The crippling cost of college

One of the themes we keep emphasizing has to do with the crippling costs of a college education today in America. Sure, college campuses are much nicer with all the new buildings and new technologies, but they are failing in their basic mission if students leave there with massive student debt that will hang over them for the rest of their lives.

More publications are doing good work discussing these problems. In Newsweek, Megan McArdle asks whether college is a lousy investment.

Why are we spending so much money on college?

And why are we so unhappy about it? We all seem to agree that a college education is wonderful, and yet strangely we worry when we see families investing so much in this supposedly essential good. Maybe it’s time to ask a question that seems almost sacrilegious: is all this investment in college education really worth it?

The answer, I fear, is that it’s not. For an increasing number of kids, the extra time and money spent pursuing a college diploma will leave them worse off than they were before they set foot on campus.

Given the costs, it’s hard to argue with her on this point. She discusses how college was critical for many families in building a better life for the next generation. But sitting on an English degree with $150,000 of debt seems like a pretty bad deal.

That said, we can’t overreact to the current economic conditions. When the economy improves, more of these kids will get jobs with their degrees.

Yet something has to give, and it was very encouraging to hear President Obama challenge colleges to slow down tuition inflation.

Also, the future of free college courses looms on the horizon. Universities would be wise to start figuring out how to lower costs, or they might really have a problem in the future.

Some regulations on for-profit-colleges struck down

It was a pretty technical decision, but a court has struck down some of the regulations put in place by the Obama administration to regulation the for-profit-college industry. This is problematic as many of these colleges are loading up students with a ton of debt, while their degrees don’t get them a job. We’ve also seen some pretty shady practices in recruiting students to these schools. Unfortunately, there are far too many for-profit college scams out there.

This unfortunately tarnishes those colleges that provide good training for students. Hopefully the media attention will make students more selective, but the problem is that these schools are playing with our money, as the taxpayers help fund these student loans. We need more accountability and the court just made it more difficult.

Fixing college tuition

We have some serious problems in the country surrounding college education. We have some of the best universities in the world, so the issue is not quality. The issue is price. The cost of college is soaring, and aggregate student debt will exceed $1 trillion!

President Obama is trying to address the student loan crisis with some sensible reforms, but the bigger long-term issue has to do with the cost of a college education.

Steven Goodman addresses the problem and proposes a solution.

Since loans now comprise 70% of financial aid packages, the growing tuition burden falls squarely on student-borrowers who may have saved for college but who still can’t meet the high cost of attendance. Two-thirds of American undergraduates are in debt. This year, student loan debt will grow to more than a trillion dollars, outpacing credit card debt for the first time. As hundreds of thousands of high school seniors prepare their college applications, and their parents compile documents required for financial aid, Congress needs to seriously consider legislation that will rein in future tuition increases.

There are many reasons for the dramatic rise in tuition, including demand for better student residences, cutting-edge laboratories, IT improvements, cuts in state subsidies and administrative growth. Regardless of which factors are most significant, the fact remains that there has simply not been enough external pressure to force universities to contain costs. Ironically, the accessibility of student loans, while admirable at first glance, has contributed to tuition growth. And while President Obama’s recent proposal to cap student loan repayments depending on income is a step in the right direction, it doesn’t address the bigger problem of runaway tuition in the first place.

This is where government needs to firmly step in. The federal government contributes billions of dollars to research and development on campus and allows universities to function as tax-exempt institutions. Self-policing of college costs has not worked; government needs to tie its support of higher education to college costs.

Read the entire article as it presents a sensible argument.

New Government Rules Give Students Break on Loan Payments

Millions of college students around the world graduated this year and they have more on their minds than finding a job. Most college students graduated with a mountain of debt and no means to pay it. Even if these graduates find a job right out of college, depending on the amount of debt, payments can range anywhere from $100 a month to more than $1,000 a month.

According to a recent news article, one student loan servicing center suggested that a recent graduate, working in an entry-level position for a Web company, pay $900 a month towards his $82,000 federal student loan balance. Of course, this is nearly impossible to manage on an entry-level salary – or even a mid-level salary for that matter, so what can borrowers do to delay or minimize payments? According to author and personal finance columnist Gail MarksJarvis, if you have federal loans, you can make use of new government rules that give people a break on student loan payments they cannot afford.

If you owe more on your loans than you earn annually, you are likely a candidate for some relief. Under the relatively new “income-based repayment plan,” you get relief if the regular payments you would have to make over 10 years will exceed about 15 percent of your discretionary income. That’s calculated based on a formula related to the U.S. poverty line. Besides income, the calculation involves the size of your family. Simply put, most borrowers will pay less than 10 percent of their adjusted gross income.

To find out if you qualify for the income-based repayment plan and to calculate your payment, visit the official Federal Student Aid website at: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp.

Only 22 percent of students at for-profit colleges graduate

We’ve done a number of posts about for-profit college scams, so we aren’t too surprised by the terrible graduation rates reported in a new study.

For-profit colleges graduated an average of 22 percent of their students in 2008, according to a new report from Education Trust.

That average palls in comparison to bachelor’s-seeking graduation rates at public and private non-profit colleges and universities for the same year, which averaged 55 percent and 65 percent, respectively.

The report, titled “Supbrime Opportunity” (PDF) also reveals that for-profit colleges increased their enrollment by 236 percent from 1998 to 2009.

The median debt of for-profit college graduates — $31,190 — far outpaces that of private non-profit college graduates, which stands at $17,040, and is more than triple the median debt for those from public colleges, which is $7,960.

The government has helped to create this monster with easy access to student loans for these institutions, who now have the incentive to accept as many students as possible. Then they make money regardless of whether they provide value to their students.

Fortunately, the Obama administration has proposed new rules to make it more difficult for many of these for-profit colleges to waste taxpayer dollars.

ABC News investigates for-profit colleges

ABC News has been investigating for-profit colleges like University of Phoenix, and they found plenty of evidence of problems similar to other for-profit college scams.

Ads for online schools are all over the Internet, plastered on billboards in subway cars and on television. The University of Phoenix, with nearly 500,000 students, is the biggest for-profit college. But some former students said they were duped into paying big bucks and going deeply in debt by slick and misleading recruiters.

“I don’t want anyone else to be sucked in,” said Melissa Dalmier, 30, of Noble, Ill.

The mother of three had big dreams to be an elementary school teacher, so when she saw ads for the University of Phoenix pop-up on her computer, she e-mailed them for more information. A few minutes later, Dalmier said she got a call from one of the school’s recruiters, who she said told her that enrolling in the associate’s degree in education program at the University of Phoenix would put her on the fast-track to reaching her dream.

“[The recruiter said] they had an agreement with Illinois State Board of Education and that as soon as I finished their program I’d be ready to start working,” she recalled.

Within 15 minutes, Dalmier was enrolled. Since she didn’t have enough money to pay for tuition, she said the recruiter helped her get federal student aid. In total, she took out about $8,000 in federally-guaranteed student loans.

But just a few months after Dalmier started, she said she learned the horrible truth: the degree program she was enrolled in would not qualify her to become a public school teacher upon graduation in Illinois.

“It was an outright lie. A bold faced lie,” she said.

ABC News did its own undercover investigation, and found the same despicable practices. Recruiters also push prospective students to load up on the student loans. Read the rest of the story and check out this video.

Student loan reform signed into law

President Obama has signed into law the student loan reform that was attached to the health care bill. It’s a huge triumph against bank lobbyists and a significant victory for students who have been victimized by aggressive loan techniques used by the banks that are similar to the tactics they used for credit cards. Millions of young Americans are saddled with debt with onerous interest rates and penalties.

The new law is also a victory for taxpayers who no longer have to subsidize bankers preying on students.

The new law will eliminate fees paid to private banks to act as intermediaries in providing loans to college students and use much of the nearly $68 billion in savings over 11 years to expand Pell Grants and make it easier for students to repay outstanding loans after graduating. The law also invests $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for Trade Adjustment aid.

The law will increase Pell Grant grants along with inflation in the next few years, which should raise the maximum grant to $5,975 from $5,550 by 2017, according to the White House, and it will also provide 820,000 more grants by 2011. Including money from last year’s stimulus program and regular budget increases, the White House said Mr. Obama has now doubled spending on Pell Grants.

Students who borrow money starting in July 2014 will be allowed to cap their repayments at 10 percent of their income above basic living requirements, instead of 15 percent. Moreover, if they keep up their payments, they will have any remaining debt forgiven after 20 years instead of 25 years – or after 10 years if they are in public service, such as teaching, nursing or serving in the military.

Mr. Obama portrayed the overhaul of the student loan program as a triumph over an “army of lobbyists,” singling out Sally Mae, which he said spent $3 million to stop the changes. “For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks,” he said. He said the money “was spent padding student lenders’ pockets.”

Hopefully this will enable more Americans to chase the American Dream.

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