If someone offers to sell you a life-changing product ranging in price anywhere from $10,000 to $250,000 — maybe more — chances are that most of you will at least attempt to negotiate that price down; only suckers pay sticker price. And yet, when it comes to a college education, it’s unheard of to call up competing institutes of higher learning to see if you can knock a few bucks off the MSRP.
According to Rohit Chopra, the Consumer Financial Protection Bureau’s Student Loan Ombudsman, the cost of a college eduction has risen tenfold in the last 30 years, wildly outpacing inflation. Even in times of flat or negative economic growth, tuitions still inched upward.
“While it’s more important ever to have a college degree,” Chopra tells Consumerist, “the return on investment is diminishing.”
So college students are paying more to earn less. And they are being saddled with more debt as a result. And yet, the only concession most schools make to students with financial need is to hook them up with more loans.
Preemptive Financial Puberty
Until such a time as colleges actually begin to haggle with potential students (read: When pigs sprout wings and learn how to tango), it’s better to be an educated shopper before you matriculate.
While many college applicants still receive the standard financial aid info sheet — showing only that semester’s grants, loans and other aid, often in incredibly vague terms — from the colleges that accept them, the Dept. of Education recently created — with input from the CFPB — the “financial aid shopping sheet” [PDF].
This new sheet not only breaks down the various forms of aid into their respective categories, using language that is much easier to understand. Perhaps more importantly, it contains a new sidebar that shows the school’s graduation rate, its loan default rate and how that rate measures up to comparable institutions, and the median level of federal student borrowing at that particular college.
Using this information, you can compare potential college’s financial aid packages. Low graduation rates and high relative default rates would likely give some applicants cause for concern. Additionally, you can compare one school’s grant/loan ratio easily using these standardized forms.
But the CFPB believes these forms can provide even more helpful information, such as estimated post-graduation repayment rates. This would allow students to look into the crystal ball and have an idea of just how much debt they are taking on before they ever sleep through their first noon lecture.
It’s all about “going through financial puberty earlier,” explains Chopra, rather than waiting until after students leave school to smack them across the face with reality. “Empowering people with information earlier will end this sort of regret.”
The Screwed Generation?
The class of 2011 hit the working world with a record amount of student loan debt, largely driven by the rapid growth and heavy-handed tactics of for-profit colleges, and the explosion in the private student loan market.
And though lawmakers and regulators appear to be cracking down on some of the practices that got students into this mess — and the public is catching on to the fact that many for-profit schools spend significantly more on marketing than they do on education — some believe we may be on the downward curve of the student loan debt boom.
The fact remains that student loan debt in the U.S. recently crossed the $1 trillion mark. Many people have a handle on this debt and are just slowly repaying it. But for those who are just starting out in the job market, a huge debt backpack can have a ripple effect that could stay with them for years or even decades.
Homeownership and 401(k) participation is dropping among U.S. consumers in the 25 to 29 age group, says Chopra. This means that Americans are waiting longer and longer to make large investments or begin saving for retirement.
Having a huge pile of student loan debt — and especially missing payments or defaulting — will have a negative impact on one’s credit score, making it more difficult to get a car loan, apply for a job, and even rent an apartment.
This problem is compounded for those who took out private student loans for college. While federal loans allow for income-based repayment plans, most private lenders don’t really care if you lost your job or had to pay for your kid’s school supplies.
And while some people turned to their 401(k) accounts and other retirement savings to get them through recent tough times, if these 20-somethings can’t get out of debt, they’ll never be able to put together a sufficient safety net to catch them if the economy bottoms out again.
The Unburstable Bubble
Chopra takes issue with the use of the term “bubble” to describe the current problems surrounding tuition, student loans and personal debt.
“Is the cost of tuition a bubble?” He asks, pointing out that all regulatory and legislative efforts on this issue have dealt either with the lenders or how schools spend federal aid, but have had nothing to do with reining in tuitions. “It’s a bubble that won’t burst.”
So while colleges aren’t exactly stepping over each other to start a tuition war, if consumers are more educated about the actual costs of an education — and the likelihood of being able to pay it back afterward — an informed market could help curb the soaring price tags by opting for colleges that provide a better return on investment.