Do you remember the days that higher education was actually affordable? Yea, neither do I.
The rising cost of higher education is redefining what it means to be a broke college student, and I can’t help but remember what college costs were like in my day.
A handful of years ago, the total cost to attend my four-year public university rang up to the tune of $96,000, and that’s a conservative estimate (one semester, books alone cost me over $600). Today, a college degree at the same university—where students faced three tuition hikes in the last two years—now costs $126,000. That’s a 31% increase in less than a decade.
While it’s always been a struggle for every generation to pay for college, this is getting ridiculous.
How will the next generation of prospective college students cope with the reality that access to higher education may not be for everyone after all? It’s for those who can pay it, or at least afford to pay back education debts for the next 20 years.
Reality of college costs
With college costs outpacing middle-class families’ monthly paycheck, parents are less likely to be able to carry the entire financial burden of college, forcing students to take out more loans to pay their own way to college. In fact, 2 out of 3 college students graduated with debt in 2008 as compared to less than half in 1993, reports FinAid.org. And college costs have only jumped higher since 2008.
Students head back to campus this fall facing greater challenges to pay for college expenses due to tuition hikes as well as scarcer financial resources. According to the latest report from CreditKarma.com, the average consumer is shouldering $29,985 in student loan debt, a 6% increase since last August. In fact, the total national amount of student loan debt outpaced credit card debt for the first time in history last year.
It’s not too far off to worry that student loans could be the next financial bubble. Moody’s Analytics reported that student loan growth, unlike other lending, accelerated during the recession. “Like the mortgage debt from 2005, student loans are driven by artificially low interest rates with a promise of a high return on investment,” comments Ken Lin, CEO of CreditKarma.com.
For students, the return on investment is becoming unpredictable. Lin adds, “While many college students are fixated on the potential for higher incomes after graduation, few acknowledge the potential pitfalls of taking on student loans, such as debts far in excess of their salary and debt obligations that don’t discharge after a bankruptcy.”
What does it all mean? With college students graduating with thousands of dollars in debt and facing limited job prospects, the balance of risk and rewards of a college diploma is shifting slightly towards more risk than reward.
Reality for college grads
They call us the “Millenials,” born in the 80’s and 90’s and known as the most technologically connected generation in history. Millenials are also the hardest hit by the recession. Among consumers aged 18 to 29, unemployment is the highest it’s been in over three decades, and amongst all age groups, Millenials had the highest drop in full-time employment since 2006, reports the Pew Research Center.
No wonder they also peg us as the “lost generation,” coming of age in the Great Recession with high hopes and high degrees, and stunted with limited professional experience, reduced earning potential, and dimmed confidence.
With the job market so bleak, many Millenials are heading back to school with1 in 4 undergrads opting for grad school. Yet graduate students are facing even tougher financial circumstances than undergrads.
The Budget Control Act of 2011 will cut off government subsidies of lower interest graduate student loans starting July 2012. The budget cut will cause students to opt for higher interest loans, which will result in an incremental $7,000 in interest on federal student loan debt for the typical borrower, estimates FinAid.org.
For many 20-somethings, graduating will be a time to start digging out of deep debt while juggling financial independence. While past generations likely put 5%-7% of their first job’s paycheck toward debt after graduation, Millenials are putting in 20% or more.
One graduate of the Class of 2010 compared paying off student loans to having a hole in his paycheck. “It’s like paying for weekly rounds of drinks every month that you don’t even remember buying,” he stated.
Another recent graduate puts the dismal outlook of student loans in perspective: “Well, I can make the payments. Luckily.” More than 20% of her current paycheck goes straight to student loans; it would’ve been a bigger chunk if she hadn’t worked part-time while schooling in order to pay some expenses. “It makes me slightly depressed, because it’s a huge mountain to climb. But I keep telling myself it is doable.”
At the alarming rate of higher education cost hikes, this generation’s student debt hangover will last well into their 30s.
Is college still worth the price?
This generation of college graduates will be our next business leaders, industry game changers, and ground-breaking entrepreneurs. Is it fair that they’ll be starting their careers over $100,000 in debt?
In college, I never considered whether or not it was worth it; going to college was a no-brainer. I wonder if future generations will feel the same. Looking at the price I’d be paying today for education, honestly, it’s a harder call to make.
One optimistic graduate remarked, “I have my degree, and I have a job. One day, it will all work out.”
For the next college-educated generation to whom I will one day say, “I remember when college only cost me $96,000!” I sure hope so.
Justine Rivero is the Credit Advisor and resident Credit Rockstar for CreditKarma.com, the pro-consumer credit advocate that helps more than 3 million consumers realize the everyday cost savings of having great credit health.