Paying for college: We don’t spend as much as we think
How to pay for college is one of the big financial issues that families face. That leaves a lot of parents and students wondering why college costs are rising, and whether a college degree is worth the cost.
Has the cost of college gone up that much?
The cost of college has been rising, but not as much as people think, according to David Leonhardt, the Washington Bureau Chief for the New York Times.
“It’s gone up faster than inflation, but when you take financial aid into account, it’s gone up only modestly faster than inflation,” said Leonhardt.
A lot of people, he said, are confused because they’re looking at the “sticker price” for college, not realizing that many students get financial aid that reduces what they have to pay.
He compared that aid to a progressive tax system, where high-income students pay a higher rate than low-income students.
“I’m not sure we should be that concerned about that,” said Leonhardt. “The rich have done so well over the last couple decades, getting enormous raises, that they can afford a higher college bill than they could 20 years ago.”
Is paying for college still worth it?
According to the Federal Reserve, the average amount of student loan debt for a 2013 graduate was around $28,000, while the average salary for new grads in 2013 was $44,928.
Leonhardt says graduates need to look beyond their first year salaries when they think about paying off debt.
“Compare $28,000 not to what you make your first year out of college. Compare it to the difference over 5 or 10 or 20 or 40 years, between what a college graduate earns and what someone who doesn’t graduate from college earns,” said Leonhardt. “Then the amount of debt we have, while not great, seems to look less bad.”
Will there be pressure on universities to lower education costs?
Leonhardt identified two forces that could drive college costs down.
The first is technology. If online colleges prove they are effective, he said, traditional schools will have to adjust their prices.
The second is the cost of social security for retiring baby boomers. The pressure on the federal budget, said Leonhardt, will push the government to make colleges more accountable for how they spend federal dollars.
This month, President Obama proposed measures to make colleges more accountable, by tying aid to student success.
That could make a difference, said Leonhardt. “We don’t say ‘Hey, if you actually do a good job and your students learn something, or if you do good job and they graduate, we will give you more money than a school that is enrolling tons and tons of students and having many of them fail and drop out,’” he said.
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