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Donna Randall


Student Debt: It's More Complicated (And Better) Than You Think

Posted: 12/13/2013 5:44 pm

The end of December is traditionally a time when high school seniors and their parents sit down for a serious conversation about college. As they debate the merits of various colleges, there is one question that inevitably comes up: Can we afford it?

Over the past few years, media attention to student debt levels has made family conversations even more stressful. Indeed, an informative report released earlier this month (Student Debt and the Class of 2012 by the Institute for College Access and Success) provides sobering data for families to consider. The report reveals that student debt level continues to rise each year. Seven in 10 college graduates in 2012 had student loan debt; if they graduated with a loan, the average debt was $29,400. The report also stated that this figure may actually be higher as many for-profit colleges did not voluntarily contribute data on student debt levels (students who choose for-profits are more likely to borrow, and they borrow more money on average). The data also don't include all private loans that students take out (institutions are often not aware of all private sources of student debt). Alarmingly, student loan default rates have risen six years in a row.

What do parents and graduating seniors need to consider as they look at financing a college education? They need to know that there is tremendous variation in student debt load across geographic regions, states and institutions, and that they should look beyond "sticker price" (published tuition and fees) when comparing colleges.

The report reflected that college students tend to borrow more in certain regions of the country, notably the East and Midwest. Total debt at graduation varied from $18,000 in one state to $33,650 in another, and the likelihood of a student having debt upon graduation ranged from 41 percent to 78 percent. While the variation in average debt load across states is significant, variation across higher education institutions is even more significant -- from $4,450 to $49,450 -- and the likelihood of having debt upon graduation ranged from 6 percent to 100 percent.

As families discuss the affordability of various colleges, they may prematurely eliminate a college from consideration based on the stated sticker price. While it is true that higher-cost colleges tend to graduate students with higher average debt, there is no direct correlation. There are several examples of "pricey" colleges that graduate students with little debt and vice versa.

Why is sticker price not a perfectly reliable predictor of average student debt? Multiple factors influence the average student debt at an institution. For example, the size of an institution's endowment can impact student debt level. A large endowment may allow a college to provide more need-based and merit aid to students. An institution's financial aid packaging policy is critical. At some of the more expensive colleges, low- and moderate-income students may benefit from generous financial aid packages.

To make an important and informed decision about how to finance a college education, families need to have easy access to accurate data. To assist families, the federal government has provided consumers with several tools including the FAFSA4caster, College Scorecard and net price calculators. Net price calculators (required by the federal government to be on every college's website) are particularly helpful as they provide families, before they actually apply to a college, with an individualized estimate of the cost of attending a specific institution.

Families may also want to work directly with financial aid offices at those colleges and universities under consideration. At Albion College, as at many colleges and universities, financial aid counselors are quite willing to provide student loan counseling to assist families in understanding available options and making wise decisions. Many colleges are now teaching students about debt management and financial literacy. And, this education needs to extend past graduation. Students will want to increase their borrower awareness of repayment options such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) plans.

Is it really worth the time and effort for a family to explore college affordability options? Yes -- a college education is life-changing. College graduates and their families benefit from an enhanced quality of life; local communities gain an informed and engaged citizenry; and, with a better educated labor force, our nation can compete more effectively in a global economy. Especially now, in our still-troubled economy, employment opportunities alone speak to the value of a college degree: The unemployment rate for recent high school graduates is more than double the rate for recent college graduates. College is an investment, and, like all major investments, it should be carefully researched by the consumer. It is worth the effort.

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  • California

    Average tuition and fees for in-state student: $9,022 in 2011-12 Increased: 20.5% from a year prior and 98.3% from five years prior <br> The worst could be yet to come for students in California's public universities. If California residents vote against state tax increases in the November elections, the school system will have to come up with money fast to fill the $375 million budget gap that would ensue, says Dianne Klein, a spokeswoman for the University of California's Office of the President, which is the headquarters for the 10 UC campuses. Under that scenario, tuition could rise 20.3% for the second semester of the upcoming academic year. Much of California's growing college-cost burden has been placed on out-of-state students. The 10 most expensive campuses for out-of-state students in the U.S. are all in California, where tuition, fees, room and board in total ran up to roughly $51,000 last year, according to the Chronicle for Higher Education. Klein says that despite the rising costs, overall applications to the UC system are going up; she also says that because of the system's financial aid programs, about half of all UC undergrads pay no tuition.

  • Arizona

    Average tuition and fees for in-state student: $9,428 in 2011-12 Increased: 16.8% from a year prior and 101.7% from five years prior <br> Since 2008, Arizona's public universities have laid off faculty and staff and eliminated academic programs in order to make ends meet. This year, state funding will total $708 million, compared with nearly $1.1 billion for the 2007-08 academic year, says Katie Paquet, spokeswoman for the Arizona Board of Regents. As tuition costs have risen, the largest universities in the state have rolled out lower-cost ways that students can attain a Bachelor's degree. This fall, Arizona State University will open a new campus in Lake Havasu City, where annual tuition for state residents will cost $6,000, nearly 40% less than at its campus in Tempe. Also, Arizona's largest universities -- ASU, University of Arizona and Northern Arizona University -- are offering students who transfer from community colleges a lower-cost way to complete their Bachelor's degree; in some cases, students will be charged the cost of tuition during their freshman year in community college rather than the tuition the four-year school charges when they enter it. "Our goal is to provide more options to students across the state at varying price points," says Paquet. Separately, for the first time in two decades, Arizona State University and the University of Arizona have frozen tuition for in-state undergraduate students for the upcoming academic year. Tuition for out-of-state students will rise by roughly 3%.

  • Georgia

    Average tuition and fees for in-state student: $6,808 in 2011-12 Increased: 15.9% from a year prior and 74.2% from five years prior <br> Beyond tuition hikes, Georgia college students are also facing cutbacks to a popular state scholarship program. Last year, the state reduced the amount of money it doled out to students through its merit-based Hope Scholarship, amid concerns that the program was underfunded. The program, which used to cover 100% of tuition costs at the state's public colleges for qualifying students, covered roughly 87% last year; this year, as tuition continues to rise, the scholarship will cover 81% to 85% of costs in the university system. The state is also looking at cutting direct funding to higher education. Georgia Governor Nathan Deal recently proposed a $54 million cut through June 2014, which if enacted would reduce spending over that period to roughly $1.7 billion. A decision is expected early next year. John Millsaps, spokesman for the University System of Georgia, says public institutions have had to shift much of the cost burden onto students as state funding dwindles. Over the past seven years, state funding went from covering 75% of the cost of educating students to 50%, he says.

  • Washington

    Average tuition and fees for in-state student: $9,484 in 2011-12 Increased: 15.7% from a year prior and 67.3% from five years prior<br> Unlike most states, Washington doesn't have an individual income tax; instead, it relies on sales taxes for much of its revenue. Income from that source slumped during the recession, leaving the state with less money to go around. To make up for the shortfall, the state granted permissions to its public universities to raise tuition, and students have felt the impact: Six years ago, it cost roughly $5,700 on average for an in-state student to attend a public college in Washington. That's hovering around $10,000 this year. In June, the University of Washington announced a 16% increase in tuition and fees for the upcoming year, following a 20% increase last year. The state is covering just 30% of the cost of educating its students, the lowest share ever, says Norm Arkans, a spokesman for the University of Washington. He says the institution's relatively low tuition and fees provided some leeway to raise costs, but adds that the strategy isn't sustainable in the long term.

  • Nevada

    Average tuition and fees for in-state student: $6,044 in 2011-12 Increased: 13.7% from a year prior and 65.8% from five years prior <br> Few students have been immune to tuition spikes in Nevada. During the five academic years ending this past spring, Nevada raised tuition and fees at its community colleges by 48% on average, one of the highest increases in the country, according to the College Board. Costs at four-year public colleges rose 66% over the same period. And midway through the last academic year, the state approved an 8% tuition increase for all undergrads, which will kick in this fall. Still, despite the increases, the cost to attend a public college in Nevada remains lower than the national average, says Dan Klaich, chancellor of the Nevada System of Higher Education.


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