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It’s graduation time

It’s college graduation season, a perfect time to reflect on what’s going on in the college world. 

The year 2009 saw significant financial pressure on families to pay the college bills, and that reality has spilled over into 2010. In the 2009/10 school year, 58 private colleges charged over $50,000 per year (the year before, only 5 colleges did). Even during “the worst recession since the Great Depression,” when practically every other commodity went down at some point, college costs went up.

This cost pressure has spurned several mini-trends:

  • Public college enrollment has swelled, but in an ironic twist, has done so at a time when many states, with financial problems of their own, have cut their higher education budgets.
  • The top-tier private colleges have dangled more favorable financial aid carrots in front of would-be applicants.
  • More kids are delaying college for a year, presumably to re-focus and gain a better understanding of what they want to study in college and/or to work or volunteer to earn money to pay for college.
  • Many families have engaged in “extreme borrowing” to do whatever it takes to attend the college of choice. For years, this was made possible by easy home equity loans underwritten with fast rising home values. Now, with home values stagnant or decreasing, many parents rely on federal PLUS Loans to borrow the full cost of their child’s education, while students may obtain federal Stafford Loans (up to the borrowing limit) and other private loans to fill the gap.   

Let’s look at the last trend. The result of extreme borrowing is often years of burdensome loan payments. The federal government’s relatively new Income Based Repayment program, which pegs a student’s monthly loan payment to his or her income and family size, will certainly help. But it still requires payments for 25 years (20 years for loans obtained after July 1, 2014). And as luck would have it, this year’s seniors are graduating into a lackluster job market. Is it surprising, then, that many students are choosing to move back home with Mom and Dad after graduation and feel lucky to have found jobs that they probably could have gotten with a high school degree (e.g., waitress, pizza delivery driver, store clerk)?  

The upside of all this financial misery is that parents are increasingly looking at college ROI–return on investment (the downside of this inquiry is that it encourages helicopter parenting, but that’s a topic for another post). Industry experts, parents and students are looking at the possibility of (gasp) skipping college altogether, whether a college degree is even worth it, and what return one should expect on educational investment. Even Congress and the Obama administration jump on the popular college cost bandwagon now and then–but to not much effect.  

One would think that all this increased scrutiny would encourage colleges to get creative with real cost cutting measures or risk becoming extinct. But unless colleges are faced with a serious supply and demand problem, it’s unlikely they’ll voluntarily undertake any meaningful cost cutting reforms. The power is in the hands of students. If a critical mass simply don’t apply to pricey private colleges, or choose instead to study online, or don’t even bother finishing (heck, even Steve Jobs dropped out of Reed), then we might be on to something.

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