Understanding Student Debt

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Last week I shared some information about student debt. Student debt is a serious issue and affording college is a significant challenge for most American families. But as I tried to demonstrate last week and will do so again this week, the perceptions about the student debt issue are not clearly understood.

Last week I shared the statistics about the levels of debt incurred by students. I also shared the affordability data related to family income levels. Today I want to focus on financial aid opportunities and the actual tuition paid by students.

One of the misperceptions related to college affordability and student debt is the issue of financial aid. It is often reported, albeit erroneously, that it is very difficult to receive financial aid, especially at private, independent colleges. Nothing could be further from the truth. Here are the facts:

1. A vast majority of college students at all types of institutions receive some form of financial aid, including loans (92% at for-profit institutions; 89% at independent institutions; 82% at public institutions).

2. More students receive financial aid (grant or scholarship aid) at private, independent colleges than at other types of institutions (84% at independent institutions; 81% at for-profit institutions; 67% at public institutions).

3. Most important, however, students at private, independent colleges are twice as likely to receive grants (not loans) as students at public institutions and three times more likely than those at for-profit institutions (79% at independent institutions; 39% at public institutions; 24% at for-profit institutions).

What is even more alarming is the lack of growth in federal grant programs for students seeking a college degree. Simply said, our national leaders speak eloquently about the need for increased education, but fail to support it for those in financial need. In 1984-85, the federal government awarded $1.3 billion in federal grants to college students. In that same year, private, independent colleges awarded $1.4 billion in grants.

Over the next decade, that number for federal grants increased only slightly ($1.5 billion in 1996-97). But private, independent colleges had increased their financial aid programs to $6.0 billion. Most recently, the federal grants program has increased to $2.9 billion. But the private, independent colleges awarded $19.3 billion in grant, more than six times as much grant aid as the federal government. Tuition fees have risen at private, independent colleges, but so have grants and financial aid.

Finally, there remains much confusion about the actual cost of an education. The total tuition and fee amount is typically reported and then it is inferred that all students are asked to pay this same rate. In fact, the actual amount that a student pays for college correlates with their family income. The lower the income, the lower the percentage of the total cost. On average, the actual amount a student is asked to pay (after financial aid is awarded) is less than 60% of the total cost for tuition, fees, room and board (59% at independent institutions; 67% at public institutions; 85% at for-profit institutions).

Over the past ten years, tuition rates at private, independent colleges have grown less than at public institutions. It is also important to note that graduation rates for all students are higher at private, independent colleges. And students at private, independent colleges graduate on average 10 months sooner than at public institutions and 89 months earlier than at for-profit institutions.

Access and affordability are real issues. But at least when we discuss these issues, we should have the facts!

(As always, your comments and questions are welcome.)

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Guest Wednesday, 23 April 2014