The Degree Industry: What Is Going On With Student Loan Debt?

In case you haven’t noticed the price tag for a college degree has steadily increased over the last 10-12 years.  What you may not have heard on the nightly news is that lending institutions are constantly lobbying; (for the public good, of course) to raise the amount a student can borrow.  To me, this seems to be a means of preying on unsuspecting and undereducated kids.  Getting them to borrow boatloads of cash to pay for a degree, which may or may not pay off for them in the future, seems morally reprehensible!  To make matters worse, once the lending institutions get their way, and students can borrow more, then colleges turn around and hike their tuition.  For private colleges and universities, I get it.  A private, for-profit entity, should be able to frame it’s cost structure, then allow the marketplace to decide if their fees are competitive or not.  It’s the state schools who already receive tax revenue who should be ashamed of themselves.  That is correct, in case you didn’t know;  your home state University receives tax payer money to cover operating costs.  So, not only are you paying for your college education as you attend classes, but then, if you are lucky enough to get a job when you get out, your tax dollars continue to fund the same school, and a couple others.

So where is all the tuition money and tax revenue going?

An interesting evolution is taking place within the degree industry though, that is, tax subsidies to state universities have been decreasing.  In fact states are spending $2353 less per student in 2013 than they were in 2008.  What is with the decrease?  State budgets cuts, and the incessant need to reallocate money formally given to universities, to more ‘safety net’ public programs.  Higher unemployment since the ‘Great Recession’ has also adversely affected tax revenue, so the pressure on politicians to allocate money to more ‘necessary’ programs has dominated state legislatures.  So where does that leave state universities?  They have to make up for it, after all, they have fixed costs.   Now, universities are being forced to cut costs, usually in the way of courses offered, but because of this, it’s shifting more of the financial burden on to the student.  So, students react to the market forces by having to pay more, which means paying more out of pocket either by borrowing from mom and dad or by getting more federal student loan money.  As a result, universities are left with relying more on tuition revenue, large endowments, investments and other ancillary revenue streams.  This financial boondoggle directly affects the price of admission, so in order to maintain the same spending levels universities are left with making up the difference by enrolling more students and raising tuition rates.

but, but…most Colleges seem to be building and expanding enrollment.

Yes it appears that way;  college towns I have recently visited all seem to doing quite well financially, I wrote a post about the possible reasons for this.  New state-of-the art dormitories, student centers, theaters, stadiums and technology centers, lead you to believe that the degree industry is rollin in it!  They are spending someone’s money for sure, and a lot of it!    Back to my earlier point; regarding the constant lobbying by lenders to raise the amount a student can borrow…This is affecting the increased costs of earning a degree.  If you cut the subsidies, universities get less.   Since this Federal money is readily available, students keep borrowing.  They borrow to cover the increased tuition, with ever increasing borrowing limits, perpetuated by the lack of federal subsidies.  Supply is high, demand is high, so the price is high!   The problem for students though, is they often lack the proper understanding of the loan’s repayment obligations.  So, when students borrow tuition money, and don’t understand the ramifications if they miss payments, they often find themselves digging out of a hole before they even start their working lives.  Many of my PF blogger friends are were in this exact situation!

Update: A blogger friend of mine recently informed me that there are actually private student loans available to students too. If you are considering taking out a private student loan to pay for college, be absolutely sure that you know every detail of the loan and of your repayment obligations. Private student loans apparently don’t come with as many benefits and options for those who are having difficulty paying back their loans as federal student loans do. Though it is not recommended to take out a private student loan, be sure to know exactly how you (or your child) will manage it during school and after graduation. I recommend projecting your salary after graduation and starting to look at creating a budget ASAP.

Education is the key, and a college education is important for sure, but is it all worth it?   Somehow the expectations of a college education needs to change, it can’t be limited to keg stands and frat parties.  A college degree today, is the equivalent of what a high school education was 20 years ago.   Whats more important is a sincere understanding of personal finance and knowing the principals of having money work for you.  If kids left college with this financial aptitude, the student, their families, and society as a whole would be better off.

There is some good news though..

In the coming years, Generation Y will be forced to be fiscally responsible, self reliant and independent.  They already have a better understanding of the wraths of debt, more than almost every previous generation.  Budgets and a sincere plan for funding their own retirement seem to be part of their DNA.  They are furiously optimistic, have a broad scope of the world, and a passion for wanting to pay it forward.  They view the current technology revolution as being in its infancy, and they want to be part of it!  So, technology is our future, college students are our future, lets not straddle them with a mountain of debt which slows their progress and ultimately costs everyone more in the end!