Academic journal article Review - Federal Reserve Bank of St. Louis

Student Loan Debt: Can Parental College Savings Help?

Academic journal article Review - Federal Reserve Bank of St. Louis

Student Loan Debt: Can Parental College Savings Help?

Article excerpt

College costs are high and continue to grow as American students and their families are borrowing at unprecedented rates to keep pace with the increasing costs. The College Board (2012a), which produces an annual report tracking college costs, estimates the total annual cost of college attendance plus room and board at a private four-year college rose by 4.2 percent in 2012-13 to $29,056 (College Board, 2012a). Even the traditionally more affordable in-state, public four-year college costs were $8,655 for the 2012-13 school year, an increase of 4.8 percent from the prior school year. While these figures may reflect cost shifts more than absolute cost increases, the potential sticker shock for prospective college students and their families is the same, and the effects can be seen in educational attainment, particularly for low-income students and students of color, who may be most sensitive to price. Researchers find that increasing college costs have a negative impact on college enrollment decisions (Heller, 1997; Leslie and Brinkman, 1988; McPherson and Schapiro, 1999). McPherson and Schapiro (1999) estimate that a $150 net cost increase (in 1993-94 dollars) results in a 1.6-percentage-point reduction in enrollment among low-income students. Against the backdrop of rising prices and a persistently elevated unemployment rate, more Americans-from pundits to parents-are questioning the value of a college degree (see Azziz, 2014), even while evidence clearly points to higher education as the primary path to economic mobility and prosperity (see Urahn et al., 2012). Frustrated by the collision of rising prices and declining wages (in inflation-adjusted dollars) (College Board, 2012a), Americans are seeking new ladders of human capital accumulation and related economic advancement. Still, the current public policy debate is limited mainly to tinkering around the edges of a primarily debt-dependent financial aid system. The debate includes discussion of income-based college loan repayment and other modifications to the cost and terms of borrowing, even while evidence suggests a need to rethink the true cost of student loans and to consider alternative approaches to higher education financing.

SHIFTING THE BURDEN OF COLLEGE COSTS FROM SOCIETY TO STUDENTS

Since the late 1970s, the federal government has increasingly attempted to promote equal access to higher education by adopting policies to make college loans accessible to more students (Heller, 2008). Most recently, the Health Care and Education Reconciliation Act (2010) routed all federal loans through the Direct Loan Program, making it easier for students and families to borrow directly from the U.S. Department of Education. At the same time, costs are being pushed upward by disinvestment in direct public support for institutions (U.S. Department of Education, 2013).

State appropriations for colleges sank by 7.6 percent in 2011-12, its largest decline in at least a half century (Center for the Study of Education Policy, 2013). As a result, 29 states allocated less money to higher education in 2011-12 than they did in 2006-7 (Center for the Study of Education Policy, 2013). Historically, public investment in higher education tends to be cyclical, with state and local appropriations for public institutions, in particular, declining during economic downturns (Desrochers, Lenihan, and Wellman, 2010).

Today, many analysts fear both cyclical declines and structural adjustments are at play as higher education is increasingly framed as an individual benefit instead of a public good (Hiltonsmith, 2013). This change in viewpoint has resulted in a "pattern of cost shifting to student tuition revenues" (Desrochers, Lenihan, and Wellman, 2010, p. 5). The College Board reported in 2013 that the net price of in-state tuition increased to $3,120 after all aid was considered, signaling that even this last refuge of affordability is now a cost burden to many of the poorest American students. …

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