|By Mark Y on Tuesday, November 27, 2001 - 08:14 pm: Edit|
I was doing a search on the Morningstar.com website for stuff on student loans, and I came upon this website: http://news.morningstar.com/news/MS/Women/000104women.html. If you go to the middle of the page, you will read about a young lady who just graduated (1997) from Wellesley College, who owed $80,000 at graduation (and NO, this is NOT for a master's or doctorate's, as Wellesley only offers bachelor degrees).
I'm thinking to myself: HOW could the parents of this young lady just let this kid borrow $80,000 for a baccalaureate? She has to pay back $1,000 a month for the next ten years (I guess it's down to six now). Even for grads at a prestigious school like Wellesley, one would have to imagine that with just a bachelor's degree, the most she could make at any job (unless she went into investment banking) is $40,000 to $50,000. To pay $1,000 a month just lops off $12,000 of post-tax salary for the year, or close to $20,000 of pre-tax income. After taxes, she may have about $20,000 or so...which is barely livable in most places...yet she likely has a professional job. I cannot imagine the intense stress that must occur every month when this young lady has to fork over such a high percentage of her salary. And forget about saving money.
As bad as the student loan/tuition situation is in this country, I honestly feel that parents are to blame for a lot of this. I really think that if the parents cannot afford a certain school, they have to sit down with their children and tell them the situation, and ask them: would they rather be debt free or close to it, although they may have to go to a state school or even community college for a while, or would they rather go to their Harvard or their Swarthmore or their Wellesley, but be so burdened in debt that they are essentially trapped for life.
I realize that there are a lot of parents in this forum and throughout the country who go ga-ga over Yale and Harvard, but one must think for a second and realize what kinds of financial disasters could result if they let their kid borrow so much money. I think it's about time that families become more realistic and give the state colleges the recognition they deserve.
|By California Mom (Calmom) on Tuesday, November 27, 2001 - 11:00 pm: Edit|
I'm a little puzzled as to how the student could have been able to borrow so much. Currently, Stafford loans are capped at $2625 for the first year, about $3500 for the second year, and $5500 for the final two years. So the maximum Stafford loan would be a little over $17,000. That could be increased if the student qualified for a Perkins loan as well, but those are reserved for the neediest of students -- and the young woman in that article said that her parents were too well off financially to qualify for financial aid, so it is unlikely that she would have qualified for the additional Perkins loan.
Obviously, $15,000 - $20,000 is a lot of debt to handle too. It's just that something in that article doesn't make sense, at least given what I know about current financial aid practices.
|By Dadster on Wednesday, November 28, 2001 - 07:40 am: Edit|
Bank loans like Citibank's Citiassist will let students borrow plenty more than Stafford loans, although I think parents must cosign as guarantors.
I agree that $80K in debt for undergrad school is pretty steep. I suppose if it was a top Ivy and you had connections in investment banking, you could justify it and repay it in a reasonable time period. For people seeking more typical forms of employment, or going on to grad/professional school, undergrad college loans of $80K would be quite a burden.
|By Mark Y on Wednesday, November 28, 2001 - 08:40 pm: Edit|
Calmom: As Dadster mentioned, there are private "alternative" loans that are available for students. People don't really talk about them because they are fairly new (almost all of them came about in the past five years), but believe me...pretty soon you will hear a lot more about them, and boy, can these loans up your debt loads. (I know a number of kids who went to private college and are in the $40,000 or higher range in terms of student loan debt-fortunately I wasn't one of them-thanks Mom and Dad!)
Generally, these loans are for people who have a high EFC but whose parents can't afford the amount, so instead of the parents handling the burden with loans, the "hip trend" is for the kid to take on the debt. In recent surveys from the Department of Ed, I read that the middle and even upper middle class kids are taking on the most debt, and these new loans are the reason why. You probably won't see much of this kind of debt at the state college (although it's probably not unheard of since I have heard of state college students graduating forty thousand in debt), but at the private schools, this is becoming more and more common, and it is very scary for two reasons. First of all, and obviously, debt loads could rapidly increase. If a kid goes to an Ivy and just borrows a third of the total costs, you're talking about a debt load near $50,000. Second of all, the interest rates are much higher, and usually there are not that many options in terms of paying them off.
What is interesting is that for many of these loans, the parents do indeed have to cosign, at least for the freshman year. So this means that the parents are essentially risking their financial futures, as they are banking on their kid paying off the private loan (unlike the gov't loans, which are solely the kid's responsibility).
On a similar note, I read somewhere that kids are also more and more responsible for paying back the PLUS loans, which is even more strange (and scary as those debts can be high too), since these loans are solely the PARENTS' responsibility, and the kid has no obligation at all to pay them back...yet they are doing it...
In a nutshell, the debts are getting scarier and scarier, and these private loans are just exacerbating the problem. Yes, these loans are probably allowing more middle class families to let their kids attend these private schools than in the past, but it seems as though the parents who are making $80,000 or $100,000 don't realize the impact a $40,000 debt will have for a kid who may want to go into a field that has starting salaries at $30,000 or so. Yet the Harvards and the Yales seem so tempting and it seems as though parents expect their kids to make six figures right off the bat...that ain't how it works folks!
I certainly hope none of the readers here thinks that letting the kid borrow these alternative loans won't be a big deal...because they will!
|By Warren on Wednesday, November 28, 2001 - 08:54 pm: Edit|
I think parents need to let their kids make these once-in-a-lifetime decisions, but as MarkY points out, the potential loan amounts can get pretty scary. I doubt if most 18 year olds have a concept of what being $80K in debt before you have your first entry-level job really means. Even if the student makes the final college decision, the parents should be supplying a reality check and some debt service calculations.
|By Mark Y on Wednesday, November 28, 2001 - 08:55 pm: Edit|
Speaking of Ivies...I was curious about how kids were handling the expenses at these schools, so I went to the Harvard Crimson (doesn't it seem that I have too much time on my hands?) to get a flavor. This is a recent article written about how kids are managing the costs, and if you look at some of these debts, it's shocking...even more so than the Wellesley case.
As you can see, these kids are borrowing $100,000 or even $140,000 to get a bachelor's degree! And these kids are social studies or religion majors; not investment banking types. And this is just two people; surely there are many more than this. That's the "alternative loan" in action. Yet they are oh so ga-ga about Harvard and Yale and the like that they will do anything they can...it's the power of love to an extreme.
What is also interesting is that Harvard and schools such as those are congratulating themselves of decreasing loan debts in recent years (and if you look at the raw stats, the numbers are indeed lower than they were several years ago). Yet they don't tell you the real picture, and that is that there are other kids who are not on financial aid, or are on aid but can't meet the EFC, and they have to borrow way in excess of what the financial aid people are giving them. If you look at average loan debts of any private college, and especially the top notch ones, I guarantee you that these numbers are much lower than they actually are. They only represent the loans that the school gives out in packages, NOT excess borrowing.
|By Mark Y on Wednesday, November 28, 2001 - 08:57 pm: Edit|
You hit it right on the nose, Warren...right on the nose
|By Warren on Wednesday, November 28, 2001 - 09:43 pm: Edit|
Good link, Mark. The article precisely points out the middle-class dilemma. I agree, the loan amounts described in the article are almost impossible to justify, even for Harvard, much less for other schools. I think there is a perception that with a Harvard degree, the new grad will immediately start earning big bucks and never look back. While I'd prefer to have Harvard on my resume rather than Podunk U, the Harvard diploma isn't an automatic ticket to riches. A Princeton study showed relatively little difference in earnings for their grads vs. other schools.
A $140K loan with nothing (like a house!) to back it up boggles my mind. These kids better hope they hop on the fast track in the investment banking or consulting industries... That's an enormous sum for a teacher, a sales trainee, a junior manager, etc. God forbid the kid goes on to professional school and borrows that cost, too! Starting life with $200 - $300K in debt... amazing.
There's perennial debate on whether an elite education is worth the cost. This debate can be pretty nebulous, since most students either don't pay full price or there's enough family money that it doesn't matter. For a kid borrowing $100K plus, though, this debate takes on painfully real significance. Most kids capable of getting into a school like Harvard could probably attend some pretty decent schools for little or no cost. The ought to be sure they are getting something of unique value for the burden they'll carry.
|By Mark Y on Thursday, November 29, 2001 - 09:41 am: Edit|
Right Warren...but I should mention something that I didn't clarify.
These middle class people who have to take on the high five-low six figure debts for a baccalaureate are not the middle class that politicians tend to worry about (except those like Chuck Schumer and Olympia Snowe, who rightfully so wants relief for those making up into the six figures-my two cents); that is the parents who make $40,000 or so - rather, it's those whose parents make $80,000 to $150,000 or even $200,000. Now, that is considered upper middle class (or even rich) in some circles, but in many parts of the country, it is not a lot of money. It is two public school teachers' salaries or what one makes owning a small business.
The kids whose parents that make $50,000 or so will be shielded from the tremendous debt, because all the parents are expected to pay is about $7,000, so if the parents can only pay $2,000, the kid will have to borrow maybe $5,000 extra, in addition to the $3,000 or so they would have to borrow in the finaid package. That means they may graduate owing $35,000, which is very high, but could be justified by a Harvard diploma. But when you're talking about the two schoolteacher families, who may make $80,000 or $100,000 or $120,000, they are the ones who have to cough up $25,000, and they have to foist a good chunk of that money onto their kids. That's a tremendous burden, and it's only going to get worse as the tuitions continue to increase.
|By burningman on Thursday, November 29, 2001 - 02:58 pm: Edit|
Your analysis is on the money, Mark. Many families, despite having current incomes that may break six figures, have low disposable income after fixed costs and have relatively low savings.
That's the real dilemma faced by financial aid offices. How do you distinguish between spendthrifts who devote their income to current consumption (i.e., fancy house, new cars, nice vacations) and families of similar income who are actually working hard to save but have not been able to? As intrusive as all the financial aid forms are, they don't get inside the heads of the parents. A family earning $100K might have been earning $150K a couple of years earlier, and may still be struggling to avoid having to sell the family home, etc. Another family, living in a house purchased 20 years earlier, might have plenty of disposable income and be able to pay tuition from current cash flow.
I can understand why most schools go with formula-based approaches - it may not be perfect, but it avoids lots of complexity and value judgments. It would certainly be possible to imagine financial aid discussions turning into nightmares. Do you want a junior financial aid officer asking why your car is only a year old, or whether a Hyundai might have been a better idea than the Toyota?
I think that's one reason why many colleges have relatively low-paid employees working in the financial aid office. Somebody making $35K isn't going to want to hear how tough it is to make it on $120K...
|By Mark Y on Thursday, November 29, 2001 - 11:43 pm: Edit|
Burningman, excellent point...as much information that these FAFSA's request from you, in the end, they don't tell enough. There are so many families in this country that on paper seem to have a good income, yet they are struggling mightily. They may have parents they have to take care of, or they had a recent loss of a job, yet the financial information reflects the prior year. And in many, many other cases, there are parents that simply don't want to spend for their kids on college...they believe in "18 and you're out". That is very unfortunate because except in rare circumstances, a kid can't be independent till they hit 24, so even if they haven't lived with their parents for years, these students still have to provide family financial information.
I just want to mention one more thing, and would love your comments. This is the richest country in the world; far wealthier than any other, yet, we require our children to get into debt before they begin their working lives. No other country is like this. The closest country I can think of is Canada, which in some cases has deeper debt load averages than Americans, yet the thing with Canada is that first, it is not as wealthy as America is and second, tuitions for the most part are so much lower. England has also been big on loans lately, but they are trying to revamp the system so that students pay a "graduate tax" rather than pay off loans; the English pols are actually APOLOGIZING for the debts they are foisting onto the students, which on average are about $12,000 or so, which is somewhat less than the US average.
And the thing is, this debt load phenomenon is so new that very few people realize what is going on. Before 1996 or so, debt loads were on average very minor, and people tended not to have a problem paying them off. Yet, thanks to the reauthorization of the Higher Ed Act, combined with the new mushrooming industries of private alternative loans, it seems like overnight, debt loads for so many students have become so daunting that they are just sickening and so hard to fathom. Yes, it is true that not all students are in such deep debt, but if sixty percent are borrowing on average $20,000, that means that thirty percent of the students of this country (if you assume the average to be the midpoint, or median) owe more than $20,000 at graduation, and that is simply wrong and a crying shame.
Back in May, when congress was deliberating the big tax cut, Senator Schumer from New York, along with his colleagues Senator Robert Toricelli and Olympia Snowe introduced an amendment that would allow $12,000 of college tuition to be tax deductible. That would mean each family would receive $3,360 if they had more than $12,000 in tuition payments. Yet, it was voted down because Congress felt that the reduction of the estate tax for the highest tax bracket was more important. Granted, $3,360 a year would not save the student debtors who owe $100,000 or so, but at this point, anything helps.
In a nutshell, I find it so frustrating and disappointing that given the economic power we have that our priorities are so messed up that we cannot help the average middle class family afford higher education for their children. It may sound silly, but if you look in a playground now and look at the children playing so innocently, one cannot help but think of how these kids and their families will make it through four years some ten or twelve or fourteen years from now. Things got so out of hand in the last ten years with tuitions and debts, and one can only imagine the loan debts the little kids in the playground are going to have fifteen or twenty years from now.
|By ThePrincipal on Friday, November 30, 2001 - 08:08 am: Edit|
I agree that big loans for kids are a problem, but I don't agree with many of the preceding comments. I bet all the financial aid officers go crazy listening to people complain that they can barely make it on $120K a year. I'm sure there are a few of these folks who are genuinely hard-hit by medical or dependent care costs, but I think most of them are just victims of our consumer-oriented, keep-up-with-the-Joneses society. They think they need a late model car, a house in the right neighborhood, nice vacations and so on.
I don't think these families should live like paupers, but if they spent only 80 - 90% of what they made they would still be able to maintain a comfortable lifestyle. This level of spending would insure plenty of savings by college time, as well as available income for paying some college expenses.
I think people listen to advice like, "Buy the most house that your bank will finance, when your income rises the payments will be easier" and then wonder why they get to college time with low savings and no extra income.
|By burningman on Friday, November 30, 2001 - 05:36 pm: Edit|
TP, you make a good point, but do we have to assume that a 20 or 30 year lifestyle change of major proportions is necessary for the sole purpose of getting your kids a 4 year degree?
My annoyance with this concept is exacerbated by schools that have billions in endowments but still scrap for your last dollar. (Not all schools are in this situation, of course, but many of the most expensive ones are.) The other factor that reduces my sympathy for the colleges is that schools have allowed their costs to rise much faster than inflation, creating the current outrageous tuition situation. The thought of a kid "working his way through college" is now completely laughable for all but the most heavily subsidized institutions.
Mark, I like the tax deduction/credit idea, but my guess is that many colleges would figure that into their financial aid packages. Most colleges reduce aid when a student earns outside scholarships, although some don't do a dollar-for-dollar reduction. I would expect similar treatment for this benefit. It would definitely be better than nothing, though, and would help those families that aren't receiving aid anyway.
|By Mark Y on Friday, November 30, 2001 - 07:27 pm: Edit|
Burningman: Yes, I definitely feel that the tuition deduction idea would have been excellent; as mentioned, it probably would not eliminate the extreme debts completely, but at this point anything helps...and politicians such as Al Gore and Chuck Schumer and the like have really been pushing it, but it has never passed through Congress, as the majority feel that the tax cuts would be better suited for the wealthiest two percent of the country. But I disagree with you on the issue that colleges will reduce aid, as was seen with the HOPE scholarship that has been around for the last few years; to my knowledge, schools have not done anything to reduce aid (although they are not doing enough to increase it, obviously, in the form of grants rather than loans). If they were to do something like that, that would be pretty sick in my eyes.
|By G. Dolianis on Saturday, December 01, 2001 - 06:52 pm: Edit|
I recall reading somewhere recently that defaults on student loans were way down, possibly the lowest in many years. Two questions:
1. Has this been due to the economic expansion or fewer/smaller loans?
2. Now that we're technically in a recession, will the default rate begin to climb (your best guess)?
|By Dadster on Monday, December 03, 2001 - 09:25 am: Edit|
With rising tuitions I doubt if the default rate is due to fewer loans. More likely, this data is from last year, when grads were still in great demand and salaries tended to be high. I have a feeling that these default rates will go up. I know of quite a few '00 grads who are on their second or third job, or are between jobs, and '01 grads who had job offers rescinded or are still looking. I imagine the defaults tend not to occur right after graduation, while the grads are still consolidating their loans, etc. Plus, a loan probably has to be unpaid for quite a while before it goes into the "default" category.
|By Mark Y on Monday, December 03, 2001 - 10:47 am: Edit|
Dadster, the Default rate, I believe, is the percentage of loans in which payments commenced in the past few years in which no payments were made in a 270 day span. That means, a '95 grad who defaulted would not be in that group, but a '00 grad who defaulted would be. There are several reasons why the default rate has dropped.
First, as you mentioned, the economy, which up until this point has been good, masqueraded some of the increased debt load. However, that will likely not be a positive factor for a while.
Second, there has been a massive crackdown on "deadbeats". The highest default rates occurred back in the early 1990s, which even though is only eight or so years ago, is eons ago in the student debt world; debts then were tiny fractions of the debts of today. Yet, there was little in the way of "policing" the debtors back then...many of these people were clueless in terms of what to do, so they just didn't pay and defaulted. Now, they're gonna get after you come heck or high water.
Finally, the last reason is because the number of days until a loan is in default increased from 180 to 270, which gives the debtors 90 extra days, which could significantly reduce the rate.
Dadster, from what I gather, you seem to have quite a bit of contact with new grads. I assume you're not that involved in their personal lives, but from what you sense, how are these ultra new ('99-'01) grads dealing with their loans? Does it seem that these loans are really affecting these people? Do they feel helpless? Just curious about what others sense, because from what I gather, there appears to be quite a bit of disgust and helplessness.
|By Dadster on Monday, December 03, 2001 - 11:10 am: Edit|
I think the loan attitude of recent grads relates to their current employment situation. Those that nailed down high-paying jobs and have hung onto them despite the dot-com implosion and the recession are keeping up fine. Others are struggling, incurring more credit card debt than they should, etc.
I don't know the loan details for these recent grads I mentioned, but I doubt if any of them are in the six figure range, or even close to that.
I can't imagine starting off with that kind of debt. These grads with $100K debt loads will be getting their own kids ready for college by the time they are done paying off their own college loans!
|By Mark Y on Monday, December 03, 2001 - 11:28 am: Edit|
Dadster: If you had $100,000 in debt from student loans, would you even think of having kids? :-)
Speaking of which, I honestly think that this tuition/student loan situation will have far reaching effects, besides economically. And one of them will probably be significant alterations in terms of family planning. I am hearing a lot more of younger people only planning on having one kid, or if they have more, spacing them more than four years apart to avoid having more than one kid in college at the same time (although they would have a better shot at getting meaningful aid). And those with high debt already...how could they even think of having kids, or even getting married?
|By ThePrincipal on Monday, December 03, 2001 - 12:34 pm: Edit|
Why would a student choose to incur six figures in debt for college when there are plenty of alternatives that wouldn't cost anywhere near that? I don't think kids of that age have any concept of what debt really is. I see non-college-bound kids graduate from HS, find a job in construction or something, and the first thing they do is go out and buy a $30,000 truck or SUV - using a loan, of course. If they have any kind of employment gap, they won't have any way of making the payments.
At least there's no Ivy League "repo man" to take back the degree.
If a family or student can't afford a school, or even come close, I think closing the gap with 6-figure student loans is crazy. An elite college education is fine, but it isn't essential for life success.
|By Mark Y on Monday, December 03, 2001 - 01:26 pm: Edit|
The Principal: Exactly! Yet as I said, people go ga-ga for Harvard, ga-ga for Yale, ga-ga for Penn, etc. etc. Virtually every state has at least one excellent state school; U of VA, U of NC, SUNY Binghamton, U Mass, Berkeley, etc. Yet the big Ivy names drive people into tens of thousands (and now it is looking more like hundreds of thousands) in debt.
|By burningman on Monday, December 03, 2001 - 01:54 pm: Edit|
Part of the problem is the fiction promulgated by many elite colleges: "anyone who is admitted can afford to attend our school, because we meet 100% of need."
This sounds great, and is actually true in many situations. However, there are two important pitfalls. First, almost all schools consider Stafford loans, Perkins Loans, and work study as part of "meeting need"; just taking the maximum Stafford loans will add up over 4 years. Second, the expected family contribution (EFC) may not really be affordable, since it is based on income and assets, but doesn't do much to take into account the family's expenses. Thus, a family whose fixed expenses are high in relation to their income might find the only way to come up with their EFC is to sell their house and downsize, or to use loans.
Other factors, like an unhelpful but well-off divorced parent, etc., can also create an EFC that requires hefty student loans.
The apparent affordability of top colleges is bolstered by "actual vs. sticker price" comparisons that suggest they aren't really that expensive. In fact, the Ivies often make the U.S. News "Best Value" list because their average cost after financial aid is taken into account is much lower than their maximum rate. This doesn't help the student who is told his EFC is $30K, though.
All of the affordability hype creates the belief among many families that once the admissions hurdle is cleared, their problems are over. By the time that the aid numbers come in, there's already a considerable emotional investment in the college and it gets harder to say, "No thanks. We can't afford that."
|By Dadster on Monday, December 03, 2001 - 07:25 pm: Edit|
Mark Y said: If you had $100,000 in debt from student loans, would you even think of having kids? :-)
You are right, Mark, what was I thinking?!
|By 1sttimecollegemom on Monday, December 03, 2001 - 11:02 pm: Edit|
I've followed this thread and found it to be very helpful. But I've got a small question. I have not yet been able to figure our EFC since our student is still a jr. in high school, but am I understanding you all correctly that when they figure your EFC that they do NOT take into account any additional expenses you may have? My husband works construction all over the country, not for one company but for several depending on the job, therefore he receives no per diem or company benefits. I estimate 35% of our annual income goes straight back out the door with his business expenses, travel to and from job site to job site, away from home living expenses etc. We basically upkeep two homes 12 months out of the year. Therefore our income looks larger on paper than what it actually is....are we screwed?
|By California Mom (Calmom) on Monday, December 03, 2001 - 11:45 pm: Edit|
To 1sttimecollegemom -
If your husband has his own business, then business expenses are subtracted from income. That is, he would prepare a schedule C for his taxes, subtract out all his expenses, and his income is only what is left after expenses.
If he isn't already doing it this way, you should talk to an accountant, because these are expenses that should be deducted from your tax return.
|By 1sttimecollegemom on Tuesday, December 04, 2001 - 06:26 am: Edit|
Thanks for the response Calmom. We do a schedule C already, I guess I should have known that they would use the taxable income figure. I have some more questions, but will start a new thread to keep on topic.
|By Roger (Roger) on Friday, December 07, 2001 - 11:06 pm: Edit|
USNews.com has an article on their site titled "Watch What You Borrow" - seems relevant to this thread. It mentions credit card debt as another potential problem area for new grads.
One interesting piece of advice is for students to find a job that pays more than the total debt amount per year. Not too hard, perhaps, for someone with $20K in debt, but no doubt a real challenge for those whose debt hits six figures.
|By Dave Berry on Sunday, December 09, 2001 - 06:14 pm: Edit|
I guess the moral to that story, Roger, is that if you're gonna ring up a six-figure college debt, you'll first have to make sure you're gonna be a Princeton-grad investment banker.
|By amd on Sunday, December 09, 2001 - 06:42 pm: Edit|
I am going to put up that pearl of wisdom ("if you're gonna ring up a six-figure college debt, you'll first have to make sure you're gonna be a Princeton-grad investment banker") on my son's dresser mirror. The dude wants to run up U of Chicago's tuition and expenses and at the same time study what his heart pleases - English and philosophy.
|By Mark Y on Sunday, December 09, 2001 - 09:35 pm: Edit|
AMD, if U Chicago is going to be a hardship on someone, whether it be you or your son, that is a smart move to make. Seventeen year olds don't realize what $30,000, $50,000, $80,000 or more debt would do to their post-graduate lives. It literally cripples their financial choices, especially if it is just for a baccalaureate. The sad thing is that parents often times do not hammer that fact into their children, and even encourage them to borrow that much (if they are not encouraging them, why would they co-sign the "alternative" loans?). Yes, a degree from Chicago is very nice and prestigious, but the kid has to understand the financial obligations that result from this.
What is even scarier is that despite the weak economy and the ever-increasing tuitions, the demand for these prestigious schools is higher than ever. Most of the Ivies and the top schools are reporting higher early decision applications than last year, which was already a record year. And these institutions feel that there is no need to do anything with regard to tuition if the demand is still extremely high. Until there is a downturn in applications, which I doubt will ever happen even if Harvard is $100,000 a year, which I suspect will happen in the lifetime of most people under fifty, tuitions will rise well above the rate of inflation.
|By Dadster on Sunday, December 09, 2001 - 10:09 pm: Edit|
Dave, you are right - there are a couple of career paths that almost justify big loans to get the Ivy or other ultra-elite degree. Investment banking, high-end management consulting, and perhaps a few others, tend to pay well and be oriented to hiring "prestige" degrees. I suppose if a client in Peoria is paying three hundred bucks an hour for a 23 year old "expert", it's easier to say, "He's from Harvard" than explaining that he was at the top of his class at Oklahoma State.
Even these gigs aren't sure things, though. It's common to spend some years as an underpaid, overworked associate before the big bucks kick in - if they ever do. Plus, this year I've heard of some large consulting firms cancelling or deferring new hires because of recession-related cutbacks, not to mention cutting back junior staff. Bad news to have big loans and an evaporating job...
|By amd on Sunday, December 09, 2001 - 10:59 pm: Edit|
Several years ago I read an article about Penn (by a Penn alumnus and Time staffer) in Time. He talks about a Chivas Regal effect - when tuition is raised demand actually goes up.
|By Mark Y on Monday, December 10, 2001 - 12:01 am: Edit|
AMD, the article you're referring to is here...I read it recently myself...
Keep in mind that this article is almost five years old; you have to increase the numbers by a good 25 percent, which makes it even more ugly. Although it didn't have much impact, it's a very well written, comprehensive article.
|By Mark Y on Monday, December 10, 2001 - 12:10 am: Edit|
What I find interesting and frustrating is that the big exposes (US News with it's "$1,000 a Week" story in 96 and this Time article from 97) aren't common these days. It's almost like in the past five years, people have become resigned to tuition increases and extreme debt loads.
After the College Board released its figures this year, which showed a tremendous jump in tuition across the board, very little reaction took place, from the government downward. Sure, college newspaper have written articles discussing the hardships students are having meeting the tuitions, but the mainstream media has not done much. Basically, almost every article on higher education these days is on 529 plans and how you have to save $250,000 per kid. The average 23 year old struggling with his or her loans or the middle class family dealing with three kids in college at the same time are non-entities in the popular media, and that is a shame.
|By Dadster on Monday, December 10, 2001 - 09:59 am: Edit|
AMD, I love the "Chivas Regal" effect mentioned in the article... how true! (And thanks for posting the link, Mark Y!) I've seen it reported elsewhere that many schools fear that if they fall behind the "price leaders" that people will think they aren't as good. (When Yves St. Laurent stuff started turning up in every discount store, it certainly lost whatever snob appeal it had...) Of course, the price leaders tend to be schools that have huge, never-ending demand. If Harvard doubled its tuition and experienced a 20% drop in applications, they could still fill their class with students just about as qualified as their current classes. And if they eliminated tuition, would they get that many more great applicants? Perhaps not. There's little motivation to reduce college costs, it seems, and quite a bit of incentive to keep tuition rising.
I wonder how big of a problem really heavy debt loads are? Are the $100K loan totals for undergrads just bizarre aberrations, or are they getting common?
|By G. Dolianis on Monday, December 10, 2001 - 04:03 pm: Edit|
I can't imagine that there are many $100k college debtors out there.
|By California Mom (Calmom) on Monday, December 10, 2001 - 05:09 pm: Edit|
I wonder if some of the dramatic increase in tuition costs is also driven by changes in the way financial aid is awarded. It seems to me that when I was young, the only kids who attended a college on financial aid or scholarships were students from very needy families. Now, the concept of needs-based aid also provides substantial support to middle-class families.
I mean, I am a single parent with a solidly middle-level income (~$50,000); my son attends one of the most expensive LACs in the country; but he has $20,000 in grant aid. $27,000 tuition - $20,000 grant = $7,000. Not cheap by any means, but certainly something that is not unreasonable when compared with the 1970's tuitions cited in the Time article.
The top colleges and LACs have about half of their students on financial aid, with average grants similar to the one my son has. So basically, the sticker price is not really the real price for many students. In a sense, these colleges are using high tuitions for more affluent families to subsidize the costs for the middle-class.
I'm not venturing an opinion on whether this is a good thing or not. Basically, it's a system of extraordinarily high tuitions with a sliding-scale based on ability to pay.
I just think that this may be part of the dynamics driving up the cost. It also psychologically probably is more enticing for a student on financial aid to attend a college with $25,000 tuition that offers a $15,000 grant, than it would be to go to a college with $10,000 tuition and no grant.
|By Dadster on Monday, December 10, 2001 - 07:46 pm: Edit|
I'm sure you are right, Calmom. I think the problem loans are for the part of the middle class that won't get such hefty grants. A family with $80K in income (but without much disposable income) might get no grants, a Stafford loan, and a hefty EFC. The only way for the kid to attend is for the parents or student to take out loans. There's no law that says the kid has to go there, but by the time all the numbers shake out there might be quite an emotional stake in the school.
|By California Mom (Calmom) on Monday, December 10, 2001 - 09:01 pm: Edit|
Actually, I've been over the numbers, and because a certain portion of my ex-husband's income is weighed in, my son's grant is the same as it would be if we were a 2-parent household with $80,000.
The middle class families that are missing out on the grants are those who have accumulated significant assets. These may be assets that they have a good reason for wanting to preserve, but the point at which families without substantial assets start to fall out of eligibility for grants for private colleges is above $100K a year. But generally people who have been making more money DO have disposable income and have been using it to accumulate assets, and it is the combination of income/assets that brings them above the level of being able to qualify for significant financial aid.
|By Dadster on Monday, December 10, 2001 - 10:29 pm: Edit|
Hmmm... I ran an EFC calculation for a family with $80K in wage income and only 40K in assets (probably very conservative, it's just six months of income, what everyone is supposed to have in liquid assets alone... this generated $2K in unearned income), and I came up with an EFC of almost $16K. I assumed no student assets and a mere $2K in student income. Bumping the income by $20K more took the EFC to almost $25K. Some student assets would have bumped it higher. Throw a Stafford loan on top of those EFCs, plus some non-tuition/room/board expense, and you are looking at some serious debt if the family doesn't have much disposable income.
Income is relative, too - $80K is a lot of money to someone who was making $40K a few years ago and who hasn't changed lifestyle much. To a sales exec who was earning $120K in the pre-recession economy, living on $80K may require draconian spending cuts and dipping into savings.
|By Roger (Admin) on Wednesday, December 12, 2001 - 02:03 pm: Edit|
This thread was getting a bit long - it's continued at How Much Debt is Too Much Debt - Continued. This part of the thread is now locked - if you would like to add to the discussion, please go to the continuation.
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