In 1989, after eight years of school, numerous part-time jobs and roommates, I finally graduated from UC Davis. Tired of living in poverty and eager to pay off my modest student loan debt of a whopping $5,000, I decided not to attend graduate school but head straight to the job market.
Fast forward 22 years and I am astounded that the average student loan debt for a Bachelor’s degree is $26,600 as reported in Student Debt and the Class of 2011. Students and parents are financing recalcitrant university administrator’s failure to adjust to a new reality of less government support.
Who cares about student loan debt?
Only two types of people care about the average student debt burden on college graduates: those who have the debt and the parents trying to help their children avoid it. With a 15 year old son that is starting to think Stanford is a pretty cool school, I have gone into full psychological-operation mode to convince him the public schools are really groovy.
The affordability of public universities has been eroding ever since the recession hit in 2008 and colleges were easy targets for budget cuts. One of the few areas of my life where I did make the right decision was in starting a college fund for my son when he was born. I was pretty proud that in 2007, with the rate of growth and my additions, it was a good bet that I would be able to cover 75% – 95% of my son’s education. With the unprecedented rise in fees at the University California, it is doubtful that the little college fund will take care of 40% of his education.
Working through college sucks!
Folks have expressed the sentiment, “He’ll just have to get a part-time job. Working will make him appreciate his education more when he pays for it.” In an uncharacteristic burst of anger and arrogance I usually retort, “I worked through college and it sucked. I hated working. I feel no special accomplishment that I paid my way through college. I started the “F”-ing fund to pay for his education. California has screwed up the system. My son is too damn smart to have to work through school, that’s why I was trying to be responsible and save for his education.”
After I put the fire out on my head and started to cool down I realized something wasn’t right with the picture. First, how close was my student debt to the average in 2011? I used the U.S. Bureau of labor Statistics to inflation calculator to determine the value of my student loan today adjusted for inflation. $5,000 in 1989 is equivalent to $9,330 today. I have read that cumulative inflation for the last 22 years have been 82% – 85%, so the figure looked accurate.
Calculus and the curve of increase
The escalation in the average student debt burden has happened only over the last 4 or 6 years. However, the debt burden parallels the dramatic college fee increases that have been outstripping inflation. When you look at the numbers for the UC system, it represents a tuition cost that is increasing at an increasing rate (A little calculus lingo I remember from my college days):
(click to enlarge)
From the University of California The Facts: Systemwide Tuition and Fee Increases
The primary reason student fees rise is related to the level of state funding UC receives — or doesn’t receive.
- In 1990-91, the state funded 78 percent of the total cost of education per student. In 2010-11, the state provided 47 percent. The state’s contribution will fall further in 2011-12.
- As state support has declined, the students’ share of their education costs, net of financial aid, has tripled, from 13 percent in 1990-91 to 41 percent in 2010- 11. As the state’s share falls in 2011-12, the student share will rise further.
The regal Board of Regents
Essentially, what the UC Board of Regents is saying is that for every dollar the state legislature cuts their budget they’ll just raise the fees by an additional dollar. The UC and other public college systems feel they are above the budget cuts.
As the economy collapsed in 2008, tax revenue tanked and higher education funding got cut. California’s university systems live in an alternate universe. Unlike other government departments and programs, public universities get to ignore reality and just raise fees. There is never any reason to make the Chancellors, professors, staff or building projects suffer like the rest of government. While city and county parks go to seed and healthcare services for the poor are reduced because of budget cuts, most university grounds never looked greener and new facilities are being built.
Who needs state assistance; we’ve got student loan money
While colleges and universities have made some token reduction in services, life goes on as usual. Public university systems can be indifferent to the entire recession because they have tapped into a whole trough of money called student loans. This pot of gold for the colleges is better than taxpayer money because they don’t have to answer to anyone. Federal and private student loans are now funding an increasing share of the university system’s costs.
In a sense, there has been a revenue sleight of hand. When tax money – subsidies essentially – were cut, the universities raised fees and shifted their revenue from the state to the student. Even though they have lost some students, they know the imperative to have a college degree is sufficient enough for most students and parents that student loans just become a shrug of shoulders. As the new mindset of “high student loan debt is a fact of life”, several folks have noted the similarities to the subprime mortgage loan crisis of the 2000′s.
Creating a house of “student loan debt” cards
Upon reviewing the Student Debt and the Class of 2011 report, Adam Minsky, Esq. of Boston Student Loan Lawyer wrote of the commonalities between the growing student loan market and the mortgage crisis that precipitated our last recession.
But the report also found some additional similarities, including remarkably unhelpful customer service systems, few options for borrowers facing financial hardship, arbitrary fees, and hidden or difficult-to-understand terms and conditions. None of this comes as a surprise to many private student loan borrowers, nor is it particularly surprising that this has led approximately 850,000 private student loan borrowers to default on at least $8 billion of private student loan debt. But the similarities to the subprime mortgage crisis are unnerving, to say the least, and one has to wonder if this will lead to another economic collapse.
Not only is the total debt growing enormously, the universities, private lenders and federal student loan program are feeding into this new paradigm shift of student loan debt. One aspect I was worried about was how the family-expected contribution factored into eligibility for the student loans. But the system is rigged. The first factor in determining financial assistance is the “Cost of Attendance.” If the Cost of Attendance increases faster than the relative family income, the ratio is skewed in favor of qualifying for student loans.
Actually, it is worse than you think. The faster the university system raises fees, the larger the pool of eligible students for student loans grows. The marketing is such that it is easier to take out a loan than have the parents dip into savings. By default, students just heap on the debt like a credit card that won’t come due for 4 years.
What else can these suckers pay for
But the scam and conspiracy don’t end with corralling students to finance the university lifestyle. Another excerpt from University of California The Facts: Systemwide Tuition and Fee Increases is illustrative of the conspiracy:
HOW MUCH DID FINANCIAL AID INCREASE?
One-third of the revenue generated from any undergraduate fee increase is set aside for financial aid for needy students.
So happy to hear, and then realize, that financial aid for needy students is being paid for with student loan debt! In other words, the burgeoning student loan debt crisis is not only filling the cuts from the legislature, it’s also propping up financial aid to low income students that has also been cut. The middle class in America is getting screwed. The University of California shifted the cost of their operations and financial aid to low income students from California tax payers to middle class families taking out student loans to attend college.
Even if all the cuts to funding are restored to the University of California system, you know the fees won’t decrease. They’ll find another way to spend the money. Consequently, students will continue to heap on student debt, which is essentially mortgaging their future ability to purchase items such as homes and cars. At this point, I am hoping my son does really well in high school and gets a scholarship. Then he can use the college fund to buy beer for his buddies.
About Kevin Knauss
I wish your son the best of luck in getting scholarships/grants to pay for his college education. And I really mean that. Because he will need it.
My daughter graduated with a 3.8 GPA. Because I’m disabled and when she turned 18 we no longer received disability benefits for her and child support also stopped, she received the maximum Pell Grant. She also received an Academic Competitiveness Grant, another grant whose name now escapes me, and made the Dean’s list. Because she received so many grants, many scholarship committees felt she “didn’t need” them. And at the time they were right – she had everything covered but her books. Her step-grandfather had put aside $5000 in a fund for her to help her with any other expenses. She was definitely on her way.
Now 2 years later we are struggling to keep her in school without having to resort to student loans, and next semester we may have to resort to them. Her freshman year (when we didn’t have disability or child support) we were in such straits that we were living off savings (remember the economic collapse?) We had some warning this was going to happen in the year between child support and my husband turning 60 and becoming eligible to receive his military retirement; but during that year we eked out our savings. His military retirement merely brought us back to the point where we could pay our bills without hitting our now nearly non-existent savings.
But Pell Grant did not take that view and they cut her funds in HALF. And she lost her ACG and her other grant for lack of funding – the lovely part about that was that no one informed us – neither the grant foundations nor the college – we only found out when we checked her account at the beginning of the semester and to our great surprise found she was about $1500 off (and that was after Pell Grant had bee reduced). Then the college increased tuition, despite the fact that they had increased tuition the year before and promised they would not do so again for 5 years (we had that on paper, but hey, you know, economic crisis and all that). At this point someone defended the college, saying “They can’t help it. Their costs have increased too – utilities, food, housing, etc. Their costs have gone up just like everyone else’s has.” That’s RIGHT – my utilities, food, housing, etc., have ALSO gone up, but I don’t get to pass those increased costs onto anyone else.
With costs still increasing, my daughter got another part time job and saved up several hundred dollars over the summer to help pay for the ever higher costs of trying to get an education. She cut her meal plan back to nearly nothing and she still works her butt off on weekends to pay for groceries and other needs plus we cook casseroles and other meals she can cart back to school after the weekend and she eats in her dorm. Her entertainment consists of her computer we bought for school and books – which for her is not a hardship as she loves to read – but her computer is wearing out and the gods only know where the money will come to replace it. Oh, and this semester is costing her more gas as with her junior year came student teaching – right now it’s just once a week and she carpools for the 45 minute drive each way, but with each semester will come more time in the classroom as a student teacher and more gas; her senior year will almost totally be off-campus. Her dad paid for her books and other things she needed for her dorm room (she lives in a dorm because it’s cheaper than the gas to and from, not to mention the wasted time driving) and my husband and I strove hard to save up $1000 this year to cover the gap that her own job didn’t meet and new surprises like needing “teachers’ insurance” so that if she gets hurt while student teaching or hurts someone else she won’t get sued – it would be really helpful if they didn’t wait until the current semester to warn you of that kind of thing!. But neither set of parents can do so again – we are just cash-strapped by now.
And now we’re told that her tuition will go up once more before she graduates and her Pell Grant will go down more. She looked into applying for other financial aid and pretty much got laughed at. If you’re not a freshman your possibilities of finding scholarships – no matter how high your grades are – are almost non-existent, grants are also becoming non-existent because what little funding they still have is concentrated on freshmen, work-study programs are full, and she’s basically told to “get a job or get a student loan or both.” Well, she’s got a job.
And here’s the scary thing: we know we are lucky to have gotten her this far.
Yes, there are always student loans, and if it’s a choice between not graduating and getting student loans, she will get a student loan. But we’ve been there and done that with more than one person in our family and my retired dad – whose own funds didn’t do well in the crash of 2008 – has said that if she gets one without asking him for money first he would turn her over his knee. Student loans people will fry you like an egg given half a chance. Eight years after paying off my student loan they tried to come after me for costs I didn’t owe, sent me to 2 pit bull collection agencies, contacted and threatened my ex-husband – it was just ridiculous and had I not known my rights I would have been totally screwed – as it was it took me over 6 months to get them to admit I owed them nothing! I really don’t want my daughter to have to deal with starting her adult life in debt, much less put up with the kind of harassing crap that I did.
And all this is DIScouraging the middle and lower classes from getting the education that is so vital to them these days. Then when so many give up, people can look down their noses and say “Why didn’t you get a college degree?” It’s just one more way to keep a foot on our necks. It’s one more way to keep us in our “place.” It’s one more way to show us that the “American Dream” is not feasibly in reach for everyone and that we are not all given equal opportunity for a college education. We have the right to life, liberty and the pursuit of happiness – and the right to pursue an education. Just not the means.
Lisa, Thank you so much for your comments. They illustrate the corrupt nature of student loans and the cost they are inflicting on families across America. We all understand that a college education is not inexpensive. However, the benefits they have provided in terms of sustainable families, stronger communities and innovative U.S. businesses is immeasurable. We only have to look at countries with a week public education systems to realize the path we will be on if we don’t create an affordable financing program for anyone who chooses to attend college.