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Five Reasons Why Student Debt Is Skyrocketing

Saturday, June 04, 2016 By Emily Zak, Care2 | News Analysis
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$37,000. That's the average amount that students graduating this year owe in student loans, making 2016 grads the most indebted in history.

Contrast this with grads 20 years ago, where most students didn't even need to take out student loans at all, and those who did owed less than $10,000. Now, seven in 10 recent college undergrads borrow to fund their education.

We've all heard millions default on their loans, and that low-income folks who attended university hoping to rise out of poverty can suffer upon graduation under staggering debt. The consequences of rising student debt may be clear, but the explanation about why is more murky and ties in a variety of factors.

Here are a handful of reasons why student debt is skyrocketing more each year.

1. College Costs Grow Way Faster Than Inflation

The most simplistic answer is that college costs more today than in the past. Before you roll your eyes at the obviousness, consider the degree: Adjusted for inflation, tuition and fees at state universities and colleges have increased 230 percent since 1980, according to policy analyst Thomas Mortenson.

Even community colleges, which should be more affordable, have increased 164 percent over the last 30 years.

2. States Continue to Slash Funding for Higher Education

If states continue to cut funding for public colleges at current rates, they will be giving nothing to higher ed within the next 50 years, according to a study by the American Council on Education. This leaves U.S. college students (and their families), who mostly attend public rather than private schools for their bachelor's degrees, shouldering increasing costs.

Oddly enough, some public universities are charging their out-of-state students three times as much as residents to compensate.

3. Universities Are Spending More on Administrative Salaries and Campus Amenties

"What is driving costs is the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business -- and not a very successful one at that," says Rudy Fichtenbaum, president of the American Association of University Professors, to The Wall Street Journal.

Administrative pay has indeed increased over the years. The average college president of a public university, in fact, makes nearly four times as much as a full-time professor at $428,000 a year, and some have had salaries exceeding $1 million.

Furthermore, spending on extras like new stadiums and luxury dorms also add to costs, as universities try to compete with one another and look good to alumni and donors. Cost-efficiency isn't incentivized.

4. Students Don't Always Understand How Student Loans Work

While to a lesser degree, we can also point a finger at the students themselves. Even though half of undergraduates don't take advantage of all the federal loans they're offered, one in five dollars of student loans still come from private lenders, which are often more expensive.

Part of the burden falls on the students who skim through their loans' terms online, ignoring the fine print. Yet, universities are responsible too: Financial aid offices are notoriously understaffed, and financial literacy training is not widespread. One college CNN surveyed had five financial staff serving 4,000 students.

5. Americans Haven't Seen a Raise in Years

Middle-class workers' wages have stagnated over the last 30 years, while low-income workers' pay has slightly fallen. This is an often ignored reason why student debt is so high, says Sheila Bair, president of Washington College and former chair of the Federal Deposit Insurance Corporation.

She tells MarketWatch that more people have turned to borrowing to meet that deficit, which the government has made easy.

"Debt is not the answer; real wage growth is the answer," Bair says. "The baby boomer generation has just been too easy to default to the financial sector and credit to get things that we want without focusing on real economic growth."

Bair touches on another frequent argument that may help explain why tuition has exploded: Access to loans may actually lead to higher tuition. Federal assistance for students has increased 50-fold since 1970, according to Richard Vedder of the Center for College Affordability and Productivity, and that has given colleges more room to raise prices.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Emily Zak

Emily Zak is a Santa Fe-based blogger with Care2 Causes. Her passions lie with LGBT and women's activism especially.


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Five Reasons Why Student Debt Is Skyrocketing

Saturday, June 04, 2016 By Emily Zak, Care2 | News Analysis
  • font size decrease font size decrease font size increase font size increase font size
  • Print

$37,000. That's the average amount that students graduating this year owe in student loans, making 2016 grads the most indebted in history.

Contrast this with grads 20 years ago, where most students didn't even need to take out student loans at all, and those who did owed less than $10,000. Now, seven in 10 recent college undergrads borrow to fund their education.

We've all heard millions default on their loans, and that low-income folks who attended university hoping to rise out of poverty can suffer upon graduation under staggering debt. The consequences of rising student debt may be clear, but the explanation about why is more murky and ties in a variety of factors.

Here are a handful of reasons why student debt is skyrocketing more each year.

1. College Costs Grow Way Faster Than Inflation

The most simplistic answer is that college costs more today than in the past. Before you roll your eyes at the obviousness, consider the degree: Adjusted for inflation, tuition and fees at state universities and colleges have increased 230 percent since 1980, according to policy analyst Thomas Mortenson.

Even community colleges, which should be more affordable, have increased 164 percent over the last 30 years.

2. States Continue to Slash Funding for Higher Education

If states continue to cut funding for public colleges at current rates, they will be giving nothing to higher ed within the next 50 years, according to a study by the American Council on Education. This leaves U.S. college students (and their families), who mostly attend public rather than private schools for their bachelor's degrees, shouldering increasing costs.

Oddly enough, some public universities are charging their out-of-state students three times as much as residents to compensate.

3. Universities Are Spending More on Administrative Salaries and Campus Amenties

"What is driving costs is the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business -- and not a very successful one at that," says Rudy Fichtenbaum, president of the American Association of University Professors, to The Wall Street Journal.

Administrative pay has indeed increased over the years. The average college president of a public university, in fact, makes nearly four times as much as a full-time professor at $428,000 a year, and some have had salaries exceeding $1 million.

Furthermore, spending on extras like new stadiums and luxury dorms also add to costs, as universities try to compete with one another and look good to alumni and donors. Cost-efficiency isn't incentivized.

4. Students Don't Always Understand How Student Loans Work

While to a lesser degree, we can also point a finger at the students themselves. Even though half of undergraduates don't take advantage of all the federal loans they're offered, one in five dollars of student loans still come from private lenders, which are often more expensive.

Part of the burden falls on the students who skim through their loans' terms online, ignoring the fine print. Yet, universities are responsible too: Financial aid offices are notoriously understaffed, and financial literacy training is not widespread. One college CNN surveyed had five financial staff serving 4,000 students.

5. Americans Haven't Seen a Raise in Years

Middle-class workers' wages have stagnated over the last 30 years, while low-income workers' pay has slightly fallen. This is an often ignored reason why student debt is so high, says Sheila Bair, president of Washington College and former chair of the Federal Deposit Insurance Corporation.

She tells MarketWatch that more people have turned to borrowing to meet that deficit, which the government has made easy.

"Debt is not the answer; real wage growth is the answer," Bair says. "The baby boomer generation has just been too easy to default to the financial sector and credit to get things that we want without focusing on real economic growth."

Bair touches on another frequent argument that may help explain why tuition has exploded: Access to loans may actually lead to higher tuition. Federal assistance for students has increased 50-fold since 1970, according to Richard Vedder of the Center for College Affordability and Productivity, and that has given colleges more room to raise prices.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Emily Zak

Emily Zak is a Santa Fe-based blogger with Care2 Causes. Her passions lie with LGBT and women's activism especially.


Hide Comments

blog comments powered by Disqus