The authors of a just-released report say “we’ve entered into a post-recession reality in how families are paying for college.”
Education lender Sallie May’s annual report on how Americans pay for college shows that the use of college savings plans is at its highest level, even as annual spending has leveled out to $21,178.
Report authors say families are becoming more cost-conscious when it comes to choosing colleges and are more interested in saving money while they are in college. The result is that even though college costs continue to increase, “the amount that families are spending is holding steady.”
Education industry observers say this is another sign of a crisis in higher education.
Tuition is the most important source of funding for most colleges. The new numbers show that even as more colleges are experiencing financial shortfalls, they will not be able to raise more money by raising tuition.
- Sally Mae & Ipsos study: How America Pays for College 2013
Jon Marcus/Hechinger Report “What was known as Augusta State University when those students arrived as freshmen has been combined with the neighboring Georgia Health Sciences University to form Georgia Regents University. It’s a kind of private sector-style consolidation that is becoming increasingly common not only for public institutions, but also for nonprofit, independent ones”
Chronicle of Higher Education “More than 150 degree-granting colleges failed the U.S. Department of Education’s “financial responsibility” test for the 2011 fiscal year, data released on Monday show.”
Inside Higher Ed “But the Sallie Mae survey might not be all bad news for institutions. On most metrics of financial worry, parents were more optimistic than they have been in the past.”
ROBIN YOUNG, HOST:
It's HERE AND NOW.
And there's a new post-recession reality. When it comes to college costs, families are unwilling to pay more out of pocket or borrow more even as college costs continue to increase. That's according to the authors of the new Sallie May report on how America pays for college. The number of families ruling out college choices because of cost continues to go up as colleges struggle with revenue shortfall. So a problem for colleges, but is it also a problem for our future workforce in America? Reporter Jon Marcus from the non-partisan, non-profit education news site The Hechinger Report joins us in the studio. Jon, go through this report first, just the key findings.
JON MARCUS: Well, if you widen the lens a little bit, what's been going on here is good news for students and their families, which is that they're paying less money to go to college than they did a few years ago. The new report that just came out shows that the spending is leveling off, but that's after a 13 percent decline last year. The survey tends to suggest that colleges and universities have sort of come to the limit of what families, including high-income families, are willing to pay for college education.
YOUNG: Well, I was just going to say - and I know Jeremy wants to jump in here too. But you say they're paying less, but it's because they are refusing to pay more. So they're making different school choices.
MARCUS: That's one of the reasons, and the schools are encouraging this to a degree by discounting the prices that they charge. There is a sticker price and then there's a net price. The net price is what families pay on the basis of once you subtract financial aid and grants and institutional discounts.
YOUNG: Well, it's not even, you know, this early on, you know, the tuition and just getting in. It's secondary expenses, living while you're there.
MARCUS: Also very expensive. And what families are doing now is encouraging their students to live off-campus, which is cheaper, double, triple up on roommates, live at home increasingly to save money. Those additional expenses are a significant part of the cost of college these days.
JEREMY HOBSON, HOST:
Jon, if families aren't going to foot the bill to the extent that they have been, who's going to step in? Is it just going to be more borrowing?
MARCUS: Well, you know, as I say, it's good news for families and students. It's really, really bad news for universities and colleges because what's going on here is that they have to increasingly discount their price. There is what is called in higher education discount rate, which is the proportion of their revenues from tuition that universities and colleges have to turn around and give back in the form of discounts and financial aid just to fill seats. And the discount rate has soared. It's now 42 percent of revenues goes back out the door in the form of financial aid. So even while universities are increasing their tuition at what looks like double the rate of inflation, they're actually falling behind because more of that money is going back out.
HOBSON: Well, I know that one of the key groups that has been hit by higher college costs in general has been middle-income people. People that don't have enough money to pay the full freight, but they also can't qualify for some of the financial aid. If there's going to be less financial aid going out there, does that then bring up the question of low-income people more than middle income?
MARCUS: Well, the middle class is definitely being squeezed. Low-income people still tend to be more likely to be eligible for financial aid, although, increasingly, universities and colleges are allocating merit aid - what's called merit aid, aid to families that don't meet the federal definition of financial need just to raise their standing in the college rankings because those affluent students tend to have higher SAT scores, higher class rank, higher GPAs, and that is happening to the detriment of low-income students.
What middle-class kids are apparently doing is leaving private universities and colleges, which are significantly more expensive, and opting for public universities and colleges. The total share of enrollment going to private universities and colleges has been falling.
YOUNG: Yeah. You know, we've talked quite a bit about why the costs of college are going up. People have different opinions. I remember the fellow who wrote a book about how it's because colleges are increasingly hiring - on the administrative side, they're spending so much money on administrators. That was one thought I asked you during the break. Do you think it's because we heard in the last few years about colleges just doing all this building. You have to have a climbing wall. You have to have five pools, not just one. What is driving the costs?
MARCUS: Well, there's - those factors that you mentioned are among the many things that are driving the costs of college education higher. It's very labor intensive providing a university education. One of the things that's going to shake out this industry is the lower cost of providing education online, for example.
Clay Christensen, the Harvard Business School guy famous for disruptive innovation, talks about how within 15 years, half of universities will be bankrupt. And I think that's perhaps a little bit of an exaggeration, but those kinds of competing ways of providing an education are going to take a toll. The amenities continue to be built. Even after the economic downturn, universities and colleges built record - spent record amounts on new buildings, new facilities. Everybody wants to build a new building and put their name on it, but those things cost a great deal of money to maintain and to support. And student support services, which parents and students increasingly demand in exchange for these very high rates of tuition; counseling, tutoring, those kinds of services are also very expensive.
HOBSON: I want to focus on what you just said about online courses and that being a bigger part of the future. I interviewed Mark Yudof, who's the outgoing president of the University of California system, and he indicated that there a lot of people who are not on board with the idea of online courses playing a huge role in the future of higher education.
MARCUS: And a lot of recent research shows that all those people that are not on board are right. The - so far, the results, what little research exists about the effectiveness and outcomes from online education show that it doesn't work. It doesn't - or at least it doesn't work to the degree that its proponents suggest that it will. There have been particular experiments that in California, as a matter of fact - not at the UC system, but in the state university system in California - that have been suspended because they found that the students weren't doing as well by taking online courses as they would have in a brick-and-mortar class.
HOBSON: So it's not a silver bullet.
MARCUS: Not yet. I mean, we're still - it's very trendy. People like me who cover higher education write about online education quite a lot. But no one really knows yet if it works.
YOUNG: Well, you know, we - whenever we do these stories, we hear from people who say, why does everyone have to go college? It's an elitist thought. And I, you know, I know young people - gap year will be a great idea. But on the other hand, what does it mean for our workforce if people are constantly being told that we need to either re-educate or educate people for the new economy? What does it mean, in about the minute that we have...
MARCUS: Well, it's...
YOUNG: ....if people say I'm not going to go, I'm not going to pay for it?
MARCUS: That's an interesting question about which there is also new dispute; that is that the Georgetown Center for Education and the Workforce recently projected that we'll be short by five million skilled, college-educated workers by, I believe, it was 2020. It might have been 2025. But some economists say that that's not really true, that we are producing enough skilled workers and that not everyone needs to go to college. And based on the Sallie Mae report, a lot of parents are deciding that they don't need to send their kids to college after all.
YOUNG: Boy, quite something. Jon Marcus of the nonpartisan, nonprofit education news site The Hechinger Report. Jon, always eye-opening. We want to pick up with that maybe at another time what the future looks like. But thanks so much.
MARCUS: Thank you.
YOUNG: And parents out there, students, let us know. Have you made this decision? You know, it's just costing too much. We don't - we either can't do it or we refuse to do it. Let us know, hereandnow.org. Back in a minute, HERE AND NOW. Transcript provided by NPR, Copyright NPR.