Learning challenges exist well beyond corporate boundaries, none more broadly than those in American higher education. Parents, taxpayers, college students and even corporate executives have a big and growing stake in the issues. We all need to do better.
No single number captures the scope of the challenge better than the $1.6 trillion in outstanding student debt held by about 45 million of our mostly young. It is easy to ignore these obligations as the responsibility of the borrowers, the students; after all, it is their signature on the loan documents.
Ignoring it is exactly what we all have been doing for decades. The reality is that unlike traditional lending agreements, it is us, the taxpayers of this country, who are the lenders of the majority of this huge amount of our resources. Some current estimates suggest that as many as 40 percent of those borrowers will fail to repay their loans, leaving all of us to pony up with the money to cover the public portion already spent. In the end, you and I are the lenders here.
But our risk extends well beyond our roles as parents and taxpayers. Corporate leaders have a stake in our collective need to do better. In spite of increased investments in corporate learning, it is still the domain of American higher education to create and deliver the learning programs for critical thinking and problem solving key to success in the exploding global digital economy.
It’s not easy to create a $1.6 trillion problem. It takes a lot to produce a problem of this immense size. Many political and higher education leaders are engaged in the search for answers. We bid them godspeed in finding policy solutions. We all can benefit. But our conversation here is narrower and more specific, namely: Why is student debt so gigantic in America?
Here are five factors that drive this huge number. By examining and recognizing them, we have the potential to take action.
Rising Tuition vs. Stagnant Personal Income
Since 1973, average inflation-adjusted public college tuition has increased by 274 percent while median household income has grown by only 7 percent. Students are taking on more debt because the growth in family income is not enough to pay for increases in tuition. Debt is the option available to fund these tuition increases.
Reduced State Tax Funding of Public Institutions
Over time, students have assumed much greater responsibility for paying for public higher education. Nearly every state has shifted costs to students over the past 25 years, with the most drastic shift occurring since the Great Recession of 2008. In 1988, public colleges and universities received 3.2 times as much revenue from state and local governments as they did from students. They now receive about 1.2 times as much from states and localities as from students. This is all according to the Center on Budget and Policy Priorities.
Extension to Average Six Years in Graduation Rate Calculations
Traditional American higher education requires 120 credit hours for a bachelor’s degree. Semester scheduling is designed to deliver these credits over four calendar years. Most graduation calculations are now made over a six-year horizon, which is an acknowledgement that students are taking more time to earn a bachelor’s degree. This implies a 50 percent increase in total cost (including foregone earnings) with more student debt required to fund these extra years.
Lost Credit With Student Transfer
Overall, transfer students among all postsecondary institutions lost an estimated average of 43 percent of credits, according to the Government Accountability Office. These credits must be earned at the new school, often requiring debt to fund the additional courses.
Lack of Tuition Price Transparency
On average, actual tuition at private nonprofit universities is discounted more than 50 percent in the form of institutional grants and scholarships. The lack of public information on these awards reduces the prospective student’s ability to compare actual tuition costs. Overall this increases the total cost of tuition paid.
Current college students, parents of college students, corporate learning executives and all taxpayers need to be aware of these facts as they individually and we collectively take the actions to wrestle this debt beast into containment.