The high cost of higher education

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(NNPA)—Whether beginning a career or seeking to keep one going, the competitive edge in today’s job market usually goes to those with college degrees. In our recovering economy with fewer jobs available than there are people who need them, there is strong motivation to earn degrees. But higher education also costs money—more than many household finances can afford. As a result, many Americans are counting on the potential benefits of higher incomes derived from strong academic credentials against the cost of going in to debt to fund that degree.

CharleneCrowell

The New York Federal Reserve determined that 37 million Americans now owe more in student debt than is owed on either car loans ($730B) or credit cards ($693B) nationwide.

Further, according to Rohit Chopra, the Consumer Financial Protection Bureau’s student loan ombudsman, outstanding student loan debt hit the trillion dollar mark several months ago. In just one year, 2011, federal student loan volume totaled $117 billion.

In a recent blog, Chopra said, “If current trends continue, there will be consequences not just for young people, but for all of us. Too much debt means too much risk for a generation of young people, many of whom are struggling in today’s economy.”

Chopra is right. How America Pays for College, a research report from Sallie Mae, the nation’s largest financial services company specializing in education found that parents’ income(s) and savings are being stretched as well. For the average American, 70 percent of college funding comes from three sources: grants and scholarships (33 percent); parent incomes and savings (30 percent); and parent borrowing (7 percent). Students invest in their own futures by a combination of borrowing in their own names (15 percent) and working/saving (11 percent).

The Sallie Mae report also found that the recent increase in grant usage occurred among middle and high-income families. Families with the least financial resources actually paid more of their incomes and savings for college. Among Black families, 51 percent borrow for college costs and 35 percent of Black students take out loans in their own names to attend four-year institutions, both public and private.

Instead of comparing curriculum choices or graduation rates to guide a choice of college, today the weightiest influence in selecting a college is the financial aid package offered. The value of a financial aid package, according to the Sallie Mae report, was the determining factor for 57 percent of Black students. Additionally, 52 percent of Black students live at home while studying to contain costs.

The average amount of debt new undergraduates amass is $25,000. But for Black students receiving a bachelor’s degree from 2007-2008, 27 percent borrowed $30,500 or more. The highest student loan debt was most common among families with incomes between $30,000 and $59,999.

As young graduates enter the workplace, student debt burdens will likely defer their ability to purchase a home. For their parents, the additional debt of borrowing for their children will probably defer retirement and/or alter their standard of living.

According to U.S. Rep. Hansen Clarke of Michigan, “Graduates are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance. Yet, unlike the debt from a home bought in the boom years, it is impossible to walk away from the debt incurred by getting a degree. Student borrowers cannot discharge or even refinance their debts in bankruptcy, regardless of how desperate their situations become.”

Finding solutions to this student debt dilemma is an initiative of the Consumer Financial Protection Bureau. Later this year, the bureau will publish a report of their findings.

Those with student loan debts, may register with CFPB: http://www.consumerfinance.gov/.

(Charlene Crowell is a communications manager at the Center for Responsible Lending. Charlene.crowell@responsiblelending.org.)

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