Borrowing looms large in American life from homes to cars. But the explosion of student debt in the last decade is a pernicious trend that the colleges themselves are encouraging.
How do colleges manage it? Kenyon has erected a $70 million sports palace featuring a 20-lane olympic pool. Stanford's professors now get paid sabbaticals every fourth year, handing them $115,000 for not teaching. Vanderbilt pays its president $2.4 million. Alumni gifts and endowment earnings help with the costs. But a major source is tuition payments, which at private schools are breaking the $40,000 barrier, more than many families earn. Sadly, there's more to the story. Most students have to take out loans to remit what colleges demand. At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors.
As this semester begins, college loans are nearing the $1 trillion mark, more than what all households owe on their credit cards. Fully two-thirds of our undergraduates have gone into debt, many from middle class families, who in the past paid for much of college from savings. The College Board likes to say that the average debt is "only" $27,650. What the Board doesn't say is that when personal circumstances go wrong, as can happen in a recession, interest, late payment penalties, and other charges can bring the tab up to $100,000. Those going on to graduate school, as upwards of half will, can end up facing twice that.
A fact of academic life is that the tuition-debt nexus keeps most colleges going. At Loyola University in Chicago, 77 percent enroll with loans, as do 85 percent in New Hampshire's Franklin Pierce. At historically black colleges, where endowments are low and students are often poor, it's usually 90 percent. Nor is soaring private tuition the only reason. At public Kentucky State University, with only $6,210 in charges, 76 percent sign up for loans; so do 85 percent at the University of North Dakota, where state residents pay $6,934. What these figures suggest that borrowing is as much to finance living away from home as for bursars' bills. Books, travel, and socializing quickly add up. Room and board charges have doubled in actual dollars since 1982 to enhance campus life. Bowdoin's menu features vegetable polenta and butternut soup, while Penn State provides legal downloads of music numbering two million songs a week. But let's be clear. It's not the colleges which are paying for these and similar amenities. It's the students, mainly by borrowing, which the colleges actively encourage.
Why has tuition climbed to $41,304 at Carleton, $42,384 at Wesleyan, and $43,190 at Vassar, three times over inflation since 1982? The short answer is that colleges have embraced a host of extraneous activities - from obscure sports to overseas centers - and tacked most or all of their tabs onto students' bills. Unlike businesses, which cut losing operations, colleges simply hike their tuitions. In our view, good higher education could be had at much lower costs. It belongs on the nation's agenda, up there with preserving Social Security and Medicare.
WHO REALLY PAYS FOR THE RISING COST OF COLLEGE?
Of course, borrowing looms large in American life: homes, cars, boats, even buying stocks on margin. But student loans are taken out by eighteen-year-old freshmen, not exactly the most experienced clientele, nor can this be assumed of all parents. Indeed, the lending industry's lobbyists ensured that teenagers can sign up on their own, even before they're able to order wine with dinner. And unlike cars and boats, college repayments can dunned for several decades.
Nor is it just about money. There are moral dimensions as well. Recent actions by Dartmouth and Williams, two wealthy schools, convey a lot about academic priorities. In the past, both schools announced that anyone they accepted would be able to enroll without having to take out loans. That is, the colleges would ensure all the aid that was needed to make attendance possible. This was heralded as the kind of noblesse oblige we hope for from well-off institutions. That was before 2008. But when Dartmouth and Williams' endowments tanked, hard decisions had to be made. Among the first was telling their needy students they would henceforward have to borrow, just like those at Loyola and Franklin Pierce. What struck us was who was chosen for sacrifice. At no point did their senior professors, whose total packages average $189,600, volunteer to take even a five percent cut. That could have preserved many if not most of the scholarships.
One reason why more students are borrowing is that few parents pay all or even most of college costs, a trend underway well before the recession. Last year, a typical family with college-age children spent $3,102 on dining out, but only $2,055 on education. Only half of entering freshmen say their parents had put anything aside; and of those who did, half had banked less than $20,000.
Some may have been listening to Suze Orman, who for a long time was telling them "no parent should have to be responsible for financing his or her child's education." Her logic was that with student loan rates so low, it's wiser to put your spare money elsewhere. What's disturbing is that few parents kick in when students start having to repay. Not to mention that starting jobs don't offer much leeway dealing with loans.
IS IT A BUBBLE?
If you want to get a name as an economic seer, try this one. The next subprime crisis will come from defaults on student debts, starting with for-profit colleges and rising to the Ivy League. The parallels with housing are striking. In both, the written warnings aren't understood, especially on penalties and interest rates. And in both, it's assumed that what's being bought will rise in value, in one case the real estate, in the other the salaries which will accrue with a degree. One bubble has burst; the second is already losing air.
Still, there's a difference. With mortgage defaults, banks seize and resell the home. But if a degree can't be sold, that doesn't deter the banks. They essentially wrote the student loan law, in which the fine-print says they aren't "dischargable." So even if you file for bankruptcy, the payments continue due. Hence these stern word from Barmak Nassirian of the American Association of College Registrars and Admissions Officers. "You will be hounded for life," he warns. "They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment." He adds that any professional license can be revoked and Social Security checks docked when you retire. We can't think of any other statute with such sadistic provisions.
In fact, it's possible to get a fine bachelor's degree at a reasonable cost and without going into debt. But students and their parents will have to stop thinking that name-brand prestige assures academic quality. The reverse is often true: professors who are rewarded for research are less likely to spend time with undergraduates. One offshoot of the PhD glut is that excellent teachers have taken positions at two-year colleges and regional branches of public systems. Raritan Valley Community College in New Jersey, Western Oregon State University, and University of Maryland's Baltimore County campus are a few we've visited and were impressed with what we saw.
WHAT YOU SHOULD DO
So here's a low-cost plan, even if it won't win envy points at the country club. Let's suppose you live in Pueblo, Colorado. Your child's first two years can be at the local community college, where the annual tab is $3,399. The classes tend to be small, unlike the mega-lectures at the flagship schools; the faculty gives full attention to teaching, since they're not pressured to churn out research. Moreover, every community college has a liberal arts division. You can study philosophy and history, as well as air conditioning repair. For your last two years, Pueblo will facilitate a transfer to Colorado State University in Fort Collins, where tuition is $6,985, with room and board at $8,744. Entering as a junior, you'll find it easier to find and enroll with interesting professors. Total four-year cost: $38,256. We'd hope this is a sum parents could put in a college fund. And if you apply yourself at Fort Collins, its faculty will give you strong recommendations. Harvard law school, Stanford medical school, and Chicago business school make a point of looking for promising candidates from places like Colorado State. In fact, they may take you over graduates of Tulane (who laid out $206,821) or Georgetown ($214,364).
For four years away, look at public liberal arts colleges, where you can get an Amherst-quality education at the fraction the cost. A sampling of in-state tuitions: Glenville College in West Virginia ($5,384), Florida's New College ($5,364), Evergreen in Washington State ($6,679). We've observed classes at many of them, and the only difference between their professors and Amherst's is the graduate schools they attended. Flagship universities are also creating their own "honors colleges," often with special housing, seminars, and faculty advisers. We visited Barrett College at Arizona State University ($8,132) and Barksdale College at the University of Mississippi ($5,438) and rank them among schools with national names. The McCauley Honors College of the City University of New York gives free tuition and a stipend for foreign travel to everyone who maintains a 3.5 grade average.
Needless to say, there's a huge industry out there, trying to beguile parents into clouding their offspring's future. Banks advise that borrowing is an excellent investment, since college graduates average lifetime earning $1 million more than their high school counterparts. (It's a projection based on a lot of rosy assumptions.) But the hard fact is that students are slated to repay all their loans soon after graduation, not exactly a high-income period. Not to mention veering away from jobs they may really want - like inner- city teaching or family practice medicine -- for others better suited to meet repayment schedules.
There are other siren songs out there. A school's financial aid adviser isn't always a freshman's best friend. While seldom openly stated, their job is to supply the college with as many paying freshmen as possible. Budgets even at schools like Brown and Duke will only balance if over half of their students foot the full bill. Few colleges offer actual cash assistance - at best, like car dealers, they dangle discounts - so they steer less affluent students to loans. So-called aid officers do this for one reason: the money you borrow goes into the college's coffers. Paying it later will be your problem.
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