Sunday, September 21, 2014

Student Loans Have Surged as Tuition Costs for Students Have Doubled ... While College Administrators Continue to Spend, Students, Parents and Taxpayers Will Get the Bill

In large part as a result of the Great Recession, Americans in general have begun to more closely monitor personal debt levels and that's a good thing.

Except for one huge exception, that is. And that outlier is the following --- outstanding debt for student loans has more than doubled since 2007, and that's a bad thing --- and a very bad thing at that.

Outstanding student debt has reached historic proportions and there is no relief in sight. The tuition and fees charged to attend college continue to rise at double the rate of inflation, even as state government subsidies fall. In other words, states are finished doling out subsidy money that they don't have, so students are getting loans from the federal government (even though the feds have no money to lend either). The result of all this shell game shuffling is to allow the colleges and their administrators to refrain from having to rein in or otherwise begin to control their bloated cost structures. It's a shame.

Household Net Worth Has Rebounded tells the story in brief:

"Seven years after households’ financial conditions began to deteriorate in 2007, their net worth is 20 percent higher than the prerecession peak. Real estate values have not completely recovered, but households have a lot more money in the bank and have profited from rising stock prices. Their total debt is little changed from prerecession levels, but the makeup of that debt has changed. Households owe less in mortgage and credit card debts, but auto loans are up and student loan debt has doubled. . . .

The decline in household debt is largely due to lower mortgage debt, particularly home equity loans. But consumer credit has continued to rise and now equals a record 19 percent of G.D.P.

That is largely because of the continued surge in student loan debt — an obligation concentrated in younger households and among those who are far from wealthy. It has more than doubled since 2007. In 2006, when the Fed began to report on student loan debt as a separate category, the debt totaled $509 billion, or 22 percent of total consumer debt. Now, it equals $1.3 trillion, a 40 percent share of consumer debt.

That is more than Americans owe either on credit card debts ($839 billion) or auto loans ($919 billion)."

{NOTE: In fact, the enormous debt levels attributable to outstanding student loans will ruin the future prospects, dreams, living standards and savings capabilities for far too many of today's young Americans.}

So here's another description of how it is playing out in Why Federal College Ratings Won't Rein In Tuition:    

"College costs have been rising for decades. Slowing — or even better, reversing — that trend would get more people into college and help reduce student debt. . . . First, consider public colleges (attended by about 80 percent of undergraduates), where tuition has grown faster than inflation for decades. From 1988 to 2013, average tuition at four-year public colleges more than doubled, even after adjusting for inflation.

Yet here is a surprising fact: Public colleges are collecting about the same revenue per student today as they were 25 years ago. In 1988, educational revenue per full-time equivalent student at public colleges was $11,300; in 2013, it was $11,500. (These amounts are adjusted for inflation and are expressed in 2013 dollars.)

That’s just a 3 percent increase. How can this be? If tuition has doubled, shouldn’t public colleges be getting double the revenue?

To reconcile this paradox, we need some background on college finances. Public colleges depend on two sources of revenue for educating undergraduates: tuition from students and appropriations from their state legislatures. Top research institutions, like the University of Michigan and University of Virginia, also get revenue from endowments, research grants and teaching hospitals. But most students attend public schools where tuition and state funds pay for almost everything.

In 1988, state legislatures gave their public colleges an average of $8,600 a student. Students contributed an additional $2,700 in tuition, which gets us to a total of $11,300. By 2013, states were kicking in just $6,100, while students were contributing $5,400; this gets us to a total of $11,500. As far as students are concerned, public tuition has doubled. As far as public colleges are concerned, funding is flat.

At public colleges, then, the explanation for rising tuition prices isn’t spiraling costs. The costs are the same, but the burden of paying those costs has shifted from state taxpayers to students....

The bottom line is that better-informed consumers can’t do much to hold down prices in public colleges, because those prices are not set in a competitive market. Instead, they are determined through a political process, so it is only through the ballot box that people can affect them."

Summing Up

Tuition for students has doubled.

Individual states have cut back funding.

The federal government has increased student loans to make up the difference.

College costs are far too high, but colleges aren't cutting their bloated cost structures.

Students and their parents, as well as the nation's taxpayers generally, will get the bills as colleges fail to rein in costs. 

Sickening, isn't it?

More competition, genuinely lower college costs for student attendees and their families, fewer government handouts to college administrations, and an infinitely better deal for taxpayers and American society, anyone ?

That's my take.

Thanks. Bob.

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