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Purveyor

(29,876 posts)
Thu Jul 9, 2015, 01:37 PM Jul 2015

Student Loans May Be Driving the Tuition Explosion

by Janet Lorin
July 9, 2015 — 11:49 AM EDT

The surging cost of U.S. college tuition has an unlikely culprit: the generosity of the government’s student-aid program, a report by the Federal Reserve Bank of New York said.

Increases in federal loans, meant to help students cope with rising costs, are quickly eaten up by schools in higher prices, wrote David O. Lucca, Karen Shen and Taylor Nadauld.

Private colleges raise their tuition 65 cents for every dollar increase in federal subsidized loans and 55 cents for Pell grants given to low-income students, according to the report. College tuition has outstripped U.S. inflation for decades.

“The subsidized loan effect on tuition is most pronounced for expensive, private institutions that are somewhat, but not among the most, selective,” they wrote in a paper released this month.

The premise, raised in 1987 by former Education Secretary William Bennett, is more pronounced today as the sticker price of college has increased to $65,000 annually at some private schools. About two-thirds of undergraduates take out loans to fund their education. Outstanding student debt is now more than $1.36 trillion, according to the Federal Reserve Bank. Government loans account for the bulk, almost $1.2 trillion.

more...

http://www.bloomberg.com/news/articles/2015-07-09/why-is-college-tuition-rising-blame-student-loans-fed-says

12 replies = new reply since forum marked as read
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arcane1

(38,613 posts)
1. Private entities taking advantage of Uncle Sam's ability to pour out money?
Thu Jul 9, 2015, 01:39 PM
Jul 2015

Who do these colleges think they are, the military? Halliburton?

Pretty much!

Igel

(35,320 posts)
6. Private, selective universities lead the pack.
Thu Jul 9, 2015, 02:41 PM
Jul 2015

But that's just leading the pack. Selective public universities are also near the front, esp. if you look at out-of-state tuition. The increase in tuition driven by increased aid is seen from selective, private schools to community colleges. They note that private vocational schools are underrepresented in their data sample.

The other factor is they looked at "sticker price" tuition, not what's actually paid. A lot of those very selective public universities also have reasonable grant and fee-waiver programs. Many schools also have fee structures associated with attendance, require on-campus housing. Student loan packages include those things and living expenses. Most schools required as much as possible--tech fees, insurance, stu-gov fees, wellness center fees, meal plans that included some seriously good food--knowing that student loans and state fee-waivers would cover them.

Link to actual research posted down-thread.

vinny9698

(1,016 posts)
2. States that cut education funding is the main cause
Thu Jul 9, 2015, 01:51 PM
Jul 2015

When states cut taxes, they have to make up for the loss of income. The funding of schools is the one of the biggest portion of the budget. That's why you see all the GOP cutting education and going after teacher;'s salaries.
When I went to college in Los Angeles City College in 1972, it cost me $20 a semester, after Reagan got in office, he slashed taxes and cut funding to colleges. That trend continued during all of the GOP governors after that.
Now tuition is
Los Angeles City College
Jun 25, 2015 - NON-RESIDENT TUITION FEE. Out-Of-State Residents $222 per unit + enrollment fee of $46 per unit = $268 per unit.
which means $1221 per semester.
That's what happens when you vote GOP.
California had a philosophy that they would provide next to nothing higher ed, but they would make it up by getting you into a higher income bracket, where you would pay for the rest of your working life a higher tax on you income.
A win win both the CA and for the student

JDPriestly

(57,936 posts)
3. Bingo! You are right.
Thu Jul 9, 2015, 02:00 PM
Jul 2015

Plus increased demand for college education has led to a lot of investment in new buildings and infrastructure in colleges. And then there is the problem of excessive compensation for college administrators. That may also be the result of the growth in the numbers of students who attend college these days.

When I was a student, tuition was relatively low, and students like me could work to pay some of the costs of housing and food, etc. I worked a lot in college. And I learned a lot from the extracurricular work I did -- day -care, baby-sitting, retail, and lots of food services -- especially waiting tables. I really learned to respect people who work in restaurants because I did it in college. It was great experience.

 

libdem4life

(13,877 posts)
4. Just as the "easy money" created the real estate boom/bust. Online graduate school
Thu Jul 9, 2015, 02:04 PM
Jul 2015

costs almost the exact amount of the available loans. Credit is not an issues...sound familiar. I'm sure when the latter goes up, so will the former. It's basackwards...the tail wagging the dog.

bemildred

(90,061 posts)
5. Right. That way you don't have to worry about getting paid back.
Thu Jul 9, 2015, 02:16 PM
Jul 2015

That's the government's problem, coming up with the actual money. Isn't private enterprise grand?

Igel

(35,320 posts)
7. Link to research.
Thu Jul 9, 2015, 02:54 PM
Jul 2015
http://newyorkfed.org/research/staff_reports/sr733.html

This is the abstract; if you want the PDF, the links at the bottom of that page.

The first line in the OP seriously gets it wrong and immediately, because it helps us to blame those we want to blame, is the guiding truth. Spin a fly-wheel that quickly and I don't care what it's made of, it's shrapnel. Similarly, the order of authors is inexplicably changed. (Most papers these days have authors' names alphabetized; rather fewer have the PI first and alphabetize the rest.)

Cuts by state government, new buildings, etc., etc. are part of what the fee increases actually go to. They drive the change, but fee increases have to be constrained by their effect on demand. If UCLA had increased its fees/etc. without a corresponding increase in aid, there'd have been hell to pay. There are always reasons to increase tuition. Nobody's arguing that increased aid are the cause of tuition increases. Except possibly this article's writer.

The point is that "aid permits the increase in tuition and fees that markets would otherwise punish." It allows the tuition price to find a higher equilibrium point. (They point out that the pass-through works not just for subsidized loans, but also Pell Grants and unsubsidized loans. The colleges that take advantage of this are, well, all of them. Those that take the most advantage are private schools that aren't the most selective but nearly in that category--the most selective have wonderful grant programs--but that out-of-state public tuition is fairly high in the rankings. They also look not at tuition paid, but the nominal tuition cost before tuition waivers and in-house grants and aid.)

JennaF

(6 posts)
9. It's real
Fri Jul 10, 2015, 05:45 AM
Jul 2015

A student always has a choice. If you have a good marks then you don't have to worry about loans. I know that it's hard to pay back but if you want to have a good education then it's necessarily. In this article you can find more info about it http://www.basicfinancialtips.com/student-loans-bad-credit-without-cosigner/ . I think that in 15 years with a profitable job it's real to repay a loan.

bemildred

(90,061 posts)
10. What if you don't have good marks, do we just decide you don't need to be educated?
Fri Jul 10, 2015, 07:26 AM
Jul 2015

It's McDonald's for you then?

Not everybody is cut out for the academic life, even as debased as academic life has been here.

And what if there is no profitable job when you get out? A lot of people are in that situation too.

JennaF

(6 posts)
11. your choice
Mon Jul 13, 2015, 04:39 AM
Jul 2015

Well it's your decision. If you want to work all life in McDonalds, then good luck. There is a lot of profitable job you need just to search carefully.

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