Writing a check for tuition and signing the loan documents to pay the rest? Or, perhaps it is time to narrow down colleges for next year. In either situation, the reality of dealing with higher tuition rates and student loans usually does not hit many students until they leave college and realize they were majoring in debt.
Student loans make it possible for people from lower incomes to afford everything from beauty school to medical school. They also allow schools to continue raising tuition rates far above inflation rates, knowing their customers (students) will keep on coming because of loans.
This education version of the wage-price spiral also encourages the most expensive schools to keep raising their tuition to stay ahead of the pack – and appeal to students for their elite, luxury sticker prices at the undergrad and graduate levels.
During the 2013-2014 school year, 20 universities actually accounted for 20 percent of all graduate student debt incurred, according to the Center for American Progress. However, those schools only educated 12 percent of students. At the top of the heap is for-profit Walden University with $756 million in loans that year and about half of the top 15 list were for-profit institutions (New York University, University of Southern California and Columbia University – all known for hefty tuitions – are also on the list, too).
With American debt from student loans topping $1 trillion, there has been greater scrutiny paid to for-profit colleges and their loans of late. The government cracked down on for-profits (which lead to the closure of some) for encouraging students to enroll and take loans for programs that would be unlikely to result in employment to pay for them.
Federal financial aid comprises a reported 90 percent of the annual revenue received by many for-profit colleges. Many may not qualify for the funding in the future, unless they improve their graduates’ ability to obtain gainful employment that enables them to pay off their student loans.
How much student debt is too much? Many financial advisors recommend that people leave college with a debt burden no higher than one year’s salary upon exiting school. The government set a rule that a school or program must demonstrate that the expected loan payments for an average graduate not exceed 8 percent of total income or 20 percent of discretionary income upon leaving school. That requirement, which goes into effect next year, will prove daunting for many programs.
Even that amount can be steep. Using simple math and a fixed amount payment plan, someone leaving medical school with $100,000 in debt should be able to pay it back, but the monthly payment at the would typically be about $1,000 – that amount has got to hurt. Someone leaving film school with the same debt burden, however, would have to be the rare exception to earn enough to pay back that much. For graduate students at Walden pursuing education degrees, how realistic is it for a teacher to pay that much back?
Student loans are an investment in the student’s future. But they should not be a gamble. Higher tuition amounts and student loans to pay them should not leave many graduates wondering if their collegiate experience was really about majoring in debt.
Written and edited by Dyanne Weiss
Money: How Student Loans Are Pushing College Tuition Costs Even Higher
Washington Post: These 20 schools are responsible for a fifth of all graduate school debt
Money: $182,000 in Student Debt for a Film Major?!?
Business Week: Final For-Profit College Rules Issued After Industry Battle
PBS: For-profit colleges face ‘gainful employment’ rule