Atlantic: The Debt Crisis at American Colleges

[China]

The Debt Crisis at American Colleges

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.

...

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.

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[Kilmer17]

http://www.thefiveyearparty.com/

This was an eye opener for me.

[SkinInsite]

Get rich parents, duh.

[TD_washingtonredskins]

The longer I've been out of college and talking to colleagues/friends, the more and more I appreciate that my parents sent me to college. The second my kids were born, I opened a 529 and have been contributing to it ever since. Who knows if it will be enough, but I will borrow against my 401k or do whatever I have to in order to keep them from having to take out student loans.

[Bang]

http://www.thefiveyearparty.com/

This was an eye opener for me

this does look interesting. I'm going to order a copy.

Thanks

i've been saving, but don't have nearly enough for my now HS Soph son to complete 4 years. Maybe 3 if we really pinch it. there's going to be a lot of belt tightening when the time comes, and he's surely going to have to find a job of sorts. I need to be sure I get as much bang for my buck, pardon the phrase.

Thankfully, he seems to have a level head and a party atmosphere isn't currently something he really cares about. Fingers crossed.

~Bang

[Goskinz0721]

this does look interesting. I'm going to order a copy.

Thanks

i've been saving, but don't have nearly enough for my now HS Soph son to complete 4 years. Maybe 3 if we really pinch it. there's going to be a lot of belt tightening when the time comes, and he's surely going to have to find a job of sorts. I need to be sure I get as much bang for my buck, pardon the phrase.

Thankfully, he seems to have a level head and a party atmosphere isn't currently something he really cares about. Fingers crossed.

~Bang

A word of advice: don't think you ever have enough saved to pay for college. From year-to-year you will likely see tuition increases of 5-15% or higher. VCU raised their tuition 24% in one year. Yes, you read that correctly 24%

Oh yeah. And the latest $50 increase of the "University Fee" to help pay for Shaka Smart's new $1.2 million coaching salary.

[Jeeb]

When I started college my tuition was around 2500 dollars a semester. My last semester was $3800.

[elkabong82]

Though it's frowned upon by some understandably, 2 years at community college and then finishing the undergrad degree at a 4 year institution is an excellent way to curb costs. I wish the amount borrowed was less as well, but to be fair, and I didn't catch this in the article, student loans are easier to deal with and have more forgiving policies than the housing market and other debt-collecting businesses. Student loans allow deferment for several reasons. That being said, I have noticed and heard from others as well, about tuition spikes across the nation, it's happened at a bunch of colleges around my area, my alma mater included.