A Generation Hobbled by the Soaring Cost of College

Here is a link to the New York Times column called the “Choice” (HERE) which is all about the college admission and debt process.  here’s the overview of what the column is about:

Making a college list, filing applications, and marshaling the resources to afford an education can be intimidating. But it need not be. Join Jacques Steinberg, a New York Times education writer and author of “The Gatekeepers: Inside the Admissions Process of a Premier College,’’ as he and his colleagues examine all facets of the college admissions process. You can reach Mr. Steinberg by sending e-mail to thechoicenyt@gmail.com.

We also recommend that you follow the Degrees of Debt series in the Times; linked HERE.  Stay smart, students (and families).  It’s your choice and your future.

On Sunday, The New York Times introduced the series “Degrees of Debt,” which examines “the implications of soaring college costs and the indebtedness of students and their families.”

Regular readers of The Choice would be highly interested in this article, as it examines some serious issues we’ve covered about college affordability, student debt and the roles that students, parents, colleges and lenders have played in the issue. It explores whether student lending is the next bubble that may cause an economic collapse; the rationale behind sticker prices and the actual prices that students typically pay; misleading financial aid letters that saddle students with $42,000 in loans; responsible lending practices; and whether college is even worth the cost.

It also examines how state funding has affected college costs and, ultimately, student borrowing. Ohio State University, for example, used to receive 25 percent of its financing from the state. That was in 1990. Today, state financing only accounts for 7 percent of its budget. “The consequence? Three out of five undergraduates at Ohio State take out loans, and the average debt is $24,840,” our colleagues report.

On the issue of affordability, more college marketing companies are promoting the premise that the expense will work out in the end; they choose their words wisely and “focus on the value of the education rather than the cost,” our colleagues write.

The piece begins with Kelsey Griffith, an Ohio Northern University graduate who owes $120,000 in student debt.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” she said. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

The report examines how, over time, student debt has become a central part of the college experience. In 1993, The Times reports, 45 percent of students who earn bachelor’s degrees had to borrow money to pay for college. Nearly everyone has to borrow now; that percentage has soared to 94 percent. The report says:

With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports. Average debt for bachelor degree graduates who took out loans ranges from under $10,000 at elite schools like Princeton and Williams College, which have plenty of wealthy students and enormous endowments, to nearly $50,000 at some private colleges with less affluent students and less financial aid.

The article also includes a detailed interactive chart that shows the increasing levels of student debt at colleges and universities around the country. The data go back to 2004 and allow users to customize the chart using a number of factors, including enrollment size, share of graduates with debt, graduation rates, and whether the school is public or private. It also provides data for a particular college or university, and displays your debt level, adjusted for inflation.

There has been overwhelming response to the piece, and our colleagues hope to hear from more readers about their experience with college loans, for future reporting for the series. Several experts have also weighed in on how, exactly, to control the rising levels of student debt and protect young borrowers from such big financial burdens. In a Room for Debate piece, experts weigh in on loan collection policies, controlling college costs, government spending, “reckless” for-profit colleges and better lending practices.

Why the Student Loan Situation Is Worse Than We Thought

The latest report by the Federal Reserve Bank of New York shows how dire the financial situation has become for college students with outstanding loans.

According to numbers released by the bank this week, 1 in 4 borrowers with outstanding student loans had a past-due balance in the third quarter of 2011. Those figures are higher than most previous estimates because, in its recent calculations, the New York Fed deliberately left out borrowers who are temporarily exempt from making payments, like those still in school or within the usual six-month period after graduation when they’re not required to make payments.

(MORE: Why Can’t You Discharge Student Loans in Bankruptcy?)

By removing those borrowers from the equation, the percentage of past-due student loan balances sits at 27% of all outstanding student loans. The more conventional metric that includes those students is 14.6%.

That’s not all. The estimated student loan balance in the third quarter last year was $870 billion, which increased 2.1% from the previous quarter and is more than both Americans’ total credit card balance ($693 billion) and auto loan balance ($730 billion). About $580 billion of the total is owed by Americans who are younger than 40. The average balance sits at $23,300.

But maybe the most shocking statistic the New York Fed reported was that almost half of student loan borrowers are either deferring their student loan payments or are in forbearance. Almost 18% of borrowers had the same balance they had in the previous quarter, and 29% saw their overall balance increase thanks to either added student loans or accruing interest on the balance.

Read more at Time Magazine HERE.

Debt Scorecard—Really, A National Debt Scorecard

The folks in our government have given us a handy dandy way to track the national debt for any period of time.  In other words, what was the total when Clinton took office, what was the total when he left and so on.  Some folks at soupsoup have done the math using this web site, and here is the tally.  If you think this is all wrong, my advice is go to the Treasury Direct site HERE and do you own math.  Have fun.

Debt increases by President:

Reagan -    189%

Bush -           55%

Clinton -      37%

Bush -          86%

Obama -       35%

G.O.P. on Defensive as Analysts Question Party’s Fiscal Policy

The boasts of Congressional Republicans about their cost-cutting victories are ringing hollow to some well-known economists, financial analysts and corporate leaders, including some Republicans, who are expressing increasing alarm over Washington’s new austerity and antitax orthodoxy.

Their critiques have grown sharper since last week, when President Obama signed his deficit reduction deal with Republicans and, a few days later, when Standard & Poor’s downgraded the credit rating of the United States.

But even before that, macroeconomists and private sector forecasters were warning that the direction in which the new House Republican majority had pushed the White House and Congress this year — for immediate spending cuts, no further stimulus measures and no tax increases, ever — was wrong for addressing the nation’s two main ills, a weak economy now and projections of unsustainably high federal debt in coming years.

Read the entire New York Times story HERE.

Also, link HERE for a good interactive graph of the “Gang of 12” (six Democrats and six Republicans) who are charged with working out the details of the deficit reduction.

Investors won’t learn much new from S&P’s announcement. Politicians should.

From the Economist; read the entire article HERE.

Standard & Poor’s decision to downgrade America’s credit rating on Friday is momentous, but not, I suspect, for the reasons most people will cite. Many worried that interest rates would skyrocket and the markets sell off. This seems unlikely. The news won’t be a surprise and S&P was kind enough to dampen any impact by waiting until after the markets closed. There are very few investors who will be compelled to sell Treasury debt because it’s rated AA+ instead of AAA. Banks will not have to hold more capital against their Treasury holdings, regulators confirmed.

Another popular interpretation is that this is a wake-up call about our runaway debt. And indeed, S&P, in its decision, did cite the inadequacy of the debt deal agreed to by Congress and Barack Obama this past week:

[T}he fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Not surprisingly, Republicans seized on this as evidence that their strategy and views have been vindicated. The office of John Boehner, speaker of the House of Representatives, called it the “latest consequence of the out-of-control spending that has taken place in Washington for decades.”

But this interpretation is incomplete and misleading. As S&P’s announcement makes clear, the inadequacy of the deal was only one motivation. As important (to me, even more important) was the the reckless and divisive battle that preceded it: 

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy … [This] weakens the government’s ability to manage public finances …