college tuition

Issue in Brief

What's up

During the past five years average public college tuition has increased by a whopping 35% (beating out the 11% achieved by private schools) (NYT). This increase has outpaced inflation and drawn the attention of lawmakers intent on addressing students’ ability to pay for college and higher education’s ability to rein in costs.

In February 2007, President Bush signed legislation increasing the maximum Pell Grant by $550 to $4,600 per student. (ED) Other proposals are in the works to increase the tax-deductibility of higher education, raise other loans and cut interest rates, and raise the limit for Section 529 college-saving accounts whose interest is tax-free. While most agree that equalizing access to higher education is a social boon, critics contend that increasing loans and subsidies without stricter accountability encourages schools to use rising tuitions to pay for flashy student-luring amenities. With federal funding accounting for 24% of all higher education funding (as compared with 10% for K-12 education (USN)), many are crying out for colleges and universities to be more transparent with both their spending as well as the preparedness of graduates they produce.

Credit crunch aside: Worried that the tuition loan market could dry up for incoming fall '08 students, the Congress passed a bill, HR 5715, to expand federally backed student loans. (NYT)

Pros

College graduates make over $1 million dollars more during the course of their lifetime than their peers with only a high school diploma, making college education one of the surest ways to increase standard of living for many citizens. (CB) As costs of public and private education increase faster than median family income, a growing number of schools are out of the reach of aspiring students. The Pell Grant increase, which is available to only the neediest students and does not require repayment, offers the lowest-income students the opportunity for a college education. Additional measures to increase the amount of federal loans give many students a necessary boost to afford a wider range of colleges. At the same time, a measure (H.R. 5) proposes to cut the interest rate of certain need-based loans nearly in half, from 6.5% to 3.8%, between July 2007 and July 2011, making those nasty loan payments easier to surmount.

Cons

The cons fall into three camps— those who believe that college tuition isn’t quite the beast its portrayed as, those who believe that raising loans not only encourages carefree spending in higher education and those who fear that increased loans equals a larger financial hole for students.

As many in higher education point out, not all spending is extravagant. The amount of school-sponsored financial aid—a record $134 billion—is assuaging many of the high sticker prices. (CB) In 2002-3, roughly 50% of all undergraduates received some form of financial aid—60% if you include undergrads receiving loans. (CNN) Only 5% of all undergraduates pay the much-advertised high-end sticker price of $33,000 per year. (CB) Furthermore, some argue, raising costs is the price needed to stay competitive, as many prospective students and their families equate higher price with better quality. (NYT)

Others argue that by not addressing the root cause of rising costs, lawmakers are giving universities carte blanche to continue their carefree spending ways. In particular, the Bennett Hypothesis argues that increasing federal loans is accompanied by a parallel tuition increase.(CHE) Coincidence? Some think not. With schools building luxury dorms to lure students, many wonder whether the best way to keep costs down would be to rein in seemingly extravagant spending.

Lastly some believe that by increasing the amount of loans, students, especially the large number who drop out of college, could put themselves in a bigger financial hole than the current loans would allow.

Where Things Stand Now

Congress is nearing on a final college tuition bill that could lower student loan interest rates while raising the maximum Pell grant and offering loan relief for students going into public service.

Other Sources

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