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Commentary: Tuition creates a generation of debtors

February 08, 2013|By Chriss Street

With the estimated cost of attending a four-year state college in America at $120,000, the average family of four should expect their children's college to cost more than buying a home.

Even though only 24% of Americans believe college is affordable, 97% still believe getting a college degree is financially important to improve your life. This optimism regarding the value of education has provided the justification for 60% of the 20 million students in college last year to borrow $42 billion from the United States government this year to stay in school. But with the reward for a college degree falling and default rates sky-rocketing, many students and their parents will end up as student loan debt slaves.

College tuitions since 1986 have risen by a breathtaking 498%, compared to 115% for general price inflation. The main driver for this hyper-inflation was the dramatic expansion of the federal Stafford Loans since 1992, following Congress' elimination of requirement that government-backed student loans be subject to parental income restrictions. The most enticing aspect of these sub-prime loans is that repayment is deferred while a student is enrolled as at least a half-time student, then are subject to a grace period for six months after the student leaves school either by graduating, dropping below half-time enrollment, or withdraws. The sudden access to billions of dollars in "free money" allowed highly unionized colleges to dramatically increase tuition rates without fear of driving away financially strapped under-graduates.

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For students graduating this year with a four-year degree, college sounded like a good financial investment when they first enrolled in 2008. At that time, the median annual earnings of young adults with bachelor's degrees was $46,000, versus only $30,000 for those with high school diplomas or equivalencies. This means that on average, the bachelor's degree salary beat a high school diploma by 53%. But average salary means that half of graduates make more than $46,000 and half make less. Eliminate engineering, economics and accounting degrees, the starting salary drops below $42,000. Graduate with an education, sociology or creative arts degree, and the starting salary drops below to $36,000.

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