First in an occasional series
For years, Cassie Harris has been scrimping to chip away at her $50,000 in student loan debt – living at home after graduation, taking odd jobs, getting health care at a free clinic and putting off big purchases.
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She knows how she got here: She followed her heart to an expensive, private undergraduate school, then followed her head to a career-track graduate program.
And she knows how many small decisions added up to one big debt.
“That was a life-altering, choice-forcing amount of money for me,”said Harris, 28, who today earns $48,000 a year as assistant registrar at Bowdoin College in Brunswick and has paid down about half of her loan. “That loan is a constant albatross around your neck.”
It’s a typical scenario for a generation of students facing soaring college costs and a spike in student loan debt, which now exceeds $1 trillion nationwide.
Four years of tuition, fees, room and board at public four-year colleges costs about $75,000 today, and graduates’ median student debt is $11,000. At private nonprofit colleges, those costs are almost $165,000, with a median student debt of $21,000.
At the upper end of student debt, about 13 percent of debtors owe more than $50,000. Maine graduates carry an average of almost $30,000 in debt, the seventh highest amount in the nation.
“College debt is completely devastating my generation,” said Maine Rep. Matthea Daughtry, D-Brunswick, who is 27 years old and a member of the Legislature’s Youth Caucus. “I’ve spoken to thousands of my peers across the nation and state, and we’re being robbed of our future.”
Colleges and politicians are scrambling to respond but there have been few options during such a deep and wide economic downturn.
Daughtry co-chairs a special committee exploring college affordability in Maine, and colleges across the nation are cutting staff and programs to save money, while looking to boost revenue by raising tuition, adding high-demand majors and recruiting foreign students who pay higher tuition.
In Washington, D.C., freshman U.S. Sen. Elizabeth Warren, a Massachusetts Democrat, has made headlines championing student loan reform and introduced a bill to allow about 25 million students to refinance their student loans at today’s lower interest rates. Last month, Sen. Angus King, a Maine independent, introduced a bill that would allow students to consolidate loans into a fixed, 10-year repayment plan or a single, simplified income-driven repayment option.
The problem has far-ranging impacts on the economy beyond students’ ability to repay their loans. Debt-burdened college graduates are hurting the economy by sitting on the sidelines for years after graduation, experts say. Even if they are working, they are putting off purchasing cars and homes or starting small businesses.
And the problem is worse for graduates who are unemployed or underemployed, as well as dropouts who take out student loans but never get a degree.
A LOOK AT THE NUMBERS
The Maine Sunday Telegram will spend the next several months examining why college tuition has skyrocketed and the impacts of student debt. Among the key findings so far:
• College costs are increasing faster than other major life expenses: The average published annual tuition at a four-year state university – considered the most affordable way to get a degree – has shot up 231 percent in the past 30 years, from $2,680 to $8,890 in inflation-adjusted figures. Over the same period, the average cost of a home went up 48 percent, and the annual cost of health care went up 54 percent.
• Prices at private nonprofit colleges, by comparison, have increased at a slower, steadier pace, and their more generous grant and scholarship packages means the average net price – a student’s cost after subtracting grants and scholarships – has actually decreased in the past decade, even though the published price increased 25 percent, according to the College Board. Because they have more aid to offer, it can be cheaper for some students to attend a private college than a public college. The average tuition at a four-year private nonprofit school is $41,000.
• But overall, public schools remain the most affordable option. A deeper examination of national student loan debt by the New America Foundation shows that 50 percent of bachelor’s degree graduates from public schools owed $11,050 or less upon graduation. At private nonprofits, 50 percent owed $21,000 or less, while at private for-profit colleges, 50 percent of graduates owed $37,529 or less.
• College costs are increasing even as median family income drops. From 2000 to 2012, the inflation-adjusted price for tuition, room and board rose 40 percent at public colleges and by 28 percent at private nonprofit colleges. Over the same period, the median family income dropped 6.6 percent nationwide and 4 percent in Maine.
• Despite the mounting costs, student enrollment remains high, declining slightly since reaching a peak in 2011. Today, almost 90 percent of high school graduates enroll in college by the time they’re 26 years old, according to a recent National School Board Association survey. Experts suggest that’s because a college degree is increasingly expected for more jobs, and numerous studies show college graduates earn more over their lifetimes. The typical college graduate will earn almost $1.2 million over his working lifetime, more than twice as much as the typical high school graduate’s $580,000.
• Rising tuition is funding a larger proportion of college operations. At the University of Maine System, tuition brings in 42 percent of the system’s operating budget, with state funding bringing in 34 percent. In the past 30 years, tuition paid as little as 23 percent of operating costs, and state funding as much as 72.5 percent, officials say. That flip-flop in revenue streams reflects a nationwide trend in declining state support for public colleges. Between 2008, when the recession hit, and 2013, per-student state funding dropped 23 percent nationwide, according to a report by the State Higher Education Executive Officers Association. In Maine it dropped 15 percent over the same time period.
• Far more students are borrowing money to pay for college. From 2004 through 2012, aggregate student loan debt almost tripled to more than $1 trillion, exceeding all other forms of debt except mortgages. In 2012, seven of 10 bachelor’s degree graduates had taken out student loans, with an average debt of $29,400. That’s nearly 80 percent of the average income for a young adult in the United States.
• Families share the pain. Lender Sallie Mae says parents chipped in 30 percent of college costs in 2014, and 35 percent of those families said they had to borrow money to help pay for their children’s expenses.
• Student loan default rates vary widely by type of school. Maine’s default rate overall in 2011 was 12.8 percent, slightly lower than the national average of 13.7 percent. But rates were far higher at the state’s private for-profit trade schools and community colleges than the private nonprofit and public four-year state universities. Experts say about 70 percent of default loans come from students who dropped out before graduating.
• Graduates carrying debt and entering a weak job market are holding back on car and home purchases: College graduates carrying debt have lower credit scores and are less likely to qualify for home and auto loans. Not being able to access credit is also hurting graduates’ ability to start small businesses, another study found. The debt is also affecting their personal lives: A spot survey of 1,000 students who graduated with bachelor’s degrees in 2009 found that two years after graduating, 24 percent of them were living with their parents.
For some, the rising cost of college is the pressing political and social problem of our time.
In Augusta, the College Affordability Commission is meeting weekly to study college costs and challenges in Maine, and will report its findings in December.
“We thought we’d done everything right, we’d gone to college. But even those who could find jobs can’t make enough to fully pay off their loans, because minimum wage is a reality for a lot of college graduates,” said Daughtry, who co-chairs the commission and was herself forced to move in with her parents for almost two years after graduating in 2009 with more than $20,000 in student loan debt. An art major, she started her own photography business and worked three jobs to save up enough money to rent an apartment in Brunswick.
Even graduates armed with high-powered degrees can’t make financial commitments in the short term because of their student loans, she said.
“I’ve heard from friends who are holding off on getting married because one of them went to medical school,” Daughtry said.
Despite the increasing college costs, undergraduate enrollment nationwide increased 32 percent, from 13.7 million to 18.1 million, from 2001 to 2011, according to federal data.
Part of that is the demographic result of having more college-age people, but there’s also an increase in the percentage of high school graduates going to college. Today, 66 percent of high school graduates go directly to college, up from 55 percent 30 years ago.
In Maine, 62 percent of Maine high school graduates in 2013 went on to college, and of those, 72 percent went to Maine colleges, according to a Mitchell Institute survey. Overall, 75 percent of these went to a four-year college and 25 percent went to a two-year college, and one in three went to a private college.
WHY TUITION IS SOARING
Experts say the recession is largely to blame for the recent spike in tuition. The impact has been most pronounced at public colleges, which rely heavily on two forms of revenue: state subsidies and tuition.
The recession had a deep impact on both those sources: The collapse of the housing market and the stock market shrank the wealth of the average American household by about 20 percent, according to the Pew Research Center.
At the state level, tax revenue, employment rates and reserve funds all plunged during the recession, and lawmakers cut appropriations to higher education despite emergency federal subsidies available through the American Recovery and Reinvestment Act.
In response, public colleges shifted their costs to students.
Even today, higher education funding by the states remains “well below pre-recession levels,” according to a report issued earlier this year by analysts at the Center on Budget and Policy Priorities in Washington, D.C.
“The large funding cuts have led to both steep tuition increases and spending cuts that may diminish the quality of education available to students at a time when a highly educated workforce is more crucial than ever to the nation’s economic future,” the report found. All states except Alaska and North Dakota are spending less per student than they did before the recession, and per-student spending in three states – Arizona, Louisiana, and South Carolina – is down by more than 40 percent since the start of the recession.
Maine’s education appropriation per full-time-equivalent student has dropped 15 percent over the past five years, from $7,027 to $5,978, according to a national survey and analysis by the State Higher Education Executive Officers.
“What is glaring to me is that the share families have been putting in has increased while the state share has decreased,” said Sen. Rebecca Millett, D-Cape Elizabeth, who co-chairs the Legislature’s Education and Cultural Affairs Committee and the special college affordability committee.
“From my perspective as a legislator, we really need to address that and recommit the state of Maine to higher education.”
Twenty-five years ago, tuition made up only 23 percent of revenue at public colleges. Today, it’s 47 percent, according to a 2013 report by the State Higher Education Executive Officers.
“It’s not that the costs (at colleges) are going up rapidly. Institutions are not spending that much more. It’s that more and more of those costs are covered by tuition bills rather than taxpayers,” said Sandy Baum, an education policy analyst and senior fellow at George Washington University’s Graduate School of Education and Human Development.
“We really need to figure out how we are going to fund higher education,” Baum said. “It is a big worry and maybe what we need to do is pay more taxes. You have to ask: Is everyone in Maine going to pay for it? Or should just the students going to the universities in Maine pay for it? Somebody is going to have to pay for it.”
The recession also hurt endowments and private giving at private colleges, which rely heavily on those revenue sources, but the schools didn’t sharply increase tuition in response, and generally had steady tuition increases consistent with previous decades, Baum said.
Adding in room and board, the published cost of a private nonprofit education rose 24 percent in the past decade, to $40,920 a year. But the sticker price, reflecting the generous aid available to students, was up only 3 percent over the same period, to $23,290 a year.
RISING STUDENT DEBT
The increase in tuition has led to a rise in student loan debt, which exceeds $1 trillion and totals more than both auto loan and credit card debt, according to the Federal Reserve Bank of New York. Student loan debt is now the largest form of consumer debt outside of mortgages.
Nationwide, the average graduate with a bachelor’s degree has $29,400 in student loan debt; in Maine, 67 percent of students graduate with an average $29,352 debt, according to the Project on Student Debt.
And despite apocryphal references to graduates with $100,000 in student loans, a recent report from the Brookings Institution, a Washington think tank, found that in 2013 only 3 percent of borrowers had a balance of more than $100,000, and 13 percent had a balance over $50,000.
“As these figures suggest, the unfortunate cases of households saddled with astronomical debts are rare,” wrote Brookings’ Beth Akers, the author of the report.
But the sheer scale of student debt is cause for alarm, according to Sen. Warren, who has championed reforming federal student loans. Her bill would let millions of borrowers, some with years-old debt and interest rates topping 7 percent or more, refinance at today’s lower rates.
“Exploding student loan debt is crushing young people and dragging down our economy,” Warren said in May while introducing the bill, which has been blocked by Republican filibuster. “Allowing students to refinance their loans would put money back in the pockets of people who invested in their education. These students didn’t go to the mall and run up charges on a credit card. They worked hard and learned new skills that will benefit this country and help us build a stronger middle class and a stronger America.”
Graduates carrying even the average debt amount and entering a weak job market are holding back on car and home purchases. With lower credit scores, these graduates face higher loan rates, or can’t qualify at all for home and auto loans. For entrepreneurs, a business loan might be out of reach, according to an analysis of credit data by a senior economist in the Federal Reserve Bank of New York.
Student loan debt is also different from other debt in a significant way: It can never be discharged, even in bankruptcy. Also, since many loans are with the federal government, nonpayment can catch up to debtors even after they retire.
A report issued in September by the Government Accountability Office found more older Americans are carrying student loan debt, about 80 percent of them for their own college debt, the rest for loans taken out to benefit children or grandchildren.
The percentage of households headed by someone 65 to 74 years old with student debt increased to 4 percent in 2010 from 1 percent in 2004, the report found. In dollar terms, the amount of debt increased from $2.8 billion in 2005 to more than $18 billion in 2013.
The report didn’t identify how old the debt was, but noted that borrowers can get permission to defer payments, so some seniors may be paying off very old debt, or it could be debt accrued mid-career when the borrower went back to college to upgrade skills.
GETTING IN
Figuring out exactly what college will cost is no easy task. Like airplane seats on the same flight, students at a college can pay anything from nothing to a full sticker price.
Determining what kind of aid you can get can be confusing, complicated and frustrating – starting with the 130-question Free Application for Federal Student Aid (FAFSA) form needed to qualify for federal aid. After that, families and students must fill out additional forms and financial surveys for each college.
A recent study of people who do not go on to college found that the biggest reason they didn’t go was money – 23 percent said they couldn’t afford it, compared to only 3 percent who said they didn’t have the grades, according to the National School Boards Association survey.
Maine data shows that far fewer lower-income high school graduates go on to college, according to the Mitchell Institute. Its survey found that 48 percent of lower-income students went on to college, compared to 72 percent of graduates who were not lower-income. The number of lower-income graduates is growing, too. Fully 41 percent of Maine high school graduates in 2013 qualified for free and reduced meals, up from 22 percent in 2008, when the recession began.
But experts say many people who think they can’t afford college actually can. And some students who think they can only afford public schools might get a better deal at a private school if they qualify for enough aid.
Navigating that process, and knowing the ins and outs of college pricing, is usually left to high school guidance counselors. But there’s a growing cottage industry of agencies and individuals to help guide students through that process – for a fee.
College Solutions of South Portland charges families a flat fee of $1,800 to walk them through the process of getting into college.
“There are wise ways to approach the process and there are not-wise ways to approach the process,” said vice president Kimberly Morrison, whose parents started the company 35 years ago. “Nobody, but nobody, wants to pay $60,000 to attend college. It doesn’t matter what a school costs; it’s what a school costs you and how long you are paying for it.”
Morrison said the company steers clients toward private colleges that have bigger aid packages. That means students in the lowest income brackets, on average, spend far less for a private school education than if they paid full tuition at a public school.
For students from families earning less than $65,000 a year, tuition and fees at private nonprofits drops from an average of $43,103 a year to $8,609 a year, according to the College Board. For families earning less than $30,000, tuition and fees drops to $4,971 a year.
But many of those low-income students would also get substantial breaks, or even full-ride scholarships, at public institutions as well.
Cutting through the red tape and increasing transparency on how much college costs has been a major initiative for the Obama White House.
In 2011, the Obama administration began requiring all colleges to include a net price calculator on their websites to help families determine the true cost of an education. Before, experts say, some students had already made decisions about where to apply based on the published, or “sticker” price, since financial aid award letters don’t arrive until after a student is accepted.
Shannon Wright, a 16-year-old junior at Scarborough High School, says she’s already been saving for college, even though it will be more than two years before she knows where she’ll go or what it will cost. Last summer, she was looking for scholarships online and spending her days earning $7.50 an hour running the kiddie rides at Funtown/Splashtown to augment her college savings account.
Even with an early start, and a plan, navigating the college application process is daunting, she said.
“It’s kind of stressful, going into junior year with SATs and knowing this is for the rest of your life, and if you make a bad decision you’re screwed,” Wright said.
SEARCHING FOR SOLUTIONS
College officials are tackling the issue on several fronts, particularly at public colleges that rely heavily on tuition and state subsidies for revenue.
The recession gutted state support across the nation, and schools responded not only with tuition hikes, but deep cuts in staffing and academic programming, even closing entire campuses. At the same time, most schools tried to increase revenue or cut costs other ways, from amping up recruitment efforts, particularly for out-of-state students, who pay higher tuition, and streamlining administration costs.
As the economy recovers, most states are starting to increase their higher education funding.
In 2013, state and local funding nationally for public colleges increased slightly, reversing an annual decline that began in 2009. But the funding varied widely from state to state, with 30 states increasing higher education funding, and 20 states, including Maine, reporting ongoing declines in funding, according to the State Higher Education Executive Officers report. In inflation-adjusted figures, Maine’s education appropriation per full-time-equivalent student dropped 15 percent over the last five years, from $7,027 to $5,978, according to the report.
The economic recovery is also easing the financial crunch at private colleges. As the financial markets rebound, so do donations from alumni, and the value of endowments that fund not just campus operations and improvements, but student scholarships as well.
In Maine, the chairman of the University of Maine System board of trustees, Samuel Collins, said the board will continue to look for ways to balance the system’s books, but expects to cut more academic programs and staff.
The latest systemwide budget of $529 million, approved in May, cut 157 positions and required $11.4 million in emergency funds to close a $36 million deficit. Without changes, the deficit would grow to $69 million by 2019, officials project.
“We are making all the changes we can on the administrative side of the house, but we have to look at the academic side, too,” Collins told the board last month. The consolidation of several administrative functions, including IT, procurement and human resources, will save millions annually, but it won’t be enough.
The system is seeking an increase in state funding, and if that falls through, will likely consider a tuition hike.
“We need to grow revenue,” Collins said. “We are very much aware that an affordable education is extremely important.”
Millett said she thinks there will be legislative support for easing the burden on students and their families, whether through increasing the state subsidy or increasing grants for students, among various options.
“Things seem to really be coming to a head and people recognize this is not sustainable,” she said.
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