Making college affordable

Overview

It’s a lifelong dream for many young people to go to college. And for good reason: the evidence shows college grads are far more likely to have a job than people who only finished high school.  It also shows that they make roughly $20,000 more each year.

Unfortunately, skyrocketing college tuition has caused earning a degree to become a crushing financial burden for many.  Students graduating in 1983 paid about $40,000 (in today’s dollars) for their degree.  The cost of a four year degree for full-time students graduating in 2013 was much higher: about $80,000.

Group of Diverse International Students Celebrating Graduation

In the mid-1960’s, the federal government started offering loans to help students pay for their education.  Some borrowing in the short term to pay for the cost of an education makes practical sense, but as colleges have jacked prices up and students have borrowed more and more to keep up, many have found themselves buried under a pile of debt they can’t realistically pay off.  And as the federal government has increased the amount students can borrow, colleges have raised prices even more, creating a vicious cycle.  Today, the government backs about 90% of the student issued each year — and taxpayers are on the hook for outstanding loans totaling more than $1.2 trillion.  

Major changes are needed to address the trends of ever-increasing college tuition and extensive borrowing that are causing many young people significant financial hardship.  Keep clicking to learn more about the big ideas to solve these problems and the leaders who are out on the front lines fighting for change.

  • College tuition has gotten ridiculously expensive

    It isn’t news to most people that college tuition has gotten ridiculously expensive. In today’s dollars, the annual cost of attending an in-state public school (including both tuition and room and board) has increased by about 150% since 1975.  The yearly cost of attending a private school has jumped by about 170%. See the below chart from College Board

    cp-2015-t02a

    Especially troubling is how much faster the price of college has increased than the price of most other things.  In each of the last ten years, the price of college tuition has gone up by about 3.5% more than inflation.

    The yearly cost of attending a private school has jumped by about 170%.

    Since incomes haven’t increased as rapidly as tuition and other costs, paying for college is taking up an increasingly big chunk of people’s budget.  What was once relatively affordable for the average family has become a huge burden.

  • Federal policies intended to help students have actually made the problem worse

    Colleges haven’t come out and admitted why they keep raising prices.  But the evidence confirms what common sense suggests: that the federal government’s willingness to guarantee the vast majority of student loans with taxpayer money and to repeatedly raise borrowing limits has a lot to do with it.

     Ironically, the very policies intended to help students are actually a part of the problem

    Other issues?  Growth in administrative costs and an emphasis on research instead of teaching – which drive tuition prices up.  In the last 50 years, the annual output of journals, dissertations, etc. from professors at research institutions has increased from 13,000 to 72,000.  

  • Students are going into too much debt

    Not surprisingly, there are few families who can afford to foot the college tuition bill up front.  So they end up seeking financial aid in the form of grants (which typically don’t have to be paid back) and loans (which do).

    Americans have been borrowing money to pay for college since the student loan market opened for business in the mid-1960s.  But this didn’t become such a widespread practice — or an expensive one — until recently.  Over the past ten years, the amount of loans outstanding has tripled to over $1.2 trillion (this means Americans hold more student loan debt than they hold credit card debt or auto loans).  Leaving college with debt has become the norm for most college grads: roughly 70% of the class of 2016 graduated with loans.  The average amount they owed? $37,000.

    Roughly 70% of the class of 2016 graduated with loans.

    In addition to making it too easy for schools to hike up prices, the federal government has failed to structure loan programs in a way that protects students, their families, and taxpayers.  One troubling fact: the bottom 25% of households (i.e they have a net worth of $8,500 or below) hold over 60% of student loan debt … and many have no clear path to paying it back.

    [Want to learn more?  Check out this student loan primer from the New America Foundation.]
  • Graduates aren’t finding the jobs they need to pay off their loans

    Unfortunately, many of the same students who are encouraged to borrow heavily to pay for college have found themselves under significant financial strain after they graduate and are required to start paying back their debt.  As of January 2016, more than 40% of people who have student loans were not making payments.

    One big reason for this?  The fact that the federal government lends money for college to just about anyone, without any consideration of whether they’ll be in a good spot to pay it back.  Most of the time the only way you can get a big loan is if a lender believes that (based on your financial history and expected future income) you’re in a place where you can easily make required debt payments.

    Stressed schoolboy sitting away from people at school. He has a smartphone in his hand and is looking away with his hand to his face.

    The way our government loan programs are set up today, though, young people are usually able to borrow huge sums without consideration of their financial history responsibility, whether they’re prepared to succeed in and ultimately graduation from college and get a job, or whether they’re planning to pursue a line or work that tends to pay enough for them to pay off the amount they’re borrowing. What was designed with good intentions has ultimately trapped many recent grads under piles of debt, with no obvious way to pay it back.

    Another issue is that amidst our slow economic recovery and increasing skepticism about the value of some college degrees, many young people with lots of debt to pay off have had a hard time getting a job — much less one that pays enough for them to afford rent, food, and other necessary bills and expenses while also making their student loan payments.  The numbers are stark – with over 40% unemployment among recent college grads.  And some majors and jobs tend to result in higher incomes, than others – so those who took out a lot of debt but have a lower post-college income are finding themselves in a uniquely tough spot.

  • Stop big tuition hikes by giving colleges skin in the game

    Right now, colleges have few incentives to charge low prices, provide useful or valuable degrees, or to guide students towards majors or jobs that provide incomes sufficient to pay off student loans.  The main thing they care about is getting tuition payments (including those funded by federal loans) while a student is in school.  If a student defaults on paying back the loan after graduation, it’s the lender’s (i.e. the federal government’s) problem — not theirs.  

    One way to solve this problem? Give colleges skin in the game by requiring them to pay back a portion

     Requiring colleges to pay back a portion of defaulted loans would give them incentive to keep prices low and offer degrees that lead to good jobs.

    (many suggest around 20%) of defaulted loans.  This way they have to share in the lending risk instead of putting it all on taxpayers — and have a far greater incentive to reduce tuition costs,  to provide valuable degrees that lead to good jobs, and to advise students to pursue work that will put them on the path to financial stability.  

    Read more on this idea from The American Enterprise Institute and The Senate Committee on Health, Education, Labor and Pensions, majority staff.  

  • Help students afford an education without massive student loans

    One way to help young people finance their education without going into massive debt is to make room for the private sector to offer income-share agreements.  Under these agreements, students would agree to pay a certain percent of their income after they graduate towards money that was spent on their education.

     Making room for the private sector to get involved in the student loan market is an important step in helping people afford college without going into massive debt.

    The benefits?  In addition to shrinking the federal government’s role in the student loan market, income-share agreements would provide a more affordable way for students to pay for college.  As described in US News, since “such an agreement is not a loan… there is no fixed amount the student must repay and no interest. Thus a student’s payments are always affordable and there is no balance to worry about.”

    Jon Hartley writes about the innovative income-sharing agreement option offered by Purdue University in Forbes:

    "Over 100 students entering their third and fourth years at Purdue University are taking an alternative path, by pledging a portion (or percent) of their future salaries as part of a new Income Sharing Agreement (ISA) initiative known as “Back-A-Boiler.” The average Purdue student enrolled will receive $13,789 in funding with the promise to pay it back as a small fraction of their income over 6 to 10 years after graduation." 

    One catch — in order for income-share agreements to become a mainstream option, Congress would likely need to take big steps to fill in details about how these agreements would be viewed in court — a topic there’s tremendous uncertainty about now.

    Want to learn more?  Check out this primer from the American Enterprise Institute.

  • Require colleges to inform kids about the prices and payoffs of a degree

    Right now, it can be tough for students and families to determine whether it’s worth it to pay big bucks to pursue a certain major or degree.  And colleges tend to disclose few details about what they spend their money on.

    Back view portrait of a female student walking in the city park outdoors

    One key fix?  More data and transparency in higher education. Students and parents should know how well previous students have done in the job market before enrolling and paying thousands in tuition to a university. The government has the existing capacity gather wage and employment data, but doing so would require an act of Congress.

  • Change federal policies that encourage colleges to jack up prices

    Until Congress reforms existing federal loan programs - such as enacting common sense loan limits - we’re unlikely to experience any relief from the rampant tuition inflation.

     If we want tuition inflation to go away, we're going to have to deal with the policies that got us here.

    As AEI scholar Andrew Kelly explains in Forbes:

    “...a handful of recent, well-designed studies do find a robust relationship between changes in student aid and tuition prices. For instance, we’ve got new evidence from the Federal Reserve Bank of New York that sticker prices at colleges with lots of borrowers increased after federal student loan programs expanded. They find that for every additional dollar in subsidized loans, colleges raised sticker prices by about 65 cents (the effect of Pell Grants was smaller (55 cents) and less robust to the addition of control variables). The tuition inflation was most pronounced among expensive, moderately selective private colleges—part of Dr. Warren’s constituency. An earlier study by Stephanie Cellini and Claudia Goldin compared for-profit colleges that had access to federal aid programs to those that did not and found that prices were 75 percent higher among the former.

    Even if federal aid didn’t affect sticker prices, it could still lead institutions to raise the net prices that aid recipients pay. That’s exactly what two studies found when they asked how institutions shift their own aid—tuition discounts and scholarships—in response to federal grants and tax credits. University of Maryland economist Lesley Turner found that colleges shift institutional aid away from Pell Grant recipients, essentially using the Pell dollars to supplant their own spending. She found that selective private nonprofit colleges—a chunk of Dr. Warren’s membership—capture about two-thirds of the value of Pell Grants. Similarly, economist Nicholas Turner found that federal tax credits crowded out institutional aid roughly dollar-for-dollar.”

  • Target federal aid programs to poor and working class students, not the rich

    Writing in National Affairs, Judah Bellin of the Manhattan Institute acknowledges the importance of considering how the working class and the poor are impacted by higher-education policies:

    “In their efforts to help the middle class, policymakers seem to have forgotten that the poorest students are the ones most desperately in need of college degrees and the ones least able to afford them. Research consistently shows that obtaining a college degree is a wise investment for almost anyone, but this is particularly true for poor students, who are much more likely to move up the socioeconomic ladder if they finish college.”

    In particular, Bellin identifies the Perkins Loan program and the Federal Supplemental Education Opportunity Grants (FSEOG) as programs targeted for lower-income groups that have been squeezed to the margins of the budget by programs less targeted at the poor. At the same time, the share of young adults completing college from the bottom-quintile income group has barely increased over the past few decades, falling far behind large gains seen in higher-income groups.

    On the other hand, unlimited and universal loan programs and expanded tax credits and deductions for higher education often end up both benefitting the wealthy and pushing up the total cost of tuition, producing a vicious cycle of further crowding out potential lower-income students and creating a need for more federal subsidies for college students and their families.

    The solutions, writes Bellin, are within reach, but would require a U-turn from current federal policy:

    “When it comes to college, low-income students already have the cards stacked against them. Instead of making it even harder for them, policymakers should address the particular problems that poor students face in higher education, namely financing their education and finding post-secondary programs that offer flexible schedules and technical training. Specifically, policymakers should reconsider their cuts to the relatively cheap means-tested student-aid programs, which would allow more students to finish their degrees, and they should think creatively about reforming, rather than wrecking, the burgeoning for-profit higher-ed sector.”

    You can read Judah Bellin’s full piece in National Affairs here.

  • Mitch Daniels
    Former Governor of Indiana making waves in the higher education world in his current role as President of Purdue University

    220px-Indiana_Governor_Mitch_Daniels.jpg

    “Higher education has to get past the ‘take our word for it’ era.”

    Why They Matter

    From his bio at Perdue University:

    “… Mitchell E. Daniels, Jr. became the 12th president of Purdue University in January 2013, at the conclusion of his second term as Governor of the State of Indiana…

    Daniels came to Purdue University at the conclusion of his term as the 49th Governor of Indiana. He was elected Governor in 2004, in his first bid for any elected office. He was re-elected in 2008, receiving more votes than any candidate for any public office in the state’s history.

    Read More
  • Andrew Kelly
    Generating innovative ideas for making college more affordable and accessible

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    "Today’s higher education market does not function as efficiently as it could because consumers lack clear, comparable information ...

    "Today’s higher education market does not function as efficiently as it could because consumers lack clear, comparable information about the value of particular programs at particular institutions."
    Why They Matter
     Andrew Kelly is a Senior Vice President for Strategy and Policy at the University of North Carolina.  Prior to that, he was a scholar at the American Enterprise Institute (AEI).  From a UNC press release:
    A native of Monmouth County, NJ, Kelly is a summa cum laude graduate of Dartmouth College, where he earned a degree in history in 2002. He also holds a master’s degree and Ph.D. in political science from the University of California, ...
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  • Marco Rubio
    U.S. Senator from Florida trying to help make the American dream a reality for all

    Republican presidential candidate Sen. Marco Rubio, R-Fla., speaks at the Georgia Republican Convention, Friday, May 15, 2015, in Athens, Ga. Georgia Republicans will hear from three White House hopefuls, Rubio, New Jersey Gov. Chris Christie and Texas Sen. Ted Cruz as the party gathers for its annual convention Friday. The appearances come as Georgia Republicans look to raise their profile in the 2016 nominating contest. (AP Photo/David Goldman)

    “One of the central problems of our outdated higher education system is that it has become increasingly unaffordable for those ...

    “One of the central problems of our outdated higher education system is that it has become increasingly unaffordable for those who stand to benefit the most.”
    Why They Matter

    Marco Rubio tells his story in his Senate bio:

    I started as a City Commissioner for West Miami before being elected to the Florida House of Representatives in 2000, and then Speaker in November 2006. Before taking this post, I authored the book 100 Innovative Ideas for Florida’s Future, which was based on conversations I had with Floridians at “idearaisers” that my colleagues and I hosted around the state. As Speaker, I helped enact many of the ideas in this book.

    <...

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  • This College Found a Creative Way to Lower Tuition

    College expenses have increased dramatically over the years forcing many students to take out hefty student loans or find alternative routes to obtaining a college degree. Colleges all over the country are struggling to find new ways to lower costs and increase enrollments. Grace College, a Christian college in Indiana, …

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  • Wish You Could Graduate College Debt Free? ‘Hard Work U’ Makes that Dream a Reality

    Colleges all across America are graduating classes full of bright, educated and optimistic young professionals this spring, but no group of students may be better prepared for the workplace than those who received diplomas from a small, Christian college in Point Lookout, Missouri. Even though the average American recent college …

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  • Graduate Debt-Free and With a Good Job? This School Flips the Script on Traditional Education

    Even though Masa Bando had been accepted to MIT, he deferred admission to attend Make School. One month before graduating Bando landed a job with a salary of $90K, without any student loan debt.  From Fast Company:  One month shy of officially finishing Make School’s course—which included iOS,Ruby on Rails, and …

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  • New Online Tool Reveals How Much Your College Degree Is Really Worth

    It’s safe to say many of us now a good idea of how much a college degree costs these days; but can you say the same for how much that degree is really worth? A new website aims to answer that question once and for all. Launch My Career Colorado, …

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