Before Congress broke for its August recess, the Senate passed and the House approved a bill that rationalized the student loan process. The bill gave students certainty on the rates that they will pay on the educational loans that they receive.
In spite of this, students remain alone on a number of issues that affect them and their future. These include: the increased cost of a college education; decreased financial assistance; reduced employment opportunities and/or underemployment upon graduation; diminished lifetime earnings potential; and difficult economic circumstances.
The student loan bill set the rate for most student loans at the ten year Treasury note plus 2.05 percent and it will be capped at 8.25 percent. The bill reduced the student loan rate which had doubled on July 1 to 6.8 percent due to congressional inaction to an effective rate of 3.86 percent for 2013.
3.86 percent is much better than 6.8 percent but neither that rate nor future rates may be a bargain or a good value for many students. Here's why.
The costs of college education have skyrocketed. According to a CNN Money report in September of 2012, over the past decade, tuition costs at a community college have gone up by 40 percent and by a whopping 68 percent at four-year public universities.
The financial support provided to support higher education has declined. In March of 2013, the State Higher Education officers released a report disclosing that in constant dollars, state and local appropriations per full time student had gone from a high of $8,670 in 2001 to just $5,896 in 2012.
There is great variability in the amount of financial aid available for students from institution to institution and from state to state. Josh Freedman makes this point in his Atlantic article in which he asserts that the "high-tuition, high-aid" model is a myth.
As an example, Freedman reports that Penn State and the University of North Carolina (UNC) "have the same share of students with Pell Grants, meaning they have a similar percentage of low income students." Still, Penn State with a much higher tuition only provides scholarships or financial aid to 29 percent of its students compared to nearly 50 percent of students who receive it at UNC. This causes Freedman to conclude, "The model is not high-tuition, high aid. It's just high tuition."
Paying that high tuition wouldn't be bad if there was a good paying job available upon graduation. But, as the country continues to slog its way through a slow economic recovery with a high unemployment rate, that is definitely not the case for the many of the recently degreed.
An Accenture survey released at the end of April of 2013 disclosed that forty-one percent of workers who have graduated in the past two years say they are "underemployed and working in jobs that do not require college degrees." Almost one third of the 2011 and 2012 graduates state their current salary is $25,000 or less. A mere 16 percent of those students scheduled to graduate in 2013 reported that they had already secured employment as of April 1, 2013.
So, the question arises does a college degree by itself guarantee a solid return on investment? Isabel V. Sawhill and Stephanie Owen of the Brookings Institution argue that it's not the degree that matters as much as the major selected and the college attended.
Sawhill and Owen observe that "On average, the benefits of a college degree far outweigh the costs" with the total wage premium for a bachelor's degree in lifetime earnings of $570,000. They note, however, that the "key phrase here is 'on average.'"
Sawhill and Owen emphasize that not every "bachelor's degree is a smart investment." They highlight that:
- Nearly one in 5 of the 853 schools studied by PayScale offered a negative ROI (return on investment)
- The lifetime earnings of an education or arts major working in the service sector are actually lower than the average lifetime earnings of a high school graduate
This lack of earnings potential in combination with a staggering student loan debt can be crippling. In June of 2013, the One Wisconsin Institute released a study that showed the overall impact extends far beyond the individual student. According to the Institute the "trillion dollar student loan debt crisis" is a "clear and present danger not just for the finances of students and their families but to our national economy."
That's true because the Institute's survey revealed that individuals who were still paying back loans were significantly less likely to engage in economic activity such as home ownership and purchasing new vehicles as opposed to used ones that would stimulate the economy.
As this brief examination shows, addressing the student loan problem was a necessary but not sufficient condition for confronting the context in which too many students find themselves without adequate resources to make sound decisions regarding their educational and economic future. We can and should do more to assist them.
That assistance can take a variety of forms. Sawhill and Owen recommend that policymakers ensure that students get: better information regarding financial aid and graduation rates, increased access to performance-based scholarship; and, sound data on good alternatives to college which lead to "well-paid jobs." Josh Freedman advocates implementing more universal across-the-board programs as opposed to 'means testing" for aid in order to "ensure fairer access to quality higher education and a supportive social contract."
These and other ideas focused on looking at the links between quality, cost, value and return on investment, merit careful review, consideration and action. In conclusion, dealing with student loans was the beginning. Dealing with the conditions and circumstances of students alone should be the ending.
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