Choosing to attend college has always been an incredibly important and somewhat frightening decision, but it has never been more fraught with uncertainty than it is today. And it’s no wonder, given the number of voices contributing to what has become an alarming narrative about rising college costs.
We are at the beginning of another college admission season, and for those students and families who will soon enter the college search process, here are some points to help sort through the noise.
The Mythology Surrounding Student Debt
Student debt is the highest it has ever been—$1.3 trillion nationally. For media outlets, politicians and students, that’s a pretty powerful number. For many first-generation students and middle-income families, being able to successfully finance education opens the door to the dream of college and provides access to career opportunities. The current student debt crisis hinges on the understandable anxiety over responsible borrowing and repayment.
Whenever I talk to people about student debt, I ask them to
tell me what they think the average undergraduate debt level is. Every time, at least three-quarters of the audience members say $75,000 or more, with about a quarter of them believing it is more than $100,000.
This response is easy to understand—it’s what we all hear. A recent report from Hamilton Place Strategies looked at the ways debt levels were reported in 100 articles over a three-month period. The study found that the average level of student debt reported in these stories was $85,400. However, the real student debt average, according to the Student Debt Project, is $28,950 per borrower.
So, this is all confusing. Overall debt has quadrupled over the last 10 years, but according to the Brookings Institution, the median amount paid by graduates on a monthly basis over the last 20 years has remained the same: three to four percent of monthly income. And the average payment-to-income ratio for graduates has actually fallen from as high as 15 percent to seven percent. These findings tell us that taking on debt as a way to afford a college education is making college more accessible to students.
Burden or Investment?
What does that $28,950 of average debt mean? Obviously, it means students will have loan payments to make, but let’s give the number some context. According to Kelly Blue Book, the average price for a new car in March of this year was $33,666. Now, remember the $1.3 trillion of student debt? According to the Federal Reserve Bank of New York, as of March, the level of auto loan debt in the U.S. was $1.07 trillion.
When we purchase a car, we think of it as an investment. It gets us to work; we use it to do our shopping; it helps us shuttle our kids around; we can drive on vacation and save airfare; we can feel younger! A college education is also an investment. A Pew Research Center report found that bachelor’s degree holders aged 25 to 32 earned, on average, $16,500 more annually than those with only a high school degree, and $15,500 more than those with an associate degree or only some college. Over the course of a career, that adds up to about $1 million more in earnings.
There is one more point to make about the value of investing in a liberal arts degree. It seems that every time a politician talks about debt, he or she denigrates the liberal arts as being unnecessary or frivolous. Of course, they miss the point of the liberal arts, which is about more than what major you study. The liberal arts teach students how to think, interact, solve problems and adapt.
A study sponsored by the Association of American Colleges and Universities found that 93 percent of private and nonprofit business leaders agree that “to achieve success at their companies in today’s complex environment, a candidate’s demonstrated capacity to think critically, communicate clearly and solve complex problems is more important than his or her undergraduate field of study.”
Look for the Right Numbers
Along with debt, there has been a lot of concern about whether colleges are doing enough to control their costs—and rightly so. A number of colleges have lowered tuition recently. Others have held tuition without an increase and a few others, like Wilson College, have done both.
Over the past year we have found that tuition is not the number that most affects college decisions—it’s the availability and size of financial aid packages. That seems perfectly reasonable. College costs are so high that the more aid you get, the lower the net cost. Lower net costs should theoretically then allow students to borrow less. Indeed, financial aid is the most important area for students and families to understand as they evaluate college affordability.
Endowment-based scholarships are critical to enabling schools like Wilson to compete for students. Colleges with larger endowments have a number of advantages, including the ability to help families bridge the gap between cost and affordability. They also have higher tuition costs, but don’t suffer for it because many students and their families equate a high cost with prestige. As a result, some schools will keep tuition high and provide large financial aid packages as an inducement to convince students to attend their school. Those packages include loans, which equate to debt.
When looking at the numbers, we encourage students to understand the amount of debt they will have upon graduation. Many assume that public institutions provide greater value than private schools. But with states cutting back support of their public higher education systems and private schools having more funds available for scholarships and grants, public schools offer debt levels that rival or are higher than many private institutions.
Tips for Making the Most of an Investment in College
Now with this foundation of information, here are some things that students and their families should do to get the most from their college investment:
- Discussions about the cost of college should begin at home. In my conversations with students about college costs and debt, they tend to be very naïve about what their family can afford. Encourage budgeting and setting limits. Try to limit borrowing to tuition costs only—financing Friday night pizza can add up quickly over time. Alongside academic major and school size, value should be at the top of the list when evaluating colleges.
- Once a student chooses a school, he or she must become a full partner. Get involved with career development services early, participate in student activities, take leadership training, find an internship, look for financial literacy courses and take advantage of student support services. All of these are available for students and can help them to be successful in college and after graduation, but only if they take responsibility to participate.
- Graduate in four years! Each year a student remains in school, the higher his or her level of debt becomes. Explore majors and minors beginning in the first year. Be smart about scheduling required courses and work closely with academic advisers to complete in four years.
- Students must understand the impact of their choices. In college, students will choose a major and have an idea of what kind of job they want after graduation. Make sure to understand what entry-level salaries look like, the availability of jobs in the area where they want to live, the cost of living and the impact of debt payments. They may want to live closer to home after graduation, but jobs in their chosen careers could be limited in that area. So they need to decide what is important to them and make decisions accordingly.
One last thing: College is an amazing time in a student’s life, so be sure to tell them to enjoy it. They should explore, make new friends, expand their outlook and opinions, stretch themselves to try new things, be uncomfortable, learn. They will never forget their college years. Help make sure the memories are about all they gained, not about the next scheduled loan repayment.