College Affordability
and Student Loan Debt
Last week’s blog post focused on the changing “ends”
and “means” of public higher education over the last two centuries. But it concluded with references to “college
affordability” and “student loan debt,” two issues that generate ongoing
intense media coverage today at the local, regional and national levels.
Although “college affordability” was a conscious goal of American public higher education in the early 19th century, the idea of “student loan debt” remained unthinkable until the late 20th and early 21st centuries.
“College Affordability”
The word
“affordability” according to Dictionary.com, refers to “that which is believed
to be within one’s financial means.”
The essence
of this definition is that affordability varies with the individual
rather than the group—except on the average. “One’s financial means” clearly differs from
individual to individual within any group.
This also
means that there can be no single answer to the question “Is College
affordable?” The actual answer to that
question depends on both the college, and on the student (or parent) asking the
question.
“The Myth of “Affordable Tuition”
Another
consequence of the above definition of affordability is that, except for deceptive
marketing tag- lines, there can be no such thing as an “affordable tuition;”
there is only an “affordable bottom line,” or more precisely, a multitude of different
“affordable bottom lines,” one for each member of the group.
This means
that the tag-line “affordable tuition” can only be true “on the average,” an
average based on a distribution of individuals. And every distribution has individuals below
as well as above the average.
So an
“affordable tuition” will only seem affordable to a tiny number of individuals
whose actual financial means happens to coincide exactly with the average
financial means of the distribution!
The bottom
line to all of this is inescapable: For
any “tuition-setting policy” based on the myth of an “affordable tuition,” three
different outcomes will be delivered to the actual members of the distribution:
1)
A negligible number of members for whom an “affordable
tuition” will be exactly affordable to them;
2)
Two thirds of the distribution members for whom
“affordable tuition” will not be affordable to them;
3)
One third of the of the distribution members for
whom “affordable tuition” puts money in their bank!
The above two-thirds
and one-third shares are taken from official PASSHE data and refer to the
family income distribution trends of financial aid recipients at a typical
PASSHE University.¹
Student Loan Debt
According to a January 19, 2016 article² in Market Watch by Jillian Berman entitled
“America’s growing student-loan-debt crisis,”
the following figures are worth noting:
·
“The
total outstanding student loan debt in the U.S. is $1.2 trillion, that’s the
second-highest level of consumer debt behind only mortgages. Most of that is
loans held by the federal government.
·
About
40 million Americans hold student loans and about 70% of bachelor’s degree
recipients graduate with debt.
·
The
class of 2015 graduated with $35,051 in student debt on average, according to
Edvisors, a financial aid website, the most in history.
·
One
in four student loan borrowers are either in delinquency or default on their
student loans, according the Consumer Financial Protection Bureau.”
Sticker Price vs. Bottom Line and the Rise of “Tuition
Discounting”
Most students
and their parents looking at colleges and universities today quickly become
aware of the critical difference between tuition, i.e., the sticker price,
and bottom line, i.e. the actual cost to them!
And at
virtually all colleges and universities, the difference between sticker price (which
is usually high) and the bottom line (which may be quite lower) is made up for by
“scholarships” and various “grants.”
Don’t tell
the children, but private colleges and universities have been practicing
income distribution for years by means of a tool called “tuition discounting,” touted
to the best applicants (e.g., students with higher SAT scores but lower family
income) not as a discount but as a “scholarship” or “institutional grant.
To see how
“tuition discounting” works in America, check out the College Board article³ entitled “Tuition Discounting:
Not Just a Private College Practice. As seen there,
tuition discounting, once practiced only by private colleges and universities
has more recently spread to some, but not all, public universities as well!
Here is a direct quote from the College Board article:
“The most recent data … reveal that the (unweighted) average discount rate is 12.5 percent for public two-year colleges and 14.7 percent for public four-year institutions. In other words, these colleges and universities are spending a significant portion of their revenues creating different net prices for different students. The average discount rate for private nonprofit four-year colleges and universities is 33.5 percent. This discount rate matches the 34 percent average rate for all undergraduates emerging from NACUBO’s survey of estimated 2004-05 data.”
Note that the above tuition discount figures are for FY 2005, and back then four-year public universities had average discount rates of 14.7% compared to a rate of 33.5% for private nonprofit four-year colleges and universities.
But according to an August 25, 2015 NACUBO study⁴ entitled “Private College and University Tuition Discount Rates Hit All-Time High,” the average tuition discount rates across America for private universities grew from 34.3% in FY 2005 to 41.6% in FY 2014.
If average discount rates for public universities grew at about the same rate as for private universities, the average discount rate for public universities would have grown to about 18.0% by FY 2014.
But “average” discount rates, by definition, are averages over many universities and, once again, that average will be shaped by the discount rates of the individual universities in a distribution of universities.
According to the Association of State Higher Education Executive Officers (SHEEO), the net tuition dollars (from the private checkbooks of students and parents) funding “public” universities across America vary from 15%—in the most generous States providing up to 85% of the annual funding, to 85%—in the least generous States providing as little as 15% of the annual funding to “public” higher education.⁵
According to the SHEEO data, the five most generous states to public higher education in America include Wyoming, California, Alaska, New Mexico and North Carolina, while the five least generous states include Vermont, New Hampshire, Delaware, Colorado and Pennsylvania.
Specifically, while the average tuition discount rate for public universities across America in 2014 was 18%, the average tuition-discount rate for the fourteen PASSHE universities was less than 1%.
PASSHE students have one of the highest average
bottom line costs of attendance in America!
To be continued.
¹ https://www.keepandshare.com/doc/7971151/privatization-without-a-plan-chart-21-and-caption-march-26-2016-pdf-191k.
² http://www.marketwatch.com/story/americas-growing-student-loan-debt-crisis-2016-01-15.
³ http://www.collegeboard.com/prod_downloads/press/tuition-discounting.pdf.
⁴ https://www.keepandshare.com/doc/7902722/nacubo-tuition-discount-study-2014-tds-pressrelease-march-13-2016-pdf-218k.
⁵ http://www.sheeo.org/sites/default/files/Figure%209.jpg.
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