College Tuition and Student Loans

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Date: 2019
Publisher: Gale, a Cengage Company
Document Type: Topic overview
Length: 2,270 words
Content Level: (Level 5)
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College tuition refers to the monetary cost students pay to receive instruction at institutions of higher education; mandatory fees to subsidize nonacademic areas such as student-support services and athletic departments are typically added to the price of tuition. The total cost of attendance is calculated by combining the cost of tuition and fees with the estimated cost of other expenses such as room and board, books, and transportation. In the US, average tuition costs and required fees at degree-granting colleges and universities increased dramatically during the twenty-year period leading up to the 2018–2019 academic year. Statistics published by the College Board indicate that average annual tuition costs and required fees for in-state students at four-year public universities rose by 103.8 percent during that time, from $5,020 to $10,230. Meanwhile, average tuition and fees at four-year private nonprofit institutions increased by 57.7 percent, from $22,710 to $35,830 per year. All College Board figures are adjusted for inflation, allowing for direct comparisons across time.

Students who are unable to cover the full cost of tuition and other expenses, including food, housing, transportation, books, and supplies, may qualify for financial aid. Financial aid encompasses non-repayable forms of gift aid, such as grants and scholarships, as well as paid on-campus employment and loans. Education loans, more commonly known as student loans, are funds that students borrow to pay for education-related expenses and are obligated to repay, usually with interest. Students may receive financial aid from federal or state government agencies, the educational institutions they attend, or private sources. The National Center for Education Statistics (NCES) reported in 2018 that 46 percent of first-time, full-time undergraduate students received loan aid for the 2015–2016 school year. A greater proportion of first-year, first-time undergraduates at private institutions took out loans than did those at public institutions; 73 percent of those attending private versus 47 percent of those attending public colleges received financial aid in the form of education loans in 2015–2016.

Rapidly rising tuition costs have contributed to a large nationwide debt load, with the Federal Reserve reporting that total student debt levels reached nearly $1.57 trillion in December 2018. The Federal Reserve also reported that the typical student loan borrower had between $20,000 and $25,000 in debt in 2017, with average monthly payments falling between $200 and $300. Many college graduates struggle for years to pay off their student loans, which often results in forgoing their pursuits of other life goals such as owning a home, becoming a parent, or building retirement savings. According to an Urban Institute report published in August 2018, up to 40 percent of current student loan borrowers may default on their repayment obligations by 2023. At the time of the report's publication, the loans of an estimated 250,000 borrowers, as well as the restructured or rehabilitated loans of an additional 20,000 to 30,000, were entering default every financial quarter.

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Main Ideas

  • College tuition is the monetary cost of receiving instruction at institutions of higher education. The total cost of attending a college or university is estimated by combining the cost of tuition and mandatory fees with the cost of room and board, transportation, and related expenses.
  • Students who are unable to cover the full cost of tuition, fees, and other living expenses may qualify for financial aid through grants, scholarships, work-study arrangements, or public or private loans.
  • Annual tuition costs and fees at degree-granting colleges and universities in the United States increased dramatically during the first decades of the twenty-first century, contributing to a growing national student debt crisis.
  • Increases in college costs have been attributed to high demand for a college education, reductions in state funding, federal loan programs, and institutions' efforts to distinguish themselves from one another.
  • The US Education Department under Secretary Betsy DeVos has come under fire for policies that enable private loan servicers to use unethical collection practices and fail to protect borrowers from predatory for-profit institutions.
  • State and federal lawmakers have introduced tuition-free and debt-free college proposals intended to make higher education more accessible and affordable while controlling the growth of student debt.

Rising Tuition Rates

Some analysts attribute the trend toward rising tuition rates to an increased demand for college education. Many young people believe they need at least a bachelor's degree to further their career goals and achieve favorable earnings potential, which has resulted in steady enrollment increases across the past two decades. The NCES reports that US college enrollment among young adults rose from 35 percent in 2000 to 41 percent in 2016, marking a 14.2 percent increase. Other experts point to the pressure academic institutions face to differentiate themselves and achieve excellence in instruction, facilities, and research. These efforts increase spending on new staff hires, program expansion, and campus development and renovation. In addition, many institutions have increased the amount of financial aid they offer as state governments have reduced the amount of funding they provide to colleges.

Many higher education experts assert that a shift away from public investment in higher education since the 1970s has resulted in a corporatized model that is largely to blame for skyrocketing costs. According to these critics, schools have become more like corporations that treat students as prospective customers looking to purchase a college experience or degree rather than applicants motivated to pursue educational development. This shift has, in turn, contributed to sizable growth in administrative and support staff at many institutions and fostered a profit-driven culture among leadership, particularly at large research universities. The corporate university, these experts contend, is the root cause of other factors thought to be driving rises in tuition.

Among some economists, there is also a belief that government subsidies for education loan programs are an overlooked contributing factor. For example, the Parent PLUS program allows families to borrow amounts up to the student's total cost of attendance. According to some critics, this program theoretically enables schools to increase tuition because it provides a direct path to financing regardless of how high costs are. The Parent PLUS program accounted for 12 percent of federal undergraduate education loans in 2017, with the average recipient borrowing $15,880 per academic year. Some argue that if parents had to obtain educational loans from private lenders, they would be more discriminating and motivate academic institutions to keep tuition rates in check.

Financial Aid and Education Loans

Students seeking financial aid usually begin by submitting a Free Application for Federal Student Aid (FAFSA), which is used by the US government, state governments, and educational institutions to determine student eligibility for need-based programs. Based on financial information provided in the FAFSA, students receive a personalized report with their Expected Family Contribution (EFC), which is a measure of their family's ability to fund their college expenses. The EFC is subtracted from the total cost of attendance at a specific university to determine the amount of financial aid a student is eligible to receive at that school.

Students may also qualify for gift aid in the form of grants or scholarships. The federal government awards grants to students with the greatest financial need through the Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG) programs. Academic institutions sometimes offer grants as well. Scholarships are available from many sources, including federal and state agencies, academic institutions, charitable foundations, corporations, professional groups, chambers of commerce, and social or religious organizations. Most scholarships are awarded competitively based on students' academic or athletic performance, leadership, or community service activities. American colleges and universities and the US Education Department (ED) offer students a total of approximately $46 billion in scholarships and grants each year, while private sources account for another $3.3 billion in annual gift aid.

Experts recommend that students exhaust all potential sources of gift aid before taking out student loans, which must be repaid with interest. The federal government offers two main types of education loans: subsidized and unsubsidized. Subsidized loans are awarded based on financial need and do not accrue interest while the student is enrolled in school at least half-time. The Federal Perkins Loan and the Direct Subsidized (or Stafford) Loan, both of which provided up to $5,500 per year for undergraduate students in 2017, feature six-month, interest-free grace periods following graduation. Students may also take out unsubsidized Stafford Loans to make up the difference if they are not eligible for the full $5,500 in a subsidized loan; for these loans, interest accrues even while the student is enrolled full-time. Education loans are also available from private institutions like banks and credit card companies. Federal loans offer advantages, such as low, fixed interest rates, deferment options for students who return to school, flexible repayment plans based on borrower income, and loan forgiveness for graduates who perform certain types of public service or are employed in certain occupations. Unlike other forms of debt, student loans cannot be discharged through bankruptcy, except in rare cases of undue hardship.

The Student Debt Crisis

According to statistics published in February 2019 by Forbes, 44.7 million Americans hold student debt totaling over $1.5 trillion, a total that had grown by $29 billion in the prior financial quarter. Many young people report feeling overwhelmed by student debt, noting that it puts college graduates and new members of the workforce in an immediate financial bind that takes years to resolve. Borrowers also indicate feeling cheated by a corporatized higher education model and a for-profit student debt industry, both of which have been implicated in contributing to skyrocketing debt loads. Given the relatively high default rates and the sheer amount of money owed collectively by students and grads, some economists believe America's massive student debt load could trigger a financial crisis similar to the Great Recession (December 2007–June 2009), which began with the collapse of the US subprime mortgage market.

Concerns over a potential impending crash related to student debt have heightened since Donald Trump (1946–) assumed the presidency and appointed Betsy DeVos (1958–) to serve as secretary of education. DeVos has been a polarizing figure, drawing widespread criticism from educators and consumer advocates for a range of actions taken by the ED since she assumed office in 2017. Critics argue that DeVos's interests are not aligned with borrowers but with the for-profit loan servicers and educational organizations to which she has had personal financial ties. A 2019 report issued by the ED's Office of the Inspector General (OIG) was highly critical of the department's student loan agency for failing to properly supervise and manage the nation's fast-growing student debt portfolio. The OIG noted major oversights that allowed private loan servicers to evade paying financial penalties to the government for failing to comply with federal requirements.

While the OIG report revealed problems with the enforcement of loan-servicing regulations under DeVos' leadership, the secretary has also been scrutinized for her policy positions related to higher education. In addition to filling top positions at the ED with executives from the for-profit education industry, DeVos has prohibited states from regulating student loan servicers, proposed eliminating the Public Service Loan Forgiveness (PSLF) program, and advocated overturning a range of policies instituted under the presidential administration of Barack Obama (1961–) that were designed to protect student borrowers from predatory and fraudulent practices. Those who support these actions claim that previous policies unfairly punished all for-profit institutions for the fraudulent practices of a few bad actors and disproportionately affected poor and minority students' access to education, training, and career opportunities. In March 2019, the ED's fiscal year 2020 budget proposal suggested a 12 percent decrease in overall funding for the department, a quarter of which would come from defunding the PSLF program. As of April 2019, however, Congress was expected to continue funding PSLF, as it did in the 2018 and 2019 fiscal years.

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Critical Thinking Questions

  • How does student loan debt differ from other forms of debt? Do you think this difference has played a role in the national student debt crisis?
  • Do you think that demand for higher education would change if universities were prohibited from employing marketing strategies that treat students like customers? Why or why not?
  • What strategies would you support or propose to reduce the financial burden of attending college?

College Affordability in the Future

Many policymakers and organizations have floated proposals designed to make college more affordable and allow students to earn degrees without accumulating debilitating levels of debt. Proponents of these plans argue that higher education is a public good that should be accessible to any qualified person, regardless of their financial circumstances. Numerous high-profile politicians, including Bernie Sanders (1941–) and Alexandria Ocasio-Cortez (1989–), have forwarded legislative plans for free college tuition. Supporters of these ideas note that they would provide relief to the ballooning student debt load while improving young graduates' economic prospects. House Democrats have also developed debt-free college proposals such as the Aim Higher Act, which was introduced in July 2018. The Aim Higher Act would guarantee two years of tuition-free access to junior colleges and introduce penalties to disincentivize predatory practices. Supporters of tuition-free and debt-free college plans consider higher education an important public investment that will assure the United States' continued competitiveness in a global economy.

Opponents of tuition-free plans generally argue that they are unrealistic and shift the financial burden onto taxpayers. Some believe that disrupting the current system would have serious economic consequences. Critics also note that such plans would require states to increase their education spending but do not address the possibility that some states may refuse to do so. A primary criticism of the Aim Higher Act is that it would not actually achieve debt-free higher education, as it only covers tuition at community colleges, does not address the high costs of public and private four-year colleges, and lacks effective strategies for financing additional student expenses.

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Gale Document Number: GALE|PC3010999071