Is getting a college education another "bill of goods"?

Posted by Greg L on November 2, 2009 · 1 Comment 

Below is an article from the New York Times regarding rising college costs. Even though we’re in a recession/depression, the cost of college continues to rise at a rate greater than the general inflation rate.  It’s time to ask whether the cost of college education reflects the same bubble as that  which occurred in internet stocks or the mania in real estate that just went bust with disastrous consequences.  To some extent, the cost of education is fueled by some of the same things that drove the real estate excess—-credit.   Regardless of the justification the colleges have in raising tuition, you can rest assured that if everyone had to deal with this out of savings absent any credit, tuition prices would drop like a stone.

   

Now don’t get me wrong,  with two degrees and a few professional certifications,  I’m a big believer in education and what education can do for someone.    Getting an education is not just about the economic aspects of a pursuing a  career, but it also includes getting exposed to ideas and developing the wherewithal to look at the world and events around one with greater understanding.  But the question is what should this really cost ?    

  

Let’s think about this for a minute.  Every parent with college age children is force-fed the idea that your kid not only must go to college, but must also get into the very best school (which is generally the most expensive school).  ‘Don’t worry about how you’re going to pay for it”, we’re told, “just make sure your kid gets accepted and you’ll figure out how to pay for it.”  That’s a bunch of poppycock.  That’s a little like someone trying to shoehorn themselves into a $ 250,000 Bentley on a $ 20,000 salary  and worrying about the monthly payment later.  It’s that sort of thinking that got us into the problems we’re in right now and that sort of thinking when funding your kid’s education is just as problematic.

 

Five years out of school, the most important question that one faces is “what can you do ?”, not “where’d you’d go  school ?”  So the main issue is choosing the right profession to go into and the school your family can afford.  Moreover, choosing the right profession does not necessarily mean college.  There are plenty of unemployed recent college graduates that might have been better served (and they’d be in far less debt) had they chosen a trade school or other education. 

 

October 21, 2009

College Costs Keep Rising, Report Says

By TAMAR LEWIN

The price of a college education rose substantially last year, despite a 2.1 percent decline in the Consumer Price Index from July 2008 to July 2009.

Hit hard by state budget cuts, four-year public colleges raised tuition and fees by an average of 6.5 percent last year. Prices at private colleges rose 4.4 percent, according to a report issued Tuesday by the College Board.

Patrick Callan, president of the National Center for Public Policy and Higher Education, called the increases “hugely disappointing.”

“Given the financial hardship of the country, it’s simply astonishing that colleges and universities would have this kind of increases,” Mr. Callan said. “It tells you that higher education is still a seller’s market. The level of debt we’re asking people to undertake is unsustainable.

“A lot of people think we can solve the problem with more financial aid, but I think we have to have some cost containment. For all the talk about reinventing higher education, I don’t see any results.”

With room and board, the average total cost of attendance at a public four-year college is now $15,213, the report found. At private nonprofit colleges, which enroll about one in five college students nationally, the average total cost of attendance is now $35,636.

Over the last 30 years, college costs have risen steadily, especially at four-year public universities, once considered the affordable route to higher education. At such universities, the last decade’s increases, adjusted for inflation, have been the steepest.

At private universities and public two-year institutions, the rate of increase has slowed over the last decade. The 4.4 percent rise in tuition at private colleges last year, for example, was smaller than in past years, when it has been about 6 percent.

In releasing the figures, the College Board, a membership organization made up of schools, colleges, universities and education organizations, put a bright face on the issue. Sandy Baum, the senior policy analyst who wrote the report, “Trends in College Pricing 2009,” said the findings were not as bad as they might have been, since in times of recession, tuition increases are often “really, really steep.”

Ms. Baum emphasized that it was important for families to understand that only about a third of students pay the published tuition, or sticker price. Most pay a lower net cost because they get some kind of assistance, whether in the form of a scholarship from the university, a federal Pell grant or state aid.

Nonetheless, Ms. Baum acknowledged that over time, the costs trends at four-year public universities have been troubling.

“From 1979 to 1989, the annual rate adjusted for inflation was 3 percent,” she said, “the next decade was 4 percent, and the most recent decade 5 percent. So the trend was exacerbated in recent years.”

Public universities have been forced to raise tuition largely because state governments, facing huge budget shortfalls, have reduced spending on higher education. But many education experts said colleges must do a better job of cutting costs.

“Colleges need to be looking for ways to permanently restructure, not just cut their budgets,” said Jane Wellman, executive director of the Delta Project on Postsecondary Costs, Productivity and Accountability. “A perfect example is furloughs, in hopes that eventually the work force can come back. But this isn’t a one-time problem, and eventually they’ll have to bite the bullet and reduce their work force.”

About two-thirds of full-time undergraduates receive grants, according to “Trends in Student Aid 2009,” a companion College Board report by Ms. Baum that was also released Tuesday. And grant aid, especially Pell grants, has been growing.

Taking into account both grant aid and tax credits and deductions, Ms. Baum said, the situation looks far less dire.

“The really interesting thing to me,” she said, “is if you look at net prices students pay, considering the grant aid and tax benefits, students at public two-year institutions are actually paying less, in inflation-adjusted dollars. And that’s pretty significant. Even though the sticker price, adjusting for inflation, is up 20 percent in the past five years, the net price is actually lower than it was five years ago.”

But with college costs so high, borrowing is increasing as well. Although grant aid rose significantly in the 2008-9 school year, the latest year for which data are available, student borrowing — and the gap between available resources and the overall cost of attending college — continued to increase, the report said.

The borrowing has changed, though, with a significant shift away from private loans as the credit markets froze and federal loans expanded. According to the new report, total education borrowing increased 5 percent from 2007-8 to 2008-9, the report said, but private loans declined by about half last year, to about $11 billion, while federal loans increased by about $15 billion.

Last year, the average grant aid per student was $5,041, with the largest amounts coming from colleges and universities and the federal government.

At public four-year colleges, the report found, two-thirds of the grant money is given as merit aid, that is, without considering the recipient’s financial need.

“It is particularly disturbing that public colleges are using such a large share of their financial aid resources for so-called merit aid in these tough times,” said Lauren Asher, president of the Institute for College Access and Success.

This year, the report found, full-time students at private, nonprofit four-year institutions — those with the most expensive tuition — are receiving about $14,400 in grant aid and federal tax benefits, reducing their net tuition and fees to about $11,900, from the published $26,300.

Full-time students at public four-year colleges and universities receive an estimated average of about $5,400 in grant aid and federal tax benefits, reducing their net tuition and fees to about $1,600, from the published $7,000.

And full-time students at public two-year colleges actually get an average $3,000 in grant aid and tax benefits — enough to pay the average $2,500 tuition and fees and still have $500 left toward living expenses.

http://www.nytimes.com/2009/10/21/education/21costs.html?_r=1

Filed under Economics, Financial Crisis · Tagged with college costs, education, tuition increases