It never ceases to amaze me what my friends spend to raise their children.
Between the childcare, private schools, food, and clothing, it’s no wonder that in so many families both parents work. The Department of Agriculture estimates the average cost of raising a child born in 2012 to age 18 at $241,080, or $301,970 if you factor in inflation. Shockingly, that doesn’t include the cost of a college education. Parents in big coastal cities spend far, far more. In the New York area, some parents spend $19,000 a year on nursery school!
Yes, parents have it hard.
And then, just as they should be doubling down on retirement savings, they face the hefty and growing tab for college. Average tuition costs at the nation’s universities are rising at a steadier clip than any other consumer good in the economy. Public (in-state) annual college tuition averaged $8,655 in 2014, and in out-of-state public colleges it averaged $21,706 each year. Attendees at private four-year colleges paid even more: $29,056 on average. But tuition is just the beginning of your nightmare. Housing, food, textbooks, beer, and pizza can double tuition costs. Your total four-year tab can easily stretch into six figures. The average total costs at the most expensive private colleges and universities can run close to $65,000 a year. When I was in college, my work-study earnings helped my family close the affordability gap, but that’s hardly possible now.
Parents are in a panic. My friend Allison says that when her oldest daughter entered high school, she started waking every night with the same nightmare. In it, her daughter attended a local college for four years, but when it was time to graduate, she was denied her diploma because Allison couldn’t make the last tuition payment. She’s not alone in panicking over college costs.
If you’re worried you can’t afford the education you feel your child or grandchild deserves, read on. I’ll get to the bottom of how liberal progressive policies have pushed the price tag out of reach and what you can do to finesse college aid officers and the system to get a quality education for your family. You’ll learn how to navigate the bloated academic-industrial complex (as I call the higher education system) and pay for college without going broke.
Strangely, a college education is the only thing I know of that our society has agreed should have no cost constraints. People balk at paying $4 for a gallon of milk, but a $150,000 tab for an Ivy League education is just fine. Average annual tuition inflation perks along at 3 to 4 percent above the broader economy’s inflation, and that means that even if you start college planning when Tommy is a toddler, your actual costs may be far different from what you anticipate. Over the last 30 years, tuition costs have risen 1,120 percent while healthcare has gone up just 600 percent and housing has risen 375 percent. The Pell Grant, a $5,500 per semester federal award for low-income families originally designed to pick up most of the tab for school, today barely makes a dent in college costs. An education is 12 times more expensive than it was 30 years ago. Things have gotten so out of hand that several states offer aid to middle- and upper-middle- class families. California offers to foot 40 percent of the education tab for families earning up to $150,000 a year, and in Minnesota families earning $120,000 can get $5,000 in aid.
The toll on American families is heavy. Total student loan debt for the country is $1.2 trillion, and the average grad entering the workforce after graduation in 2014 carried a debt load of $33,000, an all-time high. Paying back that debt is forcing grads to delay marrying, having children, and buying a first home. Fifty-one percent of student loans are in deferment or forbearance, which means that the borrowers have agreed to pay the debt later, after even more interest costs have accrued. In other words, students are digging themselves into a deeper and deeper debt hole. These days, though, it isn’t just the grads who are at risk. Mom, Dad, and even grandparents find their pockets tapped. People over 60 hold $36 billion in college debt, and it’s this age category in which debt is growing the fastest.
Economists say that prices in any marketplace naturally reset lower when buyers evaporate because of high costs, but that hasn’t happened in higher education. Why not? By far, the biggest reason college costs have skyrocketed is the easy money available to students and parents in the form of government-guaranteed student loans. For that reason, higher prices haven’t taken customers out of the system. If you can fog a mirror, you can get up to $12,500 every year in student loans. The government requires no credit checks on applicants. None. This makes for a rising tide of tuition dollars for schools. Not surprisingly, college administrators opt to raise prices. And for that reason, more and more students find it easier and easier to take out loans not just to cover tuition and books but also to pay for rent, beer, and pizza under the federal category heading “living expenses.”
Consider the case of the 30-year-old Florida sales clerk who enrolled in a community college so that he could get student loans, using them to pay rent to a relative, finance his entertainment, and pay his cell phone bills while he attended community college part-time. This was his second go-round. He’d already gotten a degree in public relations using student loans but hadn’t been able to find a job in that field. Now, by staying in school he could delay repaying his first loan while accruing more debt. At last check, he was studying to be an actor. This would be funny if it weren’t so tragic. He says he needs to stay in school to make ends meet, but clearly he is delaying the inevitable next step of paying off his escalating debt.
Think abusing the system is uncommon? Think again. As the economic recovery failed to provide job opportunities for grads, more and more of them opted to spend more time in school and borrow more money. Online students, according to a report from the Department of Education’s inspector general, are the worst culprits. According to the report, some 42,000 students received an average of $5,285 from online schools in loan money even though they weren’t logging any credits at the time. A lot of this overborrowing is the result of fraud, but according to Edvisors, in 2011 about a quarter of students took out loans that exceeded their tuition by $2,500. Sixty-eight percent of all undergraduate borrowers hit the annual loan ceiling, up from 60 percent in 2008.
The solutions put forward by Obama’s administration only double down on debt as the solution to rising college costs. The most pernicious is the student loan forgiveness program called Pay as You Earn. The program expands debt forgiveness for students who meet income eligibility standards. The rules go like this: You pay 10 percent of your discretionary income for a maximum of 20 years. Discretionary income is defined as the amount you earn above the poverty line for your family size. If the borrower’s job is in public service, government work, or nonprofit work, he or she pays only for 10 years. After that, the debt simply disappears. Poof! Or that’s what the liberals would like you to believe. Truth be told, it doesn’t disappear. The debt becomes part of the federal debt to be paid for by taxpayers. This fact came sharply into focus in February 2015 when readers of the president’s budget realized that his new forgiveness pro- gram already had resulted in a $21.8 billion deficit in the student loan program, a debt bigger than the annual budget for NASA or the EPA. Over the next decade, the program is expected to add another $250 billion to the nation’s deficit. Sadly, there is still no free lunch.
The same goes for the president’s idea of giving every American child two free years of community college. That $20 billion proposal, which was shot down almost as soon as it was proposed, would guarantee two free years of education for students, essentially expanding government-funded education from kindergarten through a two-year degree. Although the president said he envisioned a program accessible to any student willing to “work for it,” the standard for participation was set low at a 2.5 grade point average. Even education experts scoffed at this idea, saying that community colleges don’t have the capacity to handle an onslaught of new students. Further, according to Robert Archibald, Chancellor Professor of Economics at the College of William & Mary, such a program ultimately could empty class- rooms on university campuses that rely on tuition dollars from undergrads who fill larger first-year and second-year classrooms to keep costs down. Wouldn’t that lead to even higher tuition on conventional campuses? As with so many Obama programs, the negative unintended consequences are punishing.
Now, you might be thinking that loan forgiveness or free community college ultimately would be a positive for students by reducing their debt burdens. If Rich Is Not a Four Letter Word is on the side of students, shouldn’t we support it? The fact is, I’m on the side of the whole family. Ultimately, Obama’s programs would raise the costs of government for taxpayers while making Uncle Sam more intrusive in our daily lives. Who is to say that a government funding education might not decide to limit what you could study? Remember, the current administration plowed taxpayer dollars into solar panels at a time when opportunities were slim. I think it’s highly likely government would back curriculum choices that would similarly favor trendy, of-the-moment technologies that might or might not bear fruit in the long run. What’s more, some parents may not want to choose two years of community college. Why should their desires be ignored? Choice is an important part of education. The president’s one-size-fits-all solution just doesn’t satisfy on any level.
None of his education proposals, though, were more confounding than his idea to eliminate the tax benefits of 529 college savings plans. Expanded under President George W. Bush, the savings accounts allowed parents to set aside money for education and withdraw that money without paying taxes when it was used for education expenses. This program promotes college savings by families instead of encouraging them to find a government-based solution. The savings aren’t guaranteed by the federal government as loans are, but the government keeps its hands off the proceeds to encourage Americans to save. When Obama proposed taxing these accounts as part of his 2014 State of the Union plan to assist the middle class, he described 529s as a perk of the elite. But the facts argue otherwise. If the accounts had been the preserve of the elite, you would have expected their total numbers to be small and the average account balances to be high. Yet when the president attacked 529s, 7 million families maintained accounts, with an average balance of $19,774. Seventy percent of 529 plans were owned by households with incomes below $150,000. Average monthly contributions were $175, hardly the way Richie Rich’s trust fund ran. The outcry against Obama’s attack on college savings was sure and swift, and the administration quickly pulled back the proposal. Thank goodness!
Despite all the nonsensical ideas coming out of Washington, real solutions are being employed successfully all over the country to combat the high cost of education. When Mitch Daniels, the former governor of Indiana, took over as president of Purdue University, he froze tuition, a rare move and one especially foreign to the West Lafayette, Indiana, campus, where tuition had risen in each of the previous 36 years. When I interviewed Daniels, he told me he took a red pencil and eliminated spending on “low hanging fruit, common sense things.” “Purdue is no different from a lot of other universities,” he said. “They raised prices because they could.” He changed the campus health plan to a less expensive option and managed the university’s cash more efficiently. Everything was evaluated. A fleet of 10 school cars was sold (about $10,000 each), rental storage was cut in half ($160,000 saved), and office furniture was reused instead of replaced ($28,000 saved).
As a result of his paying closer attention to costs that didn’t affect education, the overall cost of attendance at Purdue went down for the first time on record. The cost of meal plans was cut 10 percent, and room rates flattened. A partnership with Amazon allowed Purdue students to save $25 million on textbooks over four years. Student borrowing declined 18 percent after borrowers were counseled about the dangers of debt. Even more impressive is the fact that it took Daniels just 19 months to make those changes.
The experience at Purdue should give you hope that the winds of change are blowing. But most parents and students still struggle with the academic-industrial complex. Unlike almost any private sector business, the nation’s colleges and universities are bloated with costs, many of which have little to do with providing quality education. Even Purdue has 75 percent more administrators and staff on the payroll than it did 13 years ago, and it’s not alone. According to Richard Arum, the coauthor of Academically Adrift, a serious critique of the education establishment, the fastest-growing category of professional employment in higher education is nonfaculty support professionals, in other words, bureaucrats. Compensation for the paper pushers is growing. On aver- age, college and university presidents’ compensation is about $500,000, with many making $1 million a year. That kind of pay inflation leads to $800,000 pay packages for provosts and $500,000 deans.
Surely, you may think, all this spending means the level of instruction has gotten better? Not so much. Students have less and less access to the brains of the game: professors. Only 40 percent of students are being taught by tenure- track instructors. Despite a wave of federal funding, recent government reports show that the proportion of full-time instructional faculty declined from 78 percent in 1970 to 52 percent in 2005. Professors spend less time teaching and preparing to teach or advising students and more time writing and researching. Arum says the average time dedicated to students is just 11 hours per week. Students’ performance reflects their effort. Today’s full-time college students spend just 13 hours a week studying compared with 25 hours in 1961 and 20 hours in 1981.
More and more of the billions of dollars in rising tuition fees is spent on things that won’t advance the education experience. Instead, the money is frittered away on elaborate student unions, workout facilities with “lazy rivers,” and showcase campuses. “It’s an academic arms race,” says Richard Vedder, who directs the Center for College Afford- ability and Productivity and teaches economics at Ohio University. Schools increasingly compete for the best students by installing the most attractive infrastructure. Says Vedder, “Even classroom buildings have to have atriums; if not, it’s downscale.” There are schools that do laundry for their students or offer valet service for students who need to get to class ASAP. Is it any wonder that students are highly satisfied with their experience on campus? Surveys show a satisfaction rate of 90 percent. Who in her right mind would ever want to graduate?
Maybe this would be acceptable if students were emerging from school better prepared for the workforce and more grown up, able to reason, write, and, in short, lead. The facts, though, tell a different story. Arum reports that a third of students gain no measurable skills during four years of college. None. He came to these conclusions after surveying 2,000 students in the largest study of its kind, tracking those students through college and into the labor force and measuring their abilities for critical thinking, complex reasoning, and writing.
It’s no surprise, then, that despite laying out tens of thousands of dollars in tuition and living expenses, many students can’t get or keep jobs. More than 115,000 janitors have bachelor degrees, says Vedder, who estimates that a million retail clerks are in the same boat along with 15 percent of taxi drivers. “We’re turning out too many anthropologists and not enough truck drivers,” he says.
Reprinted from Rich is Not a Four Letter Word: How to Survive Obamacare, Trump Wall Street, Kick-Start Your Retirement, and Achieve Financial Success. Copyright © 2016 by Gerri Willis. Published by Crown Forum, an imprint of Penguin Random House LLC.