Almost all colleges, private or public, have levied a price tag that has grown on average twice as fast as the Consumer Price Index for the last 40 years. This is a larger increase over a longer period than any business or enterprise in the country. At the same time, government subsidized student loans began because of the outrageous increases. Unfortunately, the colleges thought the extra money from the loans was theirs to spend, so they kept increasing the rates. Government loans actually caused tuitions to go up. Eighteen-year-olds, totally unschooled in the fine points of loans and looking forward to college life rather than years of payback, signed on while the colleges collected their loans without any responsibility for the debt. The result is staggering: over $1 trillion in student debt (far exceeding all credit card debt), some five million students in various forms of default and many more who have graduated into indebtedness for years to come.
Randy was a typical student who took a loan even though I helped arrange a part-time job, some work-study payments and some scholarship aid, all of which (along with some family help) would cover college cost and some extras. The loan was so easy to sign for, so why resist? And payback seemed a long time away. Even though I mentioned he would have many other costs when he graduated — an apartment, a car, maybe marriage — the loan won out. The numbers show there are legions of students like Randy. And why not? There are no payments until graduation, and the interest does not begin until college is over. What Randy and his many colleagues do not understand is that these loans are not protected by bankruptcy, as are many other types of loans. If he fails to make payments, any income tax that should be returned to him will be docked. These loans are stricter than are home mortgage loans.
We have an obligation to high school students to teach them the basics of loans before they sign loan documents. Everyone knows that high school seniors who have been accepted to one or more colleges relax a little toward the end of the school year. SATs are over, grades seem secure, their interests move on to other things. Why not introduce a 10-hour seminar before they graduate from high school, one hour each week, that goes into many aspects of loans? They could learn about interest rates, present value of money, what it means to default, etc. It would be a mistake to expect colleges to make this effort because it is a clear conflict of interest.
We senior citizens have an obligation to our young people as they begin their steps toward adulthood, one that has not been mentioned before. Too many recent college graduates are being financially burdened more so than any previous generation, not by decisions they make upon graduation but by decisions made by us. If they get a job they have to make the ordinary payments we all ran into: taxes, and many living expenses. But for today's graduate there is a Social Security tax that is much higher than a few decades ago, and it is higher so we seniors get our monthly check, while many college graduates do not believe it will be there for them. Then we add loan payments onto their shoulders, a financial burden that did not exist for us because colleges were much more reasonably priced decades ago. Four decades ago the average cost to attend college was about 15 percent to 20 percent of the average family's yearly income. Today, the average cost of a private college is in the range of 60 percent to 80 percent of an average family's yearly income. Public universities are a bit lower. Finally, the government is requiring recent graduates to pay a fine if they do not obtain a medical coverage plan, all of which require some medical premiums and co-pays even if their employer provides medical coverage. But the vast majority of recent graduates do not make use of medical facilities. It is we, the seniors who make the most costly use of it.
My goal is not for bigger loans, or loan forgiveness. It is for colleges to come to their senses and start practicing cost containment.
Robert V. Iosue is retired president of York College of Pennsylvania; his email is bobandteena@comcast.net. This op-ed is excerpted from "College Tuition: Four Decades of Financial Deception" (Cardinal Publishing, October 2014), which Mr. Iosue wrote with Frank Mussano.