A new report released last week by the Center on Budget and Policy Priorities correlates increased student loan debt with decreased state higher education funding. The lower the state subsidy, the higher the state’s average student loan debt level is.
That stands to reason. When you subtract public funding from higher education altogether (think private schools), you also see the highest levels of student loan debt. State appropriations and (in the case of community colleges) property tax collection function like subsidies for students. The more money the public pays, the less money the student pays. When you reduce public spending on higher education, students must either pay the cost themselves or leave school.
That’s why it is important to consider tuition increases very carefully. Functionally, raising tuition has the same effect as cutting public subsidies. When the institution shops the cost of an education off on the student, the student will compensate in one of two ways. On one hand, the student could simply pay the increase in tuition. This works only to a point. If institutions raise tuition too far, the other option kicks in: students leave.
When students believe they cannot afford the expenses associated with going to college, enrollment declines. Somewhere in there, the student (or would-be student) makes a value judgment. “Am I better off investing my (limited) money into tuition and books, or am I better off in the workforce?” If the return on investment takes too long, or doesn’t come with reasonable assurances of success, students won’t enroll. And why should they? As low-wage earners, they can’t afford to take on inextinguishable student loan debt. Working at the lower end of the pay scale is better than earning a higher wage but losing most of the increase to debt service.
Student loan debt can be crippling
Students are very price sensitive. Placing more responsibility on the student to self-pay all higher education costs will have consequences. Low-income students will not enroll in college. Those low-wage earners are far more likely to continue living in poverty, and their kids will grow up in poverty, too. Students who do opt to take on student loan debt can find it virtually impossible to extract themselves from long-term debt service.
Making it harder on students to enroll or complete their educations contradicts the public’s desire to invest in the next generation workforce. Without the public’s investment in creating the next generation workforce, several things go wrong – not the least of which is jeopardizing Social Security for retired workers. Social security uses taxes paid by younger workers to fund benefits. In 1950, the worker-to-beneficiary ratio of Social Security was 16.5:1. That means every Social Security collector was supported by 16.5 contributors. Today the ratio has shifted to 2.8:1, which happens to be the minimum level of support the system needs to operate at all.
Beyond not funding Social Security properly, a minimally trained workforce limits economic growth. When employers can’t find adequately trained workers, jobs go unfilled. Unfortunately, we happen to be at a point in the economic cycle where we need more workers. (And don’t have them.)
A lot rides on keeping students’ cost of attendance low. Simply requiring students to pay for everything is silly. And raising their cost of attendance to accommodate unwise or unnecessary spending has real consequences for all of us.
Photo Credit: 401(k) 2012, via Flickr