Generation Deferred: Should My Diploma Come With a Receipt?
Since the recession, millennials have been starting fewer businesses and postponing marriage. They are also buying fewer homes and cars. But one key indicator stands in stark contrast to these declines: Millennials are spending on higher education. The trend isn’t due to some newfound interest in advanced intellectual attainment; rather, the growing cost burden of higher education is to blame. Student debt, with its suppressive economic effects, has skyrocketed amid drastic price increases as well as the cloaked structure of federal student loans and university costs. Compounding millennials’ education debt burdens is a lack of financial tools for managing loan payments as part of an overall plan.
Perhaps nowhere is this dynamic more pronounced than in California, where post-recession housing prices continue to skyrocket and state unemployment figures outpace the national rate. Along with the sluggish economy and high cost of living, University of California tuition rates have increased by 800 percent since 1990, well outpacing the rate of inflation and income growth. Over the past decade tuition at the California State University system has increased more than 283 percent. Rising tuition is both a side effect of increased costs and decreased state funding post-recession. In California growth of the student population has also led to a lack of capacity and increased timeframes to graduation – which exacerbates the debt burden issue.
In our view, students applying to state universities should be provided with the information needed to make long term, informed financial decisions before borrowing an average of $29,000 in student loans. Despite Department of Education disclosure requirements, nearly one-quarter of colleges that accept federal aid do not have net cost calculators easily accessible on their websites. It is also difficult for students to find information on post-college job placement and expected wages. This current system limits students’ ability to plan their borrowing based on predicted future wages. The College Scorecard, which gives students access to average net costs and the institution’s average default rate, is a step in the right direction for transparency. But it still does not provide enough information, and it’s difficult to compare colleges based on their scorecard.
Not only is educational cost disclosure an essential component to overall transparency and a way to help students gauge long term costs, but it is also a necessity for lenders assessing risk, especially federal student loans. In the U.S., 51 percent of borrowers underestimate their loan amounts by at least 10 percent. Among first year college students, 28 percent with federal debt erroneously reported that they did not have any federal debt, and 14 percent inaccurately reported having no debt at all despite incurring federal loans. Many students remain unaware of outstanding and accumulating loan amounts because there is not an easy central repository single location for information. Granted, there is both entrance and exit counseling associated with student loans. However, many students have already accepted loans before the entrance counseling occurs, and the counseling program is not personalized. Without full disclosure and information tools like monthly loan statements and easy opportunities for optional payments for student while in school, students will continue to be unable to make informed decisions about their education costs. Consistent standards for sharing information would help students understand their debt and make better borrowing decisions throughout their college experience.
Burgeoning student debt is a multi-pronged challenge, tied not only to rising educational costs but also to the ability of millennials to participate in the larger economy and help support its growth – a key factor for their own future employment opportunities. Students certainly must be accountable for the debt they incur. But loan distributors and universities should provide information that will help students make better borrowing choices. At age 18, many young adults are unprepared to make financial decisions that will affect them for the rest of their lives, and providing training in financial literacy should be a priority for both Universities and Federal Government. It is also crucial for policymakers to hold state Universities accountable for their costs. Skyrocketing tuition cannot be inevitable – especially if there are no checks on costs and if students do not get a receipt that shows where their tuition is going.