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College: About to Get More Expensive?


Hold on to your wallets students, the road to paying off your loans may get rough. As Time reports, interest rates on federal student loans are set to double to 6.8 percent on the first of July:

Advocacy group U.S. PIRG says it could cost students an extra $1,000 over the life of their loan if the interest rate on those loans goes up to 6.8% in July. In reality, it might be more: Some students wind up paying off their loans for upwards of 20 years, and that $1,000 is calculated based on the average one-year loan amount borrowers take out, which is $3,357. But the average bachelor’s degree recipient who graduates with debt graduates with $11,329 in subsidized Stafford loan debt.

The same drama played out last year before Congress, in the midst of an election, voted to extend the lower rates another year. Many expect the same thing to happen this year, but the budget the White House sent to Congress yesterday includes a new proposal: a variable interest rate that will be reset every year.

Whichever way they decide, we hope Congress and the White House understand that students need more than just cheap debt; they need reasonable prices for higher ed programs that are sensibly geared toward the job market.

Once upon a time, the government-subsidized student loan system was about putting college within reach of a wider array of Americans. But this model has gone sour, as colleges have raised prices to keep pace with federal aid. Universities increased tuition by 65 percent in the past ten years alone, meanwhile taking on debt to finance lavish new facilities. The number of administrators hired by higher ed institutions has increased 50 percent faster than the number of instructors since 2001.

It’s hard to imagine that universities would have done this if they had been forced to compete with each other on price. Alas, abundant government loans ensured that the only competition that mattered to them was the quest to lure in students and their federally subsidized grants and loans.

[Ball and chain image courtesy of Shutterstock]

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  • Anthony

    So true Professor. This is almost
    unbelievable. Universities in
    America, and particularly law schools,are predatory entities now that
    exist only to enrich existing
    stakeholders, not to educate the next generation of Americans at areasonable price.

    If we make university debt dischargable in
    this disgraceful situation will come to an end veryquickly. If they
    have to face the prospect of debt discharged in bankruptcy court,
    lenders will cap how much an individual student canborrow in the absence
    of hard collateral. Therefore, the universities would have to provide a
    more affordable product or go bankrupt, as
    there are not enough
    trust fund babies available to pay the full tuition at the current
    levels, especially for non elite institutions.

    The problem with this approach is that, if this
    were made, it could not cover students that had taken out debt in
    previous years. The constitution prevents the government from altering
    the terms of pre existing contracts. So,
    current law graduates will
    not lobby for a system that reforms the student debt situation for
    future classes of students because it will not, and cannot, help them.

    So I guess the only viable “solution”
    for most students to abstain from going to law school until the current
    model collapses due to a lack of students. There is some
    evidence that this is happening, as there has been a massive drop in the number of law school applicants this year.

    It’s too bad we don’t have something
    the old YMCA type law schools for students that want to hang out their
    shingle as a main street lawyer somewhere in America. These
    provided a very cheap education with the understanding that their
    students would have no chance to practice at an elite law firm
    graduation. Today’s lower tier law schools, with their beautiful
    buildings, impressive faculties, and sky high tuition, create the
    illusion that their graduates have a decent of change of
    working at an elite law firm, when the odds against this happening are overwhelming.

    These older law cost schools provided
    for some “diamonds in the rough,” that eventually went on to do great
    things, albeit outside of the narrow world of corporate law. Sen.
    Albert Gore Sr, a great southern moderate/populist, and the father of
    the former Vice President, graduated from YMCA law school in Nashville
    before returning to his job as the superintendent of a school in rural

  • Anthony

    “…they need reasonable prices for higher ed programs that are sensibly geared toward the job market.” Also, WRM perhaps examination of correlation between college matriculation and successful job entry post graduation (if one has chosen to go to college for job opportunity) will redound to aspirant and parent when factored in decision. Equally, the dollar cost in approximate debt load upon graduation ought to be communicated to both student and family contemplating loans given financial sophistication of lender.

  • LivingRock

    I wonder how much the tuition increase has to do with several States removing the tuition cap from State schools? Part of the reason they did that in Texas was they cut State funding so the schools had to have a way to compensate. Heaven forbid they actually try a do things more efficiently when they can just pass the cost on to their students whom are sheilded from true costs by debt and promised the good life for serving their higher education time.

  • Kelly Hall

    Many universities and their overabundance of overcompensated administrators are in for a painful reckoning, but instead they’ll probably receive a TARP-style bailout, compliments once again of the hapless taxpayer.

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