Saturday, December 7, 2019

Threat No. 3 — Price Sensitivity

Top Threats to Higher Ed in 2019

Threat No. 3 — Price Sensitivity

Although wealth has grown considerably since the great recession, it has not been evenly distributed. Those with the capacity to invest have seen tremendous gains in the past decade, but many in the working class and the lower middle class have experienced income growth that has not kept pace with inflation. The stress of their increased cost of living has made them more debt averse than in previous decades when it comes to student loans.

Student debt has rightfully become a major focus of the media in recent years; however, some of the debt story is misleading. Here are some important facts that the mainstream media haven’t adequately covered:

·      This week, Inside Higher Ed reported that wealthy students are responsible for “some of the most drastic borrowing increases.”
·      A recent article in Business Insider reports that 40% of student debt is for graduate school. Also, as of 2016, 51% of the households with student-loan debt are those of advanced-degree holders.
·      For-profit institutions are the secondary-education sector with the highest percentage of baccalaureate students taking on $50,000 or more in debt (32%) compared to 11% overall.
·      A new study produced by AICUP (The Association of Independent Colleges and University of Pennsylvania) shows that the net tuition (the amount paid after financial aid is awarded) among Pennsylvania’s independent colleges has increased at a rate lower than inflation for nearly a decade.
·      The Federal Reserve reported that as of 2016, 10% of household debt was student loans, and 9% was auto loans, 6% was credit-card debt, and 67% was mortgage debt.

The return on investment of a college education remains high, as long as students persist through graduation. According to a report published by the Center for American Progress this summer, the median student-loan debt of defaulters is $9,625 because two-thirds of the people who default on student loans are those that didn’t earn a degree.

The average debt upon graduation from a four-year institution is $29,650. A recent Newsweek article clarifies the details of that figure:

That ‘average’ is heavily skewed by large balances held by a minority of students—most likely, older, independent students who are allowed to borrow more—and probably doesn't reflect the typical college student's experience. In fact, three-quarters of students at four-year public colleges and two-thirds of students at private schools graduate with less than $30,000 in debt; about half have borrowed less than $20,000 and four in 10 come in under $10,000. Three in 10 undergraduates have no debt at all.”

This year we reached a new high in discount rates nationally, which means that colleges and universities are charging smaller percentages of their published tuition rates than ever before. To quote a wise colleague, “The market is dictating the cost of a college degree.”

Some of that discount is covered by funded scholarships, but most of it is tuition these institutions forego. This has been made possible primarily through careful budget management and under-publicized cost reductions, but at some institutions it is resulting in unsustainable operating deficits.

The result of rising discounts is that even though total student debt has reached an all-time high, according to the aforementioned Newsweek article “In recent years, students collectively have been borrowing less, not more, for college. In fact, new borrowing­—and new is the critical word here—has fallen in each of the past seven years.”

The public narrative is that a degree has become financially unattainable, but the truth is that on average, it has become more affordable.


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