After This, Higher Education Will Never Be the Same Again

I’ve been a long-time financial supporter of my alma mater. Even though I philosophically disagree with some of the positions of the administration, there’s never been a doubt that I’m a Georgetown Hoya through-and-through.

My education while on campus, both in and out of class, was top-notch. It gave me a base to build on in both my professional career and my life as a citizen.

But several years ago the school reached a milestone that I could no longer stand with. It raised tuition to an astronomical amount: above $45,000 per year. Today, it stands at $48,000.

Keep in mind, that’s just tuition. Including other costs, the total bill for attending this year is $67,000.

I wrote to the dean of admissions, asking how could a single year of attending the university possibly be worth more than the median household income in America?

Or course, I got no reply.

The school will tell you that almost no one pays that price. Over 70% of students have some form of aid.

But some do pay. And of those with aid, most will incur some debt. All to support a tuition structure that does nothing but march higher.

It’s as if every technological advance made in in the world somehow bypasses higher education campuses. They exist on a planet where phone deregulation, increased computing capacity, and self-administered items (think registration online, self-ordering kiosks, etc.) do nothing for the bottom line. Things can only cost more, never less.

Luckily, Hillary Clinton has a plan.

Her proposal for solving the student loan crisis is bold. What else do you call a program that redistributes $350 billion in income over 10 years?

This doesn’t make it a good or a bad proposal. Nor does it make education free. It’s intended to allow students to graduate free of student loan debt. That is, if they attend a state university.

Mrs. Clinton’s plan has several parts. The federal government will pitch in funds for higher education, but only if states increase what they allocate to the cause. Then there’s students, who would have to work 10 hours a week, and families will pay what they can afford.

In addition to addressing the needs of future students, graduates with student loans would be allowed to refinance their existing loans to lower interest rates, and would be asked to pay only up to 10% of their discretionary income for 20 years toward loan repayment. If any balance remained after that, it would be forgiven.

Of course, forgiven doesn’t mean forgotten. The money’s got to come from somewhere, as do the funds for all of these programs. To this extent, Clinton calls for reducing tax deductions on high income earners to pay for the initiatives.

Her plan also calls for universities to control costs. Unfortunately, this bullet point includes no details. Then again, why would it?  There’s not a single reason to believe it will happen!

For all of their bluster about trimming excess fat, universities have done precious little to control costs. Apparently, access to more money in the form of student loans just makes the problem worse.

The New York Federal Reserve just released a study showing that for every $1.00 of student loans issued, universities increased tuition by $0.65. The implication is that as students borrowed money to pay for college, the very act of being able to secure the funds gave schools the greenlight to raise prices yet again.

There must be a break in the system. The trends of the past 20 years are unsustainable.

The question is, what does the future of higher education look like? Universities aren’t making any moves toward affordability, so the change will have to be forced on them.

The government’s showing no signs of getting out of the game. It has no publicized plans to end all student loans and programs. If the government stays involved, why not cap what universities can charge in tuition and fees? It could be a percentage of median income, making it affordable to everyone. That would mean higher income families also got the benefit of reasonably priced education.

Which brings up another point that gets glossed over in such conversations.

Clinton’s plan, as well as others, includes that sing-song line of: “Families will pay what they can afford.” No one spends much time on this topic because it always leads to a fight.

What families can afford according to whom?

Most colleges require the Free Application for Federal Student Aid (FAFSA) form. It kicks out what parents should contribute, which is roughly 5.6% of their assets. There’s also an expectation of contributing from current income, as if most families have a bunch of cash left over at the end of each month.

Just like conversations about loan repayment, family affordability calculations don’t get to the heart of the problem. Until universities actually cut costs, bringing them back in line with income, we’ll be stuck with a myriad of contorted government programs that, in larger economic terms, do little more than serve to redistribute income.

It will be interesting to see if families take matters into their own hands, sending their kids to community college for two years to cut costs, or even bypassing traditional college altogether and pursuing specialty skills. While such moves might improve the situation, who wants to take the risk and be among the pioneers? For now, the system remains broken, with costs running well above most people’s ability to pay, and none of the solutions on offer address that basic issue.

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

 

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Categories: Education

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.