For the last few days, I have focused on the problems with college financing. As with the health series I did a few weeks ago, education is a classic “kitchen-table” issue. Education expenses do not have the pizzazz of the DSM or the Rove/Plame leak. There is no intrigue, no dastardly plots, no conspiracy. This is just a plain vanilla issue that directly affects people’s lives and standard of living. The average middle class person wants their children to have a better life and wants that better life within reach. As with healthcare, if the Dems help to solve this problem, we will gain voters. Therefore, it is an issue the Dems should push front and center to their agenda.
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First, why is education so important? A report titled The Investment Payoff by the Institute for Higher Education Policy makes a strong case for the benefits of a college education. First, college graduates have a higher average income and a lower rate of unemployment. In March 2004, the average income for a college-educated person over 25 years old was $48,417, $23,000 more than the same person with a high-school diploma. For the same month in 2004, 6% of 25 year olds without a college degree were unemployed, compared with 3% for those with a college degree. (Those liberal colleges have such a negative effect on students)
In addition, college graduates are more likely to be involved in public activities. 36% of college graduates volunteered compared with 21% of high-school graduates. 56% of high-school graduates voted compared with 71% of college graduates. (Those liberal colleges are just polluting students minds, aren’t they?)
Finally, a college education dramatically increases the possibility of self-reliance and self- sufficiency. 1% of people with a high-school only degree received public assistance, compared with .5% for people with a college degree. In other words, a college degree is a good way to get off and stay off the welfare roles.
Boy, it sounds like states should be doing everything they can to promote college education. It increases average income which increases tax revenue, decreases unemployment and state assistance and increases participation in public life. Regrettably, the last 15 years demonstrate states are contributing less and less to their respective educational systems, instead passing the burden onto students after graduation.
Between 1988 and 1998, the average annual state-sponsored school tuition increase was 4.1%. Over the same period, state appropriations — which comprise 33.4% of total state school revenues — decreased 1% annually. As a result, tuition as a percentage of total state school revenue increased from 22.7% to 31.1% from 1988 – 1998. In other words, the cost of state education is falling more and more on students as opposed to the state governments.
Since 1998, college tuition costs have continued escalating out of control, making college a less affordable proposition for students. The year-over-year percent increases for 2001-2005 were 7.1%, 9.7%, 13.9% and 10.6%, respectively. Over this same time, state appropriation increased at a 4.6% between 2001-2002, decreased 1%, and 2.3% between 2003-2003 and 2003-2004 and increased 3.8% between 2004-2005. Finally, average inflation adjusted wages according to the Bureau of Labor Statistics grew .42%, 1.52%, -.59% and-.31% respectively for 2001-2004. In other words, the trend established in the late 1980s and early 1990s of decreasing state funding and increasing tuition to pay for state schools has continued. States have increasingly passed the cost of higher education onto student’s backs.
As a result of states decreasing their contributions to their respective state systems, families are less able to afford a college education and students are more burdened with post-graduation debt. According to the Education Commission of the States:
4-year college tuition consumes 28.5% of family income. That’s a hefty number which would effectively bankrupt a family. It also indicates that families should save for tuition to help deal with the expense. However, the national savings rate is at an all-time low, indicating families are not saving. The cause of this low savings rate is topic for another discussion. However, for whatever reason, people are not saving.
While the average cost of college tuition rose by 110% between 1981 and 2001, median family income rose by only 27% during that period. (The College Board, Trends in College Pricing, 2001)
College tuition increased 5 times faster than average income over a 20-year period. That is a hefty increase. It indicates that college is slowly becoming more and more difficult for the median income family to afford. As a result, their children have to borrow more of the their tuition.
A report titled The Burden of Borrowing by the State PIRG’s Higher Education Project observes that while 42% of students graduated with debt in 1992-1993, 64% graduated with debt in 1999-2000. In addition, the number of students who graduated with over $20,000 increased from 5% in 1992-1993 to 33% in 1999-2000.
So, a larger number of students are forced to borrow for educational purposes and a larger percentage of graduates has a higher amount of total debt on graduation.
A 2003 Nellie Mae report titled College on Credit, documented that the average amount of debt in 2002 for an undergraduate degree was $18,900 while the median amount was $16,500. Payments on these figures comprised an average of 9% of after-college income and a median of 6% of after-college income.
Graduate school loans are a larger burden. The average total debt was $91,000 for law and medical students, and their payment comprised 18% of their income. The average debt for business degrees was $39,500 and their payments comprised 8% of income. The same numbers for education degrees was $32,200 and 11% respectively.
Let’s look at these figures from an everyday perspective. Suppose you already have $40,000 of debt. Would you be more or less likely to make an additional debt-financed purchase such as a house? How about this: you get married and have a child. 18% of your income is already paying your student loans. What is the likelihood of you starting to save for your child’s education when he is born? Even when we look at professions whose payments comprise a lower percentage of their respective income, the answer to the same questions is still probably the same. I think we have a partial answer to why the national savings rate is so low.
In summation,
1.) A college education clearly benefits society by increasing personal income, decreasing unemployment and increasing public spirit. However,
2.) As states have decreased their funding of state university systems they have
3.) Increased tuition making college payments unaffordable for the average American family. Instead,
4.) College graduates are increasing their use of debt financing, which
5.) Hinders their ability to move up the socio-economic ladder after graduation.
http://nces.ed.gov/pubs2002/2002157.pdf
http://www.aascu.org/pdf/05_charges.pdf