of a new 1996 Honda Accord?

I didn't make the chart (AES did), nor did I collect and publish inflation data (the government does). However, I will guess:

Cars (and other goods) can reflect quality differences for which the inflation figures are adjusted.

Ok, here's an article which explains it a bit: https://www.investopedia.com/articles/07/consumerpriceindex.asp

The new methodology takes into account changes in the quality of goods