70% of college students graduate with debt. How did we get here?
Even before their kids were born, Luke Burnham and his wife started saving for college.
First in a regular savings account and later, when each of their sons turned six, in 529s — dedicated college savings accounts. Even so, Burnham remembers thinking there was no way they’d be able to save enough money to put two kids through school.
Still, they kept saving as much as they could. So far, he feels like it’s working out okay. Their oldest son, now 20, got some scholarship money and ultimately chose a school Burnham referred to as “reasonably priced” — Husson University in Bangor, Maine. Tuition, room and board were about $25,000 a year when he was a freshman.
Still, that’s more for a single year than Burnham’s entire college education — at a private liberal arts college in Ohio — cost in the 1980s. That is something he just does not understand.
“I wonder why college costs so much more today than 25 years ago,” he said. “What is the driving factor, or forces, behind such increases in the cost of attending a four-year school these days?”
Today, roughly 70% of American students end up taking out loans to go to college. The average graduate leaves school with around $30,000 in debt and all told, some 45 million Americans owe $1.6 trillion in student loans — and counting.
How did we get here? Slowly, over decades, according to Mark Kantrowitz, publisher and vice president of research at the website Saving for College. “You can compare it to cooking a lobster,” he said. “By the time you figure out that the water is boiling, you’re already cooked.”
The growth of student debt
For much of American history, college was for the elite. If you couldn’t afford it, you didn’t go. That started to shift in 1944 when, hoping to keep the economy strong, Congress passed the G.I. Bill, which included massive amounts of funding for World War II veterans to go to college.
It was not until the late 1950s that federal student loans first appeared. Even then, they were limited, intended to encourage people to study subjects that would help the U.S. compete with the Soviet Union in the space race.
The student loan system as we know it today was born out of the Higher Education Act of 1965, which was designed to “strengthen the educational resources of our colleges and universities and to provide financial assistance to students in postsecondary and higher education.”
That financial assistance came primarily in two forms — grants, which didn’t need to be paid back, and low-interest student loans, which did.
“We need to remember that these loans were only ever originally intended for students from upper income families, students whose families had the means to pay back the loans,” said Michelle Asha Cooper, president of the Institute for Higher Education Policy.
Throughout the late 1970s, ’80s and early ’90s, though, Congress continued to pass new laws, one after another, that expanded eligibility for student loans, eliminated income requirements and allowed parents to borrow for their kids’ educations.
A fundamental, philosophical shift took place around the same time, under President Ronald Reagan, away from federal investment in things like higher education, and toward individual responsibility. Away from grants and toward loans.
The rising cost of college
Between 1988 and 2018, tuition rose more than 200% at four-year public colleges, and almost 130% at private nonprofit colleges.
There is a big difference, though, between the shockingly high sticker prices and the amount most students end up paying, after accounting for scholarships and grants.
“If you look at America’s private [nonprofit] colleges, and you don’t look at the list price, you don’t look at the sticker price in the catalog, but you look at the price the average student pays, the net price? It’s barely budged since 1990,” said David Feldman, co-author of the book “Why Does College Cost So Much?” and economics professor at the College of William and Mary. “People just react in shock when I tell them that.”
Where the price paid by the average student has gone up much more significantly is at public colleges, which most Americans attend.
“Since the mid-1980s, the level of state appropriations for public higher education has fallen by about 30%,” said Feldman, who described this as “the driving engine of price increases to average families.”
“People often want to look at higher education in isolation, as though it’s some sort of a special case industry… But it’s embedded in the American economy.”
Paying for college today
The American economy just isn’t working as well as it used to for most families. Along with the cost of college, the cost of living has been rising, while family income has been flat since at least the late 1990s.
Which, for many students who want to get an advanced degree, has meant the only option is to borrow more.
The federal government has also been inclined to increase student loan limits rather than grant amounts, and “call the problem solved,” Kantrowitz said. “Even though that’s just putting more of the burden on the families.”
Take Pell Grants, the biggest source of federal grants for low-income students. In 1975, these grants covered 79% of tuition, fees, room and board at a four-year public college, according to the Center on Budget and Policy Priorities. By 2017, they covered just 29% of those same costs.
“We have more and more students of all income brackets taking out loans,” said Michelle Asha Cooper of IHEP. As the cost of college has increased over the years, she said, “the investment in need-based aid has failed to keep up with that rising cost.”
Seth Frotman, executive director of the Student Borrower Protection Center and former student loan ombudsman at the Consumer Financial Protection Bureau, said there is another factor that does not get enough attention in this conversation: the lingering effects of the Great Recession.
“One of the ways that we saw the student debt crisis rise at the bureau was because of this historic divestment in higher education in statehouses across the country,” Frotman said.
As tax revenue plummeted, and states had to find ways to cut budgets, many of them decided they could live with cutting back funding for state universities in the belief, said Frotman, that “families could pick up more of the slack.”
At the same time, though, families, like states, were getting hit hard by the financial crisis — losing jobs, homes, savings.
The result was more people taking on more student debt.
“We haven’t really recovered from this cycle in which we just place more and more of the onus of higher education in higher tuition bills, which are necessarily being covered in the form of consumer debt as student loans,” Frotman said.
Investing in success
Not everyone thinks there is a student debt crisis, or that student loans are inherently bad.
“People never think about loans now as creating opportunity, but they do create opportunity for lots of students who otherwise could not go to college,” said Sandy Baum, an expert on higher education finance at the Urban Institute.
She points to the fact that the majority of people who take out student loans are still able to pay them back, and that people with a bachelor’s degree still earn more than those with just a high school diploma.
But Frotman takes issue with the idea that the way to create opportunity for low and middle-income students is by offering them loans. That, he said, presupposes that the only way for them to go to college is to take on debt.
Frotman believes states and the federal government should shoulder more of the cost, so students don’t have to. Kantrowitz agrees.
“Someone who has a bachelor’s degree pays more than twice the federal income tax of someone with just a high school diploma on average,” he said.
“There is no better investment for the federal government. Our greatest resource is our people. And we should be investing more in their success.”
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