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Higher Education Bubble
Families Depending Less on Student Loans

Amid growing recognition that easy college loans all too often turn into a lifetime debt burden, the tide may be turning. Families aren’t borrowing as quite as much to pay for their kids’ college education, reports the WSJ:

In the 2013-14 academic year just ended, the typical family paid 22% of total college costs by borrowing, down from 27% in each of the preceding two school years.

These families paid 42% of college costs by using income or savings from the parents and/or student, vs. 38% the year before and 40% in 2011-12, according to the Sallie Mae study, conducted by market-research company Ipsos Public Affairs.

Hidden in the good news for families is some not-so-good news for colleges, however:

For low-income families, a big increase in grants and scholarships made the reduced borrowing possible, said Sarah Ducich, a co-author of the report. For higher-income families, the continued strong stock market enabled them to take out more dollars from investment accounts.

Many colleges are upping the numbers of grants and scholarships because enrollment is in decline. For private schools, that means the sticker price is often nothing like the price that students actually pay, and the schools earn much less from tuition than you might assume. Meanwhile, public schools will soon have to rely more on tuition than on state funding.

Even with all those sweeteners and discounts, students still aren’t flocking to pricy schools as readily as before (though admittedly students may not realize just how deeply the schools cut the cost):

Meantime, among the 22% of families with students at four-year private colleges, some appear to have sought lower-priced schools, Ms. Ducich said. While the average costs for two-year and four-year public schools in 2013-14 rose 3.2% and 6.4%, respectively, from the previous school year, the average expense for four-year private schools fell 11.6% from $39,434 the prior year. All figures are before reductions for aid.

And who among us thinks it’s the Ivy League that’s getting squeezed? Of course not—it’s almost certainly mid-tier private universities and liberal arts colleges that are seeing their enrollment numbers fall as more students content themselves with cheaper public or private schools.

While it seems that some lower-income families are breathing easier, the same can’t be said of colleges.

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  • Fat_Man

    “Meanwhile, public schools will soon have to rely more on tuition than on state funding.”

    Well they could try a revolutionary new strategy* called cutting costs.

    *It is not really that new, but no one in Academia seems to have ever heard of it.

  • aez

    And my daughter is one who will need for some of the liberal arts colleges to be there, in a few years. I went to one, and the value is immeasurable.

  • teapartydoc

    The smaller institutions, for the most part, got fooled into playing a game that was going to mainly benefit the large state schools. By accepting federal funds, and enabling the indebtedness of their students and alumni they created a situation in which the bond that once was held between these and those became more tenuous. One does not see the love for the old alma mater displayed as it once was, and many of the old grads now send their sons and daughters to community college, followed by state university. Consuming at the federal teat made the milk of higher learning unaffordable, even with and despite subsidy, and since the economy supporting this state of affairs did not grow commensurately, the return on investment of the enterprise declined, giving us a situation where something’s gotta give. The small fish are now watching their dinner being eaten by the bigger ones, and they are beginning to starve. The big fish are looking for new sources of food (out-of-state tuition and foreigners at the expense of local talent whose parents are told they need to continue to finance “education” while they watch their purchasing power go up in smoke in a Keynesian “stimulus”).
    It’s funny how almost the entire leftist movement is built on the notion of worker alienation that was co-opted by Marx from the writings of a Prussian conservative named Lorenz von Stein. The irony to point out here is that the people they idealize about are becoming alienated from the institutions (Have a laugh at the fact that they are holdovers from the Middle Ages and feudal society) that they most love, and that their love, like that of Lennie Small, is squeezing the life out of the object of their affection. In the film Breaking Away the young protagonist is shown the grand limestone buildings of the local state university by his father that he had helped to erect. The Dad explains to his son his feelings of alienation, but he also encourages him to attend so he can have a better life (at least that’s how I remember it). I don’t think too many people feel as strongly as I do about things like this, but I work for my old alma mater, and my level of alienation is so strong I can’t wait for it to collapse. I suspect most will simply watch disinterestedly and, after decades of being told to be more European, will look over their shoulders and shrug like the Frenchmen they’ve been trained to become.

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