Back to School, Students Turn to Loans for Help
September 4, 2009 - 4:54pm ET
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Students are borrowing more than ever to pay for college. As reported in the Wall Street Journal, for the 2008-09 academic year, students borrowed nearly 25 percent more than the previous year to pay for school, borrowing a total of over $75 billion. But as the economy worsens and states continue to slash higher education spending, this upcoming year will certainly be worse.
To begin with, the bad economy translates to fewer jobs available for students. Job openings that students traditionally apply for either are filled by more experienced workers or have vanished completely. This has helped push the current unemployment rate for 16 to 24 year olds over 18 percent. And considering how nearly half of full-time students and over 80 percent of part-time college students rely on jobs while in school –the dismal job market thus pressures them to borrow more. I of course neglect the impact of parents losing jobs, but its effect is easy to predict.
A second, more important reason is cash strapped states are cutting student aid and hiking tuition. Already 32 states have announced such measures, leaving students to foot the bill. In Michigan, the state has frozen merit awards to nearly 97,000 students. In Illinois, 145,000 need-based students have been told that their aid will be cut in half. And to highlight this trend once more, Pennsylvania is slashing aid for over 170,000 of its students.
These cuts will be extremely painful when considering in prior years nearly two-thirds of students nationwide received some form of financial aid.
Meanwhile, with states’ belt-tightening they are jacking up tuition. Tuition hikes of course are sadly, nothing new –the average tuition at a public four-year university has already increased 29% between 2000 and 2007. But by next year, states warn they will raise tuition again, and quite dramatically. For example, Cal State, California’s largest post-secondary system, announced a 20 percent increase for 2010 and Florida’s public universities tell of a 15 percent increase.
These radical actions are sure to leave students and parents in a vulnerable position. The unpredictability of next semester's costs and dwindling aid packages lead to a scramble for money by individuals, and as we can see by the latest data, a turn to borrowing.
Moreover, with state budgets appearing increasingly gloomy for 2010, college affordability will only grow worse. Already, the Obama administration has shown a commitment to higher education, with a historic increase in Pell Grants. Now is the time though for further action to be taken. Obama must make clear that states can no longer privatize the education system by slashing aid and hiking tuition, resulting in more students taking on loans. The solution is for the administration to incentivize and reward ‘good state’ behavior (that avoids harmful cost cutting) by offering stop-gap measures to plug the hole in states’ budgets. But Obama must act quickly as state finances are disappearing by the day.
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