Student Loan Blog : National Center for Public Policy and Higher Education

Cost of College Continues to Climb, Even in a Recession

Student Loan Girl — Wed, 21 Oct 2009 20:14:00 GMT

Even as the recession has depressed consumer prices and the cost of living has fallen over the last year, college tuition rose in 2009, with the largest percentage increases coming at community colleges and public four-year schools — the mounting expense of an education revealed in the College Board’s latest reports on financial aid and the cost of college, released yesterday (“Trends in Student Aid 2009” and “Trends in College Pricing 2009”).

Squeezed by state budget cuts, public colleges and universities have found themselves forced to raise tuition prices. Tuition and fees at public four-year institutions rose by 6.5 percent for in-state students, to an average of $7,020 in the 2009–10 school year from $6,591 in 2008–09, and by 6.2 percent for out-of-state students, to $18,548 from $17,460.

The rise in community college tuition, to $2,544 this year from $2,372, although only a little shy of $200, represented the sharpest increase percentage-wise, a jump of 7.3 percent.

Costs at private four-year universities also crept upward, although at a slower rate of 4.4 percent, to $26,273 from $25,177.

“Given the financial hardship of the country, it’s simply astonishing that colleges and universities would have this kind of increases,” said Patrick Callan, president of the National Center for Public Policy and Higher Education. “It tells you that higher education is still a seller’s market” (“College Costs Keep Rising, Report Says,” The New York Times, Oct. 20, 2009).

Noting that the high school graduating class of 2009 was the largest in history, Callan went on, “Colleges and universities are capitalizing on that more than any other institution in the economy. If you walk around a shopping mall, nobody else is raising prices at the same rate” (“College: More Expensive Than Ever,” CNN Money, Oct. 20, 2009).

The Impact of Financial Aid

Only about a third of students pay these published “sticker” prices, however, underscored Sandy Baum, a senior policy analyst for the College Board and author of the two reports. Most students’ actual out-of-pocket costs are thousands of dollars lower because they receive some type of financial aid in the form of scholarships, grants, and student loans.

“If you look at net prices students pay, considering the grant aid and tax benefits, students at public two-year institutions are actually paying less, in inflation-adjusted dollars,” Baum pointed out. “Even though the sticker price, adjusting for inflation, is up 20 percent in the past five years, the net price is actually lower than it was five years ago.”

Net prices are also down at both public and private four-year universities.

Student Loans Still on the Rise

This drop in out-of-pocket costs notwithstanding, the gap between families’ available resources and the overall cost of attending college remains on a steady incline. Grant funding hasn’t kept up with the hikes in college costs, leaving students in a position of having to take out ever-larger amounts of money in student loans, particularly in the current economic climate, as more families struggle with unemployment, stagnant wages, and curtailed sources of credit.

“There’s a certain cruelty to a rise in education costs amid an economic slump,” observes Randy James, in a piece for TIME. “It makes the single most effective tool to help the underemployed and jobless out of their rut become all the more unreachable” (“The Incredible Climbing Cost of College,” Oct. 21, 2009).

Total education borrower increased by 5 percent from 2007–08 to 2008–09, the latest year for which student aid data are available. The volume of federal student loans — Stafford loans, Grad PLUS loans, and parent PLUS loans — grew by $14.7 billion last year.

“The level of debt we’re asking people to undertake is unsustainable,” said Callan.

In one bright note for student debt watchdog groups, this surge in federal college loans was accompanied by a sharp decline in nonfederal education loans. Nonfederal private student loans tend to have less flexible repayment terms, typically carry higher interest rates, and are generally more costly than federal student loans.

The volume of private student loans shrunk by half last year, to $11.9 billion.

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Students Reach Record-High Levels of Credit Card Debt

Student Loan Girl — Wed, 15 Apr 2009 23:00:00 GMT

College students are piling up alarming amounts of credit card debt, according to a recent survey by student loan company Sallie Mae, which suggests that not only are more students relying on credit cards to pay for their rising college costs, but that more students are charging more frequently (“Average College Credit Card Debt Rises With Fees, Tuition,” April 13, 2009, USA Today).

“The message is clear,” said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “Students are carrying more debt on credit cards, and more students are paying for education on credit cards.”

Sallie Mae’s survey of 1,200 private student loan applicants found that 84 percent of undergraduate students had at least one credit card, a 76-percent increase from 2004 when the survey was last conducted. The survey also revealed that students are carrying an average $3,173 in credit card debt — the highest level seen since the data was first collected in 1998.

Financial aid experts attribute these increases, in part, to the fact that college tuition and fees have increased 439 percent over the past 25 years and that the average median family income has not kept pace, rising only 147 percent by comparison, according to the National Center for Public Policy & Higher Education (“Study: Undergrads Relying on Credit at Record Levels,” Creditcards.com, April 13, 2009).

In fact, students in the survey cited not having enough “savings or financial aid to cover all the costs” of college as their number one reason for taking out a credit card, a problem that has been exasperated by the fact that private student loan lenders have scaled back lending and tightened their credit standards due to the waning credit markets.

Because lenders have severely limited students’ access to private student loans, students have more often been charging textbooks, room and board, and schools supplies to credit cards. In 2008, students charged an average of $2,200 in educational expenses on their cards, a 134-percent increase compared to four years ago.

Once considered the “lender of last resort,” says Kalman Chany, president of Campus Consultants, a college funding advisor, credit cards are now higher up in the hierarchy of students’ college funding sources. “If (students) can’t get private loans, they turn to credit cards.”

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Calif. Colleges Failing to Produce Workforce-Ready Students

Student Loan Girl — Mon, 23 Feb 2009 21:09:00 GMT

California is in danger of losing a large portion of its future workforce if the state education system continues to fail to adequately accommodate its college-age population, reports Gale Holland of the Los Angeles Times (“California Colleges Face ‘Serious Challenges,’ Report Says,” Feb. 12, 2009).

A new report issued by the Institute for Higher Education Leadership & Policy at California State University in Sacramento shows that a large portion of the state’s high school graduates are ill-prepared for college and that too many schools fail to make sure their students complete certificate or degree programs.

And with the state facing such a severe budget crisis and California’s two-year school systems enforcing freshman enrollment caps and contemplating tuition hikes, the state could see more students who generally attend two-year schools get “squeezed out” by students who are generally better prepared for college and who, pre-recession, would have attended a traditional four-year school, Holland writes.

This influx of new students to two-year colleges — whose relative affordability makes them more appealing during a recession than an often costlier four-year school — could create “a competition for scarce seats” at the state’s 100 community colleges, “and the fear is the less prepared will lose out,” said Nancy Shulock, coauthor of “The Grades Are In – 2008” report.

“We’re facing some really serious challenges and it has to do with not getting our younger generation educated at the same rate as other generations,” Shulock said. “We don’t think the budget crisis can be an excuse not to act.”

Currently, California ranks 40th in the nation for its rate of high school graduates who go directly to college and just 29th in the nation for the percentage of state residents ages 25 to 34 who attain at least an associate of arts degree, according to the report, suggesting that schools aren’t offering enough support for students to complete their degrees.

In the report, Schulock recommends that the state should reward schools not based on the number of students they enroll, but rather on the number of students that graduate or complete their degree programs.

Pat Callan, president of the National Center for Public Policy and Higher Education, said the state’s current “master plan” for higher education has been flawed for 20 years. “Every time we take a turn into recession, we hemorrhage students,” he said.

Callan laments that California, which was once regarded as a national and global education leader, is now lagging behind because “we have not responded well to the huge demographic and economic changes that are changing the face of California.”

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College Presidents’ Salaries Not-So-Slowly Sliding Up the Pay Scale

Student Loan Girl — Wed, 21 Nov 2007 04:09:00 GMT

It costs a lot of money to go to college. It costs even more money to run a college. And it’s costing increasingly more money to pay college and university presidents’ salaries and compensation packages, with many reaching the million-dollar mark.

According to The Chronicle of Higher Education’s most recent survey of executive compensation, salaries for presidents of private institutions has increased 200 percent over the last five years, with 81 presidents making more than $500,000 a year. Eight out of the 182 public institutions surveyed now pay salaries of at least $700,000, a jump from the two who reached that benchmark last year (“Presidential Pay is Increasing Fastest at the Largest Institutions,” Nov. 16, 2007).

In some ways, the life of a growing number of college presidents can be compared to that of a U.S. senator. In addition to their high salaries, these presidents might receive free housing, cars, travel, meals and “gifts” from friends of the institutions.

But with yearly college tuition hikes outstripping both the rate of inflation and increases in financial aid, one of the questions becomes whether rising presidents’ salaries are contributing to rising tuition costs (see our Nov. 4 blog, “Student Loan Debt Is on the Rise”).

A New York Times article by Jonathan D. Glater reports that families and lawmakers are concerned about these unfettered increases, questioning college and university presidents making millions even as students graduate with soaring levels of student loan debt (“Increased Compensation Puts More College Presidents in the Million-Dollar Club,” Nov. 12, 2007).

“The public has lost confidence in the altruistic mission of higher education,” says Patrick M. Callan, president of the National Center for Public Policy and Higher Education, in Glater’s article. “They see higher education as just another institution that’s in it for its own bottom line.”

Salaries on the Rise at Both Private and Public Schools

At private institutions, 81 college presidents earned $500,000 or more in the 2006 fiscal year, an increase of 15.7 percent from the previous year.

NOTE: Because some institutions changed Carnegie classifications, the number of institutions from which these data were collected changed from 670 last year to 654 this year. The statistics do not include special-focus institutions or the compensation of presidents who worked only part of the year.

Data and text courtesy of The Chronicle of Higher Education.

At public universities, the median total annual compensation in 2006–07 for the sample of 182 leaders was $397,349. The following chart shows how many presidents were in each of the $100,000 pay classifications.

Data and text courtesy of The Chronicle of Higher Education.

Schools and Presidents Defend Their Pay

Officials at schools with some of the highest paid presidents argue that “running a large university is increasingly similar to running a corporation,” writes Glater. In fact, the Chronicle points out, more college presidents are coming from corporate environments.

School officials, Glater explains, maintain that generous salaries are necessary both to draw presidents that can operate under the corporate mindset needed “to help build institutional wealth and prestige” and to keep them from defecting to a higher bidding school once they’ve been hired—one-third of public college presidents have no formal written employment contract, according to the Chronicle.

For fear of being ousted as the next Benjamin Lander—the former president of American University who was fired for allegedly requesting more than half a million dollars business compensation for personal expenses—some presidents themselves want to make it clear that not all college heads abuse their compensation packages and expense reimbursements. For some presidents, their greatest yearly expense comes in the form of donations given back to their schools.

In another Chronicle article, reporter Piper Fogg interviewed five college and university presidents about how they spend their money. Although all of them admitted to some personal splurging, they also pointed out the thousands of dollars they give back to the schools they work for (“With All Those Perks, How Do College Presidents Spend Their Money?,” Nov. 16, 2007).

David Hodge, president of Miami University (Ohio), earns $399,005 per year, but has donated more than $100,000 in the last year to create need-based scholarships for his students.

Lois B. DeFleur, president of the State University of New York at Binghamton, might own a Piper Comanche 260C single-engine airplane that she bought over 30 years ago, but the school only reimburses her for mileage at the automobile mileage rate—she pays for the gas, $5 a gallon, out of her own pocket. And out of her $344,500 pay package, DeFleur has donated about $100,000 over the last five years to her school, as well as the $25,000 she received for winning the McGraw Prize in Education.

If college presidents are increasingly expected to operate as CEOs, Hodge and DeFleur certainly differ from typical corporate executives in what they voluntarily give back to their employers out of their own salaries. And while college presidents’ pay is rising rapidly, the Chronicle notes that compared with the salaries of corporate CEOs, college executive salaries still lag far behind.

As long as colleges and universities stay on their current path toward functioning as corporations, presidents’ salaries will most likely continue to climb—it will be for the schools, the students, and the public at large to see if they get the corporate-level college management that corresponds to the corporate-level pay.

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