For every $1 earned by college graduates, those who drop out earn 67 cents. For decades, this degree premium has been the best advertisement for higher education. We know college is worth it, but at what cost to individuals and society?
The question is not an easy one to answer because of the increasingly complex ways students and families are financing their education. Just as colleges are looking for new revenue sources, families are searching for new ways to pay the tuition bill.
While much has been made by Occupy Wall Street protesters and the media about the growing problem of student-loan debt (it surpassed a $1-trillion this year, in case you didn’t hear), many higher-education leaders too easily dismiss such concerns. They like to point out that 40 percent of students don’t borrow at all for their undergraduate degree and that the average debt at graduation is around $26,000.
“Price of a new car,” one president of a public university said at a conference last month.
College leaders bemoan stories in the media that often find outliers to profile. Just this week, The Los Angeles Times wrote about a 71-year-old dentist who still owes on his student loans from the 1980s. Recent college graduates with six figures worth of debt are also popular figures with journalists. Such stories of students on the fringes allows the higher-education establishment to play down the problem of student debt and masks two emerging issues that the federal government needs to tackle soon.
One is the problem of high student debt of graduates from certain institutions. The sad irony of American higher education is that the graduates from elite institutions, who tend to earn the most over their lifetimes, often graduate with the least amount of debt.
We need a system that puts limits on overborrowing by students who now pay for high-priced degrees from institutions that quite simply are not worth it. One idea is to link students’ ability to borrow to their potential future earnings. A company started by former Google executives, called Upstart, allows recent graduates to sell shares in their future earnings in order to finance their post-college plans. Upstart has a formula that calculates future earnings based on grades, an individual’s background, and other factors. So it can be done.
The other problem that needs to be addressed by the federal government is intergenerational debt. Parents are taking on a larger burden of borrowing for the education of their children. The New York Times reported this week that “the number of borrowers of student loans age 60 and older was 2.2 million, a figure that has tripled since 2005.” In total, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.
Young graduates might have the rest of their lives to pay off student loans, as college officials often remind us. But parents don’t as they enter the end of their prime earning years, when they should be focused on saving their dollars for retirement.
Yes, parents always have a choice not to take on Parent Plus loans. But many colleges add them to financial-aid packages knowing full well that parents don’t want to derail the college plans of their children. Unless we want every generation hobbled by student-loan debt, Congress should put more limits on parent loans.