5 College Finance Problems Your Parents Didn't Have
If you're in the throes of college research and decision-making, it's likely that how to pay for college is a huge consideration. And because things have changed so much economically over the last 25 years, some say that today's young adults, those classified as Millennials, have a lot more to think about than their Generation X parents did.
"College costs a lot more today than when the parents of current students went to college," says Mark Kantrowitz, senior VP and publisher of Edvisors.com. "Back then, it was possible to work one's way through college. Fewer students borrowed to pay for school, and average debt among those who borrowed was much lower. Today's students are growing more sensitive to the debt burden," he says.
According to the Pew Research Report, "Millennials: A Portrait of Generation Next," a majority of the Millennials surveyed agree with Kantrowitz, saying it's harder for young adults today to attain the basic financial goals that their parents achieved when they were the same age. Eighty-two percent said finding a job is harder for young adults today, and at least 7 in 10 said it's harder now to pay for college. The real question is whether or not this is really true: Do today's college students have more education financing problems than their parents?
Take a look as we pit Generation X against the Millennials, analyzing the data to see how these 5 major college financing issues have evolved over time:
"What's on the news and in articles is always about the high sticker price of college," says Amy B. Schmidt, Ph.D., Associate Professor and Chair of the Economics and Business Department at Saint Anselm College. However, that number can be misleading, and frankly, terrifying, she says. "When I was in college, there was hardly any discount or merit rate. That has changed dramatically. You just don't know what you're going to have to pay until you receive your financial aid package."
According to NACUBO (National Association of College and University Business Officers) and the College Board, the average discount rate for four-year private institutions went from 16 percent in 1984 to 44.3 percent in 2011-2012. In other words, that means today's average student is paying just 44.3 percent of the tuition sticker price, and only a small percentage of very wealthy students and their families pay the full price, Schmidt explains.
Even with financial aid programs, Schmidt says, the burden of exorbitant tuition is still falling mostly on the shoulders of students.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, according to the Bureau of Labor Statistics. As the table above reveals, costs have nearly doubled since Generation X was college-aged. What complicates matters is that in 1980, young adults reached the middle of the wage distribution by age 26, whereas today workers do not reach the same point until age 30, according to a report by Georgetown University's Center on Education and the Workforce called "Failure to Launch: Structural Shift and the New Lost Generation."
That could be part of the reason why many Millennials have to turn to mom and dad for financial help, even after graduation. In fact, more than a third of all Millennials (36 percent) say they depend on financial support from their families, including 14 percent of all young adults who are working full time, according to the Pew report. Furthermore, 34 percent of those who are 25-29 years old have boomeranged back to living with their parents, according to the "Millennial Generation Research Review" by the U.S. Chamber of Commerce Foundation.
In summary, not only is a college education more expensive for today's students, but so is living on one's own thanks to greater student loan debt, and the fact that it takes Millennials longer to earn a strong enough income to make ends meet.
While today's students and recent graduates are still getting over the sting of the Great Recession, with some experts saying they faced the toughest job market in decades, those with college degrees are still much better off than their high school grad peers. "During the Great Recession, the unemployment rate for college graduates was five percent; for high school graduates it was over 10 percent," says Schmidt.
According to the latest Pew Research Center survey, Millennials, being America's newest entrants into the labor force, have often found themselves "low man on the totem pole," and therefore the first to go when layoffs take place.
In fact, 40 percent of unemployed workers today are Millennials, according to an analysis of U.S. Census data by the Georgetown University Center on Education and the Workforce. Members of Generation X aren't far behind, comprising 37 percent of unemployed workers today. It's safe to say that back when Gen Xers were first looking for jobs after college, the market was in much better shape.
The difference between what a high school graduate earns and what a college grad makes has increased a lot over the last 20 years, says Schmidt: "The earnings premium for college graduates over high school graduates has increased substantially since the mid 1980s." In 1984, college educated men made 50 percent more than high school educated men. Now they make 80 percent more over a lifetime. For women the numbers are 40 percent and 70 percent, respectively, she explains. "College educated workers are also more likely to have fringe benefits with their jobs in addition to higher earnings," Schmidt says.
In other words, the value or return on investment of a college education is more apparent today than it was 20 years ago. However, keep in mind that it may take years to actually experience that ROI benefit since it can be tougher to land a job with a high starting salary right after graduation than it was years ago. Add to that the fact that they are facing a higher cost of living, and even a strong entry level position may not produce a high enough income to get by independently.
For those reasons, although graduating from college will pay off in the long run, Millennials still have a few years of "paying their dues" ahead before they can reap the rewards of having earned a degree.
"Federal and state support of postsecondary education has been decreasing on a per-student, constant-dollar basis, shifting more of the burden of paying for college from the government to families," says Kantrowitz. Since family income has been flat, families have responded by borrowing more, causing student debt at graduation to increase by $1,000 to $2,000 a year, he adds.
As a result, a higher percentage of students are graduating with debt and the average debt levels are higher. According to a Federal Reserve Bank of New York report, the share of 25 year olds with student debt went from 26 percent to 43 percent from 2004 to 2012. And, the average debt load has increased from just over $15,000 to just under $25,000 during that time period as well.
As far as student loan interest rates go, Millennials probably have the edge since the last few years have seen lower rates than in years/decades past (it was 3.86 percent for 2013 subsidized borrowers). It should be noted, however, that prior to 1992 when the Stafford Loan program began, there were GSL and SLS loans, which had a far more complicated interest rate methodology. As explained on FinAid.org: "From July 1, 1988 to October 1, 1992, the loan had a fixed rate of 8 percent from disbursement to four years after the loan entered repayment, and 10 percent thereafter."
Today's borrowers do have an advantage when it comes to loan repayment options and more education around those options. According to WhiteHouse.gov: "Since 2009, former students have been able to enroll in an "Income Based Repayment" (IBR) plan to cap their student loan payments at 15 percent of their current discretionary income if they make their payments on time. Legislation signed by President Obama in 2010 lowered this cap to 10 percent for borrowers beginning in 2014."
In the debate over who has an easier time at college funding, Generation Xers are the clear winners, based on the data above. These grim figures are a deterrent for some: Of all Millennials who have not earned a college degree and are not in school, 36 percent say it's because they can't afford to go to school, according to Pew.
As such, more students than ever are considering less expensive options, such as online degrees (see Is Online College Cheaper?). Besides its convenience, online undergraduate education typically costs less per credit than traditional education at private schools or for out-of-state students at public institutions, according to U.S. News and World Report.
No matter which college route you choose, there are many high quality educational options available that may not require a lifetime of debt. And even if college is more expensive today than it was for your parents, it's clear that a college education will put you in a better position for long-term success.
- Amy B. Schmidt, Ph.D., Associate Professor and Chair of the Economics and Business Department at Saint Anselm College interviewed by author on 10/21/2014
- Bureau of Labor Statistics Inflation Calculator, http://data.bls.gov/cgi-bin/cpicalc.pl
- "CPS Historical Time Series Tables," United States Census Bureau, http://www.census.gov/hhes/socdemo/education/data/cps/historical/
- "FACT SHEET: Helping Americans Manage Student Loan Debt with Improvements to Repayment Options," whitehouse.gov, http://www.whitehouse.gov/the-press-office/2012/06/06/fact-sheet-helping-americans-manage-student-loan-debt-improvements-repay
- "Failure to Launch," Georgetown University, http://cew.georgetown.edu/failuretolaunch
- "40% of Unemployed Workers Are Millennials," MarketWatch, http://www.marketwatch.com/story/40-of-unemployed-workers-are-millennials-2014-07-03
- FRED Economic Data, St. Louis Fed, http://research.stlouisfed.org/fred2/series/USACPIBLS
- "Household Debt and Credit: Student Debt", by Donghoon Lee, the Federal Reserve Bank of New York, http://www.newyorkfed.org/newsevents/mediaadvisory/2013/Lee022813.pdf
- Mark Kantrowitz, Senior VP and Publisher of Edvisors.com, interviewed by author via email on 10/26/2014
- "Millennials: A Portrait of Generation Next," Pew Research Report, http://www.pewsocialtrends.org/files/2010/10/millennials-confident-connected-open-to-change.pdf
- "The Millennial Generation Research Review," U.S. Chamber of Commerce Foundation, http://www.uschamberfoundation.org/millennial-generation-research-review
- National Center for Education Statistics, http://nces.ed.gov/programs/digest/d13/tables/dt13_330.10.asp
- National Association of College and University Business Officers, http://www.nacubo.org/Documents/about/pressreleases/2013TDSPressRelease.pdf
- "2013 - Grade Change: Tracking Online Education in the United States," Online Learning Consortium, http://sloanconsortium.org/publications/survey/grade-change-2013
- "U.S. News Data: Online Education Isn't Always Cheap," U.S. News and World Report, http://www.usnews.com/education/online-education/articles/2013/08/28/us-news-data-online-education-isnt-always-cheap?page=2