It is a well-known fact that the cost of college continues to increase each academic year. It also goes without saying that every new graduating class has more student loans to pay back than the preceding graduating class with the average 2016 graduate owing $16,000. While many states have enacted initiatives to help reduce the cost of higher education, the financial trends do not appear to be reversing in the near future.
Reforming higher education isn’t a new concept introduced during the 2016 election cycle. Although the default rates have dropped from historic highs, the federal student loan default rate rose sharply during the “Great Recession” and generated headlines all across the nation. While the federal Department of Education has taken steps to reduce the student debt burden by introducing more lenient repayment options and moving the FAFSA application window to open October 1st, the primary responsibility for public college funding has been the responsibility of each state.
While only 2% of the federal budget is allocated for higher education (not including federal loan programs), higher education funding is the 3rd highest budget item for most U.S. states. Only K-12 education and state Medicaid programs receive more funding. Many states reduced funding for many education programs with the onset of the “Great Recession.” While the recession ended several years ago and state governments have increased higher education funding, current levels are still notably lower than in 2007.
From the 2007 to 2013 academic years, state higher education spending reduced from approximately $65 billion dollars to $53 billion, an 18% drop in funding during the recession. On average, states have increased higher education funding 5% in fiscal years 2014 and 2015. From 2008 to 2015, full-time student enrollment at public universities has increased 8% from 10.2 million students to 11.1 students.
How Public Colleges are Dealing With Less State Funding
Tuition is a reflection of how much state funding a college receives per student each year. At public colleges, in-state students pay less than out-of-state students, largely in part to state funding. As overall funding has decreased and enrollment has increased, tuition prices have steadily increased. Declining state funding might seem like a problem that surfaced in the 21st century, but states began contributing less each year beginning in 1980. This is a leading reason for why Baby Boomers and Generation X parents graduated college with little or no debt, and Millennials have become the most indebted generation to enter the workforce.
As the state funding gap continues to widen, colleges are presented with several choices to balance their budgets. Easy actions include increasing tuition for all students and increasing the enrollment of out-of-state students to reduce the burden for in-state students. Harder decisions can include reducing financial aid packages for need-based students and cutting programs and services.
As colleges cannot exclusively rely on raising tuition prices to offset state funding gaps, they are also relying more on federal aid as well. This can come in the form of Pell Grants for needy families or federal loans as part of the financial aid package for each student as nearly 70% of all students have to borrow money during their college career to afford the already high tuition prices.
What Reduced State Funding Means for Students and Parents
Less state spending means students and parents need to spend or borrow more money to pay for college. This means it is up to the student and their families to pick up the tab. More students are applying for the FAFSA to qualify for federal financial aid and to receive federal loans that have better interest rates and more flexible repayment terms than private loans.
An increasing number of graduates are relying on federal student loan forgiveness programs and state loan forgiveness programs. These programs can help a student in select career fields, often with low salaries, by forgiving the remaining balance after 10 or 20 years of consistent payments. The government assumes the unpaid balance which can increase the higher education budget strain, but, it might allow these graduates an opportunity to finally save and prepare for the future like having a family or buying a house.
College students are also having to decide whether to delay certain life decisions such as pursuing a graduate degree, starting a family, or saving for retirement. Each tuition increase means more future income that needs to be set aside for student loan payments instead of saving for the future.
In addition to higher loan debts than before, today’s college graduates are entering a job market with weak wage growth. While the price of college has increased faster than inflation, new graduate wages haven’t kept pace. Slow wage growth mean it can take even longer for a young graduate to repay their loans
What States are Doing to Keep College Costs Down
While overall state funding has decreased long-term since 1980, this doesn’t mean they are not trying to address the college funding issue. Some states base a portion of funding on performance measures such as graduation rates. Another approach is increasing the availability on online classrooms and accelerated degrees allowing a bachelor’s degree to be earned in three years instead of four or five.
Other states, like Tennessee, will pay the tuition for high-achieving college students to attend a community college for the first two years before transferring to an in-state public university. Money is still being spent on higher education but it is being allocated differently than it was even before the Great Recession.
Author: Jeff Gitlen
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