Degrees of Debt
The
implications of soaring college costs, and the related indebtedness of students,
and their families.
A
Generation Hobbled by the Soaring Cost of College
ADA, Ohio —
Kelsey Griffith graduates on Sunday from Ohio Northern University. To start
paying off her $120,000 in student debt, she is already working two restaurant
jobs and will soon give up her apartment here to live with her parents. Her
mother, who co-signed on the loans,
is taking out a life
insurance policy on
her daughter.
Multimedia
“If anything ever happened, God forbid, that
is my debt also,” said Ms. Griffith’s mother, Marlene Griffith.
Ms.
Griffith, 23, wouldn’t seem a perfect financial fit for a college that costs
nearly $50,000 a year. Her father, a paramedic, and mother, a preschool
teacher, have modest incomes, and she has four sisters. But when she visited
Ohio Northern, she was won over by faculty and admissions staff members who
urge students to pursue their dreams rather than obsess on the sticker price.
“As an
18-year-old, it sounded like a good fit to me, and the school really sold it,”
said Ms. Griffith, a marketing major. “I knew a private school would cost a lot
of money. But when I graduate, I’m going to owe like $900 a month. No one told
me that.”
With more
than $1 trillion in student
loans outstanding
in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education,
some of the overextended debtors in years past. As prices soar, a college
degree statistically remains a good lifetime investment, but it often comes
with an unprecedented financial burden.
About
two-thirds of bachelor’s degree recipients borrow money to attend college,
either from the government or private lenders, according to a Department of
Education survey of 2007-8 graduates; the total number of borrowers is most
likely higher since the survey does not track borrowing from family members.
By contrast,
45 percent of 1992-93 graduates borrowed money; that survey included family
borrowing as well as government and private loans.
For all
borrowers, the average debt in 2011 was
$23,300, with 10 percent owing more than $54,000 and 3 percent more
than $100,000, the Federal Reserve Bank of New York reports. Average debt for
bachelor degree graduates who took out loans ranges from under $10,000 at elite
schools like Princeton and Williams College, which have plenty of wealthy
students and enormous endowments, to nearly $50,000 at some private colleges
with less affluent students and less financial aid.
Here at Ohio
Northern, recent graduates with bachelor’s degrees are among the most indebted
of any college in the country, and statewide, graduates of Ohio’s more than 200
colleges and universities carry some of the highest average debt in the
country, according to data reported by the colleges and compiled by an
educational advocacy group. The current balance of federal student
loans nationwide is $902 billion, with an additional $140 billion or so in
private student loans.
“If one is
not thinking about where this is headed over the next two or three years, you
are just completely missing the warning signs,” said Rajeev V. Date, deputy
director of the Consumer Financial Protection Bureau, the federal watchdog
created after the financial crisis.
Mr. Date
likened excessive student borrowing to risky mortgages.
And as with the housing bubble before the economic collapse, the extraordinary
growth in student loans has caught many by surprise. But its roots are in fact
deep, and the cast of contributing characters — including college marketing
officers, state lawmakers wielding a budget ax and wide-eyed students and
families — has been enabled by a basic economic dynamic: an insatiable demand
for a college education, at almost any price, and plenty of easy-to-secure
loans, primarily from the federal government.
The roots of
the borrowing binge date to the 1980s, when tuition for four-year colleges
began to rise faster than family incomes. In the 1990s, for-profit colleges
boomed by spending heavily on marketing and recruiting. Despite some ethical
lapses and fraud, enrollment more than doubled in the last decade and Wall
Street swooned over the stocks. Roughly 11 percent of college students now
attend for-profit colleges, and they receive about a quarter of federal student loans and grants.
In the last
decade, even as enrollment at state colleges and universities has grown, some
states have cut spending for higher education and many others have not allocated
enough money to keep pace with the growing student body. That trend has
accelerated as state budgets have shrunk because of the recent financial crisis
and the unpopularity of tax increases.
Nationally,
state and local spending per college student, adjusted for inflation, reached a
25-year low this year, jeopardizing the long-held conviction that
state-subsidized higher education is an affordable steppingstone for the lower
and middle classes. All the while, the cost of tuition and fees has continued
to increase faster than the rate of inflation, faster even than medical
spending. If the trends continue through 2016, the average cost of a public
college will have more than doubled in just 15 years, according to the Department of Education.
Much like
the mortgage brokers who promised pain-free borrowing to homeowners just a few
years back, many colleges don’t offer warnings about student debt in the glossy
brochures and pitch letters mailed to prospective students. Instead, reading
from the same handbook as for-profit colleges, they urge students not to worry
about the costs. That’s because most students don’t pay full price.
Even
discounted, the price is beyond the means of many. Yet too often, students and
their parents listen without question.
“I readily
admit it,” said E. Gordon Gee, the president of Ohio State University, who has
also served as president of Vanderbilt and Brown, among others. “I didn’t think
a lot about costs. I do not think we have given significant thought to the
impact of college costs on families.”
Of course,
economists and many parents say that the only thing worse than graduating with
lots of debt is not going to college at all, since study after study has shown
that graduates earn more over a lifetime. And most college students in the
United States manage to eventually pay back their student loans.
To that end,
the Obama administration has given out more grants and loans than ever to more
and more college students with the goal of making the United States first among
developed nations in college completion. The balance of federal student loans
has grown by
more than 60 percent in the last
five years. And in 2007, Congress made sure the interest rates on many of those
loans were well below commercial rates; currently, a
debate over keeping
those lower rates from doubling in July is roiling lawmakers.
But even if
student loans are what many economists consider “good debt,” an increasing
number of borrowers are struggling to pay them off, and in the process becoming
mired in a financial morass.
Education
Department data shows that payments
are being made on just 38
percent of the balance of federal student loans, down from 46 percent five
years ago. The balances are unpaid because the borrowers are still in school,
have postponed payments or have stopped paying altogether.
Nearly one
in 10 borrowers who started repayment in 2009 defaulted within two years,the latest data
available — about
double the rate in 2005.
Economists
do not predict a collapse of the student loan system, which would, in essence,
mean wholesale default. And if there were one, it would be unlikely to ripple
through the economy with the same devastating impact as the mortgage crash.
Though now larger than credit card and other consumer debt, the student loan
balance remains smaller than the mortgage market, and most student loans are
issued by the federal government, meaning banks wouldn’t be affected as much.
Still,
economists say, growing student debt hangs over the economic recovery like a
dark cloud for a generation of college graduates and indebted dropouts. A study of recent college graduates conducted by researchers at Rutgers University
and released last week found that 40 percent of the participants had delayed
making a major purchase, like a home or car, because of college debt, while
slightly more than a quarter had put off continuing their education or had
moved in with relatives to save money. Roughly half of the surveyed graduates
had a full-time job.
“I’ll be
paying this forever,” said Chelsea Grove, 24, who dropped out of Bowling Green
State University and owes $70,000 in student loans. She is working three jobs
to pay her $510 monthly obligation and has no intention of going back.
“For me to
finish it would mean borrowing more money,” she said. “It makes me puke to
think about borrowing more money.”
‘Nothing Is
Free’
Christina
Hagan is an Ohio lawmaker who says students need to understand that attending
college is not an entitlement. Last year, she was appointed to fill a seat once
occupied by her father in the Ohio House of Representatives.
Ms. Hagan,
23, is also a college student.
She will
graduate shortly from Malone University, an evangelical college in Canton,
Ohio, with more than $65,000 in student debt (among her loans is one from a
farm lender; she had to plant a garden to become eligible). Though she makes
$60,000 a year as a state representative, she plans to begin waiting tables in
the next few weeks at Don Pancho’s, a Mexican restaurant in Alliance, Ohio, to
help pay down her student loans and credit cards. She pays about $1,000 a
month.
“I placed a
priority on a Christian education and I didn’t think about the debt,” said Ms.
Hagan, who says she takes responsibility for her debt and others should do the
same. “I need my generation to understand that nothing is free.”
While Ms.
Hagan’s perspective is unusually personal, it is a common view among lawmakers
here in Ohio and many states. Across the country, elected officials are
increasingly unwilling to assume a large share of the bill for public colleges
and universities, which seven out of 10 students attend. The change has
contributed to sharp increases in tuition and more fund-raising — and the need
for students to borrow more.
From 2001 to
2011, state and local financing per student declined by 24 percent nationally. Over
the same period, tuition and fees at state schools increased 72 percent,
compared with 29 percent for nonprofit private institutions, according to the College Board. Many of the cuts were the
result of a sluggish economy that reduced tax revenue, but the sharp drop in
per-student spending also reflects a change: an increasing number of lawmakers
voted to transfer more of the financial burden of college from taxpayers to
students and their families. (Local funding is a small percentage of the total,
and mostly goes to community
colleges.)
“To say that
tuition goes up because the state doesn’t pay enough money, well, that is the
taxpayers’ money,” said Ohio’s governor, John Kasich, a Republican elected in
2010 whose budget included cuts to higher education because of the end of
federal stimulus money.
Donald E.
Heller, an expert on higher education, said elected officials in both parties
had figured out that colleges were one of the few parts of state government
that could raise money on their own. If lawmakers cut state financing, the
schools could make it up by raising tuition.
“It lets
legislators off the hook and makes universities look like the bad guy,” said
Mr. Heller, dean of the College of Education at Michigan State University.
Ohio’s
flagship university, Ohio State, now receives 7 percent of its budget from the
state, down from 15 percent a decade ago and 25 percent in 1990. The price of
tuition and fees since 2002 increased about 60 percent in today’s dollars.
The
consequence? Three out of five undergraduates at Ohio State take out loans, and the average debt is $24,840.
If any state
is representative of the role government has played in the growth of student
debt, Ohio makes a good candidate. While other states have made steeper cuts in
recent years because of the recession,
Ohio has been chipping away at it far longer. It now rankssixth from
the bottom in financing
per student, at $4,480.
In the late
1970s, higher education in Ohio accounted for 17 percent of the state’s
expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the
state’s budget in the late 1970s; now they account for 8 percent. Federal
mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary
education, too. Legislators could designate a greater percentage of the budget
to higher education by raising taxes, but there is no appetite for that.
Governor Kasich has signed a pledge not to raise taxes, as have about two dozen
legislators.
Some Ohio
elected officials say state colleges and universities have brought the debt
problem upon themselves.
They suggest,
for example, that state schools are bloated, antiquated and don’t do a good
enough job graduating students or training them for the work force. Some
complain about the salaries of football coaches and college presidents, like
Mr. Gee, who has a compensation package of $2 million a year as president of
Ohio State. Mr. Kasich questions why all state universities need to offer every
major, like journalism or engineering, instead of parceling those programs
among the schools.
“It’s not
just inefficiencies,” said the governor, an Ohio State graduate. “It’s, ‘I want
to be the best in this.’ It’s duplication of resources. It’s a sweeping change
that is needed across academia.”
There is an
ideological and political tug of war as well. State Representative John Patrick
Carney, a Democrat, said if legislators were serious about financing higher
education they could find a way, like eliminating tax breaks for corporations.
He noted that even as funds for higher education were being reduced, Mr. Kasich
and the Republican-controlled Legislature eliminated the state’s estate
tax, which will cost the state an estimated $72 million a year.
Mr. Carney
said he worried that the constant tuition and fee increases would limit access
to college for lower- and middle-income students — a founding principle of
public universities. At least two-thirds of Ohio lawmakers attended public
colleges or universities, including Mr. Carney, an Ohio State graduate.
“It’s hard
to say it’s affordable when students leave with that much debt,” he said.
The new
financial reality for colleges has left administrators scrambling to maintain
academic quality and all-important rankings with diminished state resources.
That puts an even higher premium on attracting top-tier students — the rankings
depend on them — and playing down the burdens of college debt.
Buy Now, Pay
Later
At Ohio
State, “college can be a reality for everyone, no matter your income or background,” its Web
site says, while at Ohio Northern, future students are urged to get over the
“sticker shock,” and focus
instead on “return on investment.”
Oberlin
College’s Web site tells prospective students that its financial aid
policy is simple: “We meet the full demonstrated financial need of
every admitted student.” The University of Dayton declares itself “one of the most
affordable private Catholic schools in the country” and a “lifetime investment,
appreciating over the course of time.”
The costs
for these colleges? At Ohio State, about $25,000 a year for tuition and fees,
room and board and living expenses; at Ohio Northern, about $48,000; at Oberlin
$60,000; and at Dayton $48,000.
Colleges are
aggressively recruiting students, regardless of their financial circumstances.
In admissions offices across the country, professional marketing companies and
talented alumni are being enlisted to devise catchy slogans, build enticing Web
sites — and essentially outpitch the competition.
Affordability,
or at least promising that the finances will work out, is increasingly a piece
of the pitch.
Almost all
colleges promote the money they give away in financial aid, though generally
only the most elite schools — like Oberlin in Ohio — are able to provide enough
in grants and scholarships to significantly keep student debt down.
College
marketing firms encourage school officials to focus on the value of the
education rather than the cost. For example, an article on the cover of Enrollment Management, a newsletter aimed at
college admissions officials, urged writers of admissions materials to “avoid
bad words like ‘cost,’ ‘pay’ (try ‘and you get all this for...’), ‘contract’
and ‘buy’ in your piece and avoid the conflicting feelings they generate.”
“There are
direct marketing ‘words’ that can make or break your piece,” the article,
published in 2009, added.
The
financial aid award letters to newly admitted students can also be a minefield
for students and parents sorting through the true costs of a school. Some are
written in a manner that suggests the student is getting a great deal, by
blurring the line between grants and loans or not making clear how much the
student may have to pay or borrow.
A quick
reading of an award letter from Drexel University, received by a New Jersey
applicant in March, implied that the student would owe nothing and might
actually walk away with money. The expected payment to Drexel, it said in
highlighted bright yellow, would be a negative $5,900. The calculation presumed
grants, student loans and a $42,120 loan taken out by the parents toward the
$63,620 estimated cost — figures also included in the letter but not
highlighted.
A Drexel
spokeswoman said that the letter was not misleading and that it had not
received complaints about it. But for many students, the financial realities of
attending a college conflict with the optimistic rhetoric of campus tours,
financial aid materials and salesmanlike admissions officers. And many of them
don’t realize it until it is much too late.
“The overall
message was, ‘It’s doable and normal to go into that much debt,’ ” said
Jillian Potter, 23, who grew up in Ohio and attended Anderson University, a
nonprofit private Christian school in neighboring Indiana.
Ms. Potter
figured she would have to borrow about $10,000 a year. But the tuition
increased every year, and because she didn’t declare a major until her junior
year, she needed five years to graduate.
A social
worker, she now owes $80,000. “I try not to think about it because it’s really
depressing,” she said.
For Evan
Frank, Ashland University, a nonprofit private school in Ohio, dangled the
possibility of a sports scholarship, he said. Mr. Frank liked the campus and
was promised a spot on the football team. His high school guidance counselor
encouraged him and so did his family, though they couldn’t help financially.
Ashland
offered to knock about $12,000 off the costs, and when Mr. Frank called
financial aid to ask for more, they suggested he keep applying for
scholarships. No one at the time said to consider a cheaper alternative, he
said. Ashland costs about $42,000 a year.
“Maybe at
the time I was a little naïve,” said Mr. Frank, 22, a senior who owes $80,000.
“Everyone was like, ‘You can get grants, you can always get loans.’ I wanted to
play football really bad, and I hoped eventually I’d get a football
scholarship.”
Many
students and parents don’t have a firm understanding of the cost of attending
college, or the amount of debt they will incur. And most colleges aren’t much
help. Student debt is not their primary concern in the end — the loan money
usually gets deposited directly with the colleges, so they get paid either way
— and the main job of the admissions staff, after all, is to admit students.
“Ultimately
with everything in financial aid, from start to finish, the student and their
family need to take responsibility and monitor their aid,” Melanie K. Weaver,
the director of financial aid at Ohio Northern, said in an e-mail. “With over
3,000 on aid it is difficult for our office of 10 staff members to stay on top
of every student.”
While there
are standardized disclosure forms for buying a car or a house or even signing
up for a credit card, no such thing exists for colleges.
Instead,
college pricing is complicated by constant tuition increases, a vast array of
grants and loans and a financial-aid system that discounts tuition for most
students based on opaque formulas. “No one has a vested interest in simplifying
the process but families,” said Mark Kantrowitz, the founder of FinAid, a Web
site devoted to
explaining college financial aid. “It obscures the price of a college and makes
the choice of college not depend on the price but other factors.”
Federal
regulations require financial aid officers to counsel students when they take
federal loans and again when they graduate. The counseling typically consists
of making sure they complete a brief online course about student loans and
repayment.
Beyond that,
it is up to the college to decide what, if any, debt counseling to provide.
With a few exceptions, their track record is not very good, according to
students and experts on college finance. Until Congress banned the practice a
few years ago, some colleges outsourced counseling to private lenders, the same
ones offering loans. Now many colleges do little beyond what is required by
law, experts say.
Ohio
Northern administrators said they were trying to come to grips with the growing
debt of their students — an average of $48,886 for borrowers — at a time when
enrollment is down slightly, as it is at many of the small nonprofit private
colleges with which it competes.
Financial
aid officers have not yet told any prospective students that they cannot afford
to attend, school administrators said. But Ms. Weaver, the director of
financial aid, noted, “We are having that conversation.”
Mr. Frank,
at Ashland, said he did eventually receive financial counseling — on the day he
arrived for football camp as a freshman.
A financial
aid adviser suggested Mr. Frank rethink his decision to attend “because the way
it’s looking you are going to be looking at a high amount of debt if you are
going to stay here,” he recalled. “I wanted to play football really bad, and I
was already moving in for camp,” he said. “I wasn’t going to turn back then.”
He never did receive a football scholarship.
Officials at
both Ashland and Anderson Universities said they provided thorough financial
aid counseling to incoming students.
Ms.
Griffith, the Ohio Northern student whose mother is taking out life insurance
on her — a precaution that might be unnecessary because some lenders forgive
loans upon death — said she wished someone had been frank with her about the
consequences of taking on so much debt. (She also received grants.) She is
searching for a full-time job in marketing, her major, while earning $225 a
week at two restaurants.
“When I was
young, I wanted to get out of Putnam County, get out of the cornfields,” said
Ms. Griffith, who is from rural Ottawa, Ohio. “I would love to get away. But it
would be more financially responsible if I got a job near here and lived with
my parents.”
The Shadow of
For-Profits
Wanda McGill
has stopped opening her student loan bills.
She isn’t
sure how much debt she has accumulated, though she thinks it’s about $100,000.
But Ms. McGill, a 38-year-old single mother, knows for sure she cannot pay it.
Ms. McGill
said she dropped out of DeVry University, a for-profit college with a branch in
Columbus, two years ago after she ran out of money — even with the loans. She
now makes $8.50 an hour working for an employment training center in Florida.
“I was
promised the world and was given a garbage dump to clean up,” she wrote in an
online complaint at consumeraffairs.com.
“Like my life was not already screwed up with welfare and all.”
The student
loan crisis has spread from for-profit colleges to more traditional
institutions, but the for-profit colleges continue to represent the worst of
the problem. Students complain that they were misled about the costs of
education and that their job prospects were exaggerated. Government reports and
lawsuits have accused some for-profit colleges of outright fraud, including
doctoring attendance records or peddling near-worthless degrees.
The result?
Students at for-profit colleges are twice as likely as other students to
default on their student loans. Moreover, among students seeking a bachelor’s
degree, only 22 percent succeed within six years, compared with 65 percent at
nonprofit private schools and 55 percent at public institutions. (For-profit
students, however, tend to do better at obtaining associate degrees and
certificates.)
Leaders of
the for-profit industry defended themselves, saying they were providing higher
education for lower-class students that traditional colleges had left behind.
“The reality is the type of students we attract have no other opportunity,”
said Steven Gunderson, head of a leading trade organization. “We are the ones
that provide a path to the middle class.”
Still, the
outcomes for many students have been so poor — and the reported abuses and
misdeeds by the colleges so abundant — that the for-profit colleges have played
another role in the worsening debt problem: drawing attention away from
nonprofit private and public colleges and universities, which have been slow to
face public scrutiny.
The
situation has parallels to the mortgage crisis of a few years ago, said Barmak
Nassirian, associate executive director of the American Association of
Collegiate Registrars and Admissions Officers. The for-profit colleges are like
the subprime lenders — attracting the limelight because they represent the
worst of the problem, he said.
“Mainstream
higher ed can really self-righteously look at the big problem out there and
say, ‘The problem lies with the other guy,’ ” Mr. Nassirian said. “If you
are looking at highway robbery and raping and pillaging, that is true. But
there are all kinds of unfortunate practices in traditional higher education
that are equally as problematic that are reaching the crisis point.” Last year,
Congress approved regulations to curb abuses in the for-profit sector, but
there has been less focus on establishing broader rules for traditional
colleges and universities.
The Obama
administration has tried to make college pricing easier to understand; as of
last year, colleges and universities were required to post calculators on their
Web sites that explain the net price after grants and loans, but critics say
they can be confusing, misleading or hard to find. And the administration has
proposed that colleges be required to offer a “shopping sheet” to make it
easier for families to measure the true costs and benefits.
“We just
have to get them much more information,” said Education Secretary Arne Duncan.
“If you’re going to college, you need to know not what the first year costs.
You need to know what it’s going to cost for the long haul.”
But even with
more information, students and their parents seem willing to pay the
ever-escalating price of a college degree, which remains the key rung up the
ladder of economic mobility.
Denise
Entingh, 44, dropped out after two quarters at Columbus State Community College
because she didn’t want to wait any longer to get into the nursing program. So
she signed on at the Hondros School of Nursing, a for-profit college that
advertises “No Waitlist!” on a billboard a few blocks from Columbus State.
Ms. Entingh
said she expected to borrow about $45,000 to get a bachelor’s degree in nursing
from Hondros, which costs more than three times as much as Columbus State.
“It scares
the hell out of me,” she said of her debt load. “But I think it will be all
right. I’m not going to worry about it right now. I had to take that plunge.”
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