New Hope for Parents-A Way to Beat the High Cost of College
Shapiro, Walter
New Hope for ParentsA Way to Beat the Costs of College by Walter Shapiro There in the middle of The New York Times was the kind of old-fashioned human interest story that says something...
...If such a plan were adopted, a student who is willing to make the I) necessary long-term financial commitment should be able to afford any school to which he has been admitted...
...By next fall, room, board, and tuition at schools like Harvard and Yale will cost in the neighborhood of $5,400-and that doesn’t include such sundries as clothes, transportation to and from school, books, and the inevitable telephone’ calls home for money...
...The Ford Foundation pulled out as the funding agent (worried about how it would look if it directly subsidized students at elite universities) and Yale decided to go it alone...
...Trapped by Your Children As we have observed more than once in this magazine, contemporary America is filled with thousands of white-collar workers trapped in jobs that provide little fulfillment or satisfaction...
...Such an expansion of educational loan programs would force students to take responsibility for their own educations...
...students whose c families earned more than $15,000 received 27.6 per cent of the benefits of government support for higher education, although these students made up only 16.4 per cent of the college-age population...
...These staggering figures are the culmination of more than a decade in which tuition rates at private schools have risen at an annual rate of 6.9 per cent...
...Some conservative economists believe that this kind of loan program would enable educational institutions to begin moving closer toward “full-cost tuition” (that is, a system whereby colleges and universities could reduce the gap between tuition and the cost of really educating a student) without limiting college enrollment to just those from high-income families...
...The other would be to develop new scholarship or loan programs to offset the inevitable increase in the cost of obtaining a college education...
...Employers who have tried to recruit talented people for challenging assignments that involve some financial sacrifice recognize all too well the sincerely meant refusal that begins, “I really would like to do it, but with David at Oberlin and Sandy in high school...
...The conservative economist has labeled this emphasis on these amorphous public benefits as “special pleading pure and simple...
...Even reform of these programs will provide scant comfort for many middleincome families...
...Although the Camegie Commission has officially dubbed this era “The New Depression in Higher Education,” academic bureaucrats are reluctant to tamper with traditional patterns of funding higher education...
...The cost of attending many run-ofthemill private colleges now runs to more than $4,000 a year...
...At the end of his senior year a student who has borrowed money under this plan (to a current maximum of about 35 per cent of the cost of his education) can decide whether he wants to treat this as a standard loan or whether he wants to defer repayment...
...Since the percentage of annual income to be repaid would depend on the Size of the educational loan, borrowers would continue to be extremely cost conscious...
...Shortly after the program was sent to the legislature, John Gilligan, a man who understands political realities, threw in the towel...
...Not surprisingly, Jung described the initial reaction to the plan, which is to be taken up by the Wisconsin legislature next year, as “just disastrous .” State governments are obviously in a much better position than private universities to set up deferred loan programs...
...The Wisconsin report projects an average yearly student loan of more than $4,000 by 1980...
...Due to their unwillingness to tie up too much capital in what they call their “tuition postponement” plan, Yale limits a student to borrowing only $1,400 a year (it will rise to $1,900 with a new tuition increase in the fall...
...The income-contingent pay-back provisions of such a plan could be easily added to the federal income tax forms...
...I suspect that if most of us encountered a Harvard graduate driving a taxi, we’d assume he was doing it out of choice, not because he couldn’t get a better job...
...Although there is another federally guaranteed loan program for families who do not qualify for the interest subsidy, the massive paperwork it requires makes it extremely unpopular with the private lenders who provide most of the funds for government loan programs...
...If it is difficult for a society to determine what is a fair rate of taxation, it is infinitely harder for an educational institution to calculate what proportion of a family’s resources should be devoted to higher education...
...Since the ill-fated Zacharias proposal, there has been no income-contigent deferred loan proposal considered by Congress, nor analyzed by the federal bureaucracy...
...Although this solution is not very realistic in an era of tight state budgets, it appeals to many liberals who argue that a college education benefits society as a whole, as well as the individual student...
...Alumni of New York area schools such as Fordham and Brooklyn College are channeled into the program designed to produce branch managers-a job analogous to running an A&P-in remote sections of Queens...
...If borrowers were freed from all but token repayment obligations if they fail to make a certain base amount (say, $8,400 a year), these loans would not force people to alter their career aspirations (or nonaspirations) to meet the responsibilities of educational debt...
...Despite the continued commitment of admissions offices to social pluralism, economic realities have begun to swing the pendulum in the other direction...
...With so many students crossing state lines to attend college, it seems a bit impractical to make deferred tuition a state responsibility...
...Although half the student body at some schools may receive some form of financial aid, it is easy to overstate its impact...
...Such a program would allow state and federal governments to reduce their subsidy of higher education, which disproportionately benefits the upper middle class...
...The first years away from college should be for many a time of vocational experimentation...
...For a public institution to roll back tuition (or to even hold the line while costs were rising) would require an increase in this governmental subsidy...
...These analyses (typical is Higher Education: Who Pays...
...If he chooses to defer repayment, the student is obligated to pay Yale four-tenths of one per cent of his yearly taxable income for each $1,000 borrowed...
...If Yale, one of the richest schools in the country, can only afford to allow students to defer $1,400 a year, then it is obvious that this plan is impossible at less affluent institutions without significant government aid...
...Such a plan would spread repayment of room, board, and tuition costs over most of a student’s earning life-especially the later working years when one can most easily afford repayment...
...Ideally, these deferred loans would carry the principle of scholarships one step further and make a student’s repayment schedule contingent on future earnings...
...A study just released by the admissions office at the University of Michigan revealed that the average undergraduate comes from a family with a yearly income between $20,000 and $24,000...
...The burden of educational debt, however, may convince many recent college graduates that they cannot afford idealism...
...The situation is a little better if you live in a state like California, Michigan, Wisconsin, or New York, where you can send a child to a leading state institution for something closer to $3,000 and not sacrifice much academic prestige...
...37,00Ga-year salary just wasn’t enough...
...Government education officials and influential legislators remain wedded to the liberal tradition of low-tuition higher education-conveniently ignoring that this means that the poor and the lower middle-class are left with a large portion of the tab...
...This was just about heresy in a state like New York (disproportionately rich in legal talent and those who believe they have it), where judgeships are often the result of 15 years of assiduous political maneuvering...
...These incomecontingent loans could also be modified to meet the needs of graduate and professional students...
...This obligation lasts until his “tuition group” (participants in the plan who left college the same year he did) has either repaid its collective loan (which Yale expects to take about 27 years) or until 35 years have elapsed...
...As long as financial considerations continue to play a major role-in dictating college choice, many public institutions (and private schools that can still afford to make beguiling scholarship offers) do not have to worry about attracting students...
...Moreover, scholarship money cannot be made widely available to middle-class students (for the same reason that rules out tuition cuts) without significantly increasing public subsidy of higher education...
...Yet somehow deferred tuition failed to catch on...
...Intergenerational tensions are exacerbated when disinterest leads to poor grades and parental laments of “I’m paying $5,000 a year to send you to that school and you bring home a C...
...Most loan programs, however, have drawbacks that extend far beyond the difficulties of finding a lender willing to commit funds for educational borrowing...
...What is so galling about the financial problems of upper-income families with college-age children is that they are not really recognized by the legion of non-profit “think tanks” who unendingly study the funding of higher education...
...In a joint statement, the National Association of State Universities and LandGrant Colleges, the Association of State Colleges and Universities, and the American Association of Junior Colleges denounced the proposal and charged that its intent was to let society “abandon responsibility for the higher education of its young people...
...Just lengthening the term of student loans would lessen the burden that borrowing places on recent college graduates...
...In the ensuing three years, deferred tuition has not been seriously revived in Ohio...
...The Yale plan is obviously somewhat limited...
...Last November, Pierre G. Lundberg, a state judge from Long Island, announced his retirement from the bench at the ripe old age of 47...
...Onethird of Michigan’s class of 1977 come from four upper-income Detroit suburbs which contain less than two per cent of the state’s population...
...When the government began picking up the tab for programs like Medicare and Medicaid, health costs soared because of a phenomenon known as “third-partying”once doctors knew that individuals would no longer be absorbing the costs, many abandoned their scruples about padding the bill...
...Who Benefits...
...Low Earnings, Large Debt Loans with repayment to be made out of future earnings represent the only realistic way for students to take financial responsibility for their own educations...
...But take a look at the dilemma facing a typical family that has only two children in college (one attending a private school, the other enrolled at the state university...
...However, as a graduate of the University of Michigan, I personally would be hardpressed to explain to an auto woiker how he has benefitted from my attending college thanks in large part to his tax payments...
...In this case, blue-collar workers lose out as their tax money is being used to fund a highly stratified system of higher education...
...The Carnegie Commission’s quaint notion that only the poor have trouble affording higher education may stem in part from the way they understate college expenses by dealing only with aggregate figures and average costs...
...Rather, they will enable students to consider all price levels in a quest for the best educational value...
...Many students regard parental subsidy as a God-given right and are not enthusiastic about a system that makes them responsible for their own education...
...It has often been observed that the efforts of many colleges and universities to increase minority group enrollment tightened the availability of scholarship money for other students...
...Gilligan shouldn’t have been surprised by the ferocity of the opposition to deferred tuition...
...The 1967 White House task force estimated that a National Educational Opportunity Bank could be self-sustaining if students paid one per cent of their income over a 30 year period for every $3,000 borrowed...
...Although we are often reluctant to admit it, where you attend college may be almost as important as whether...
...This whole question of who pays for college seems to illustrate the basic conflict in liberal philosophy between a genuine concern for lower-income groups and the belief that most societal institutions should be publicly supported...
...But these same students would still have the opportunity to attend college at any point later in their lives...
...Anyone can “buy out” of the plan at any time by paying Yale 150 per cent of the outstanding loan and interest...
...This may be less of an indictment of the merits of the idea than an illustration of the political power of educational traditionalism...
...Such a firm financial foundation would enable students to borrow enough to cover most of their college expenses...
...The temptation to ignore classes would be somewhat reduced if students knew that they were wasting their own money rather than that of their parents...
...Deferred loans will not remove price competition from higher education...
...1) the upper middle class...
...The proposal was in response to “the new 18-year-old ageofmajority which...
...Only par en t s with c ollege-age children-far from an unimportant electoral bloc-have the potential to fully appreciate the benefits of a national system of deferred college costs...
...A $1,400 deferred loan does not alleviate the serious problem that many middle-income families have in sending their children to highcost institutions like Yale...
...Colleges and universities are almost as free from the rigors of the marketplace as public elementary and secondary schools...
...Families with an adjusted income of between $11,000 and $15,000 a year are finding it difficult to demonstrate sufficient “need” to qualify for any federallysubsidized loan (repayment is deferred until the student leaves school and the government absorbs all interest above seven per cent...
...Needless to say, any movement toward full-cost tuition is anathema to orthodox liberals who are wedded to the concept that society is a major beneficiary of college education...
...Jung argues that this shift may invalidate the use of family income as a gauge in determining eligibility for student aid, since parents are not legally obligated to support adult offspring...
...On the other hand, a national system of income-contingent deferred loans would force colleges to compete for students and thus keep expenses down...
...It is impossible for most private colleges (many of whom have dipped into their endowment to meet recent deficits) to even consider rolling back tuition unless they could make up the lost funds with more government aid...
...The maximum a student can borrow while an undergraduate is $7,500-just a fraction of the total cost at private and many public institutions...
...Even so, they should have suspected that something might be amiss when they discovered that the median cost of attending a private university in 1972 was a hefty $3,354...
...A new study, Paying for College, by the Alfred P. Sloan Foundation, examines scholarship funds available at nine private colleges (including Harvard, Princeton, MIT and Mount Holyoke) and concludes that even these well-endowed institutions will find it impossible to boost financial aid to meet any future tuition increases...
...The logic behind the establishment of programs like the Peace Corps was that these post-college years represent the only period in the lives of many when the demands of self-sacrifice do not seriously conflict with the responsibilities of home and family...
...Almost all of these problems could be circumvented through a program of income-contingent, deferred college loans, first suggested by Milton Friedman in 1955...
...Although the admissions offices at selective Eastern schools used to give strong preference to prep school graduates and the offspring of blueblooded alumrli, by the mid-l960s, even schools like Princeton were making strenuous efforts to admit a significantly broader cross-section of students...
...Both the Ohio and Wisconsin plans suggested borrowing from state pension funds until the loan program became self-sustaining...
...College presidents and teachers saw it as endangering their privileged position...
...With tuition levels and room and board costs considerably lower than they are today and scholarships often available, it became possible for a number of schools to boast, “We make sure that no student we admit is unable to attend because of financial difficulties...
...That was the end of the Zacharias plan...
...It is easy to mock the eagerness with which these people seize upon the perquisites of their positionbe they glorified titles, Danish modern office furniture, or salaries over $25,000...
...Almost always the answer is simply bad economics...
...Many other states follow some variant of the California model, with a three-tier system of state university campuses, state colleges and community colleges...
...There is, however, an escape clause for a Yale graduate who finds himself in a high-income bracket and grows weary of tithing a fraction of his income to his a h a mater...
...Since residential institutions are significantly more expensive than commuter schools, it is not surprising that in 1971 about 60 per cent of the students in the University of California system came from families making more than $12,000 a year, while 60 per cent of the community college students came from families earning less...
...Some efforts at saving for college are often made rather early in the game...
...This assumption is widely shared by college scholarship offices, middle-class parents, and educational economists (who call these payments “inter-generational transfers”), but the implications of these parental responsibilities are rarely discussed...
...Although Lundberg’s statementmay have disgusted many trying to get by on one third as much, earning more than 97 per cent of all working Americans is scant comfort when you have five children who will soon be entering college...
...Public institutions that have taken their enrollment for granted would suddenly have to work to attract qualified students...
...Rather than providing any succor for the middle-incomebut frequently hard-pressed-parent, the Carnegie report recommends “charging higher tuition to those who can afford to pay it” and using this money to “provide more aid to students from low income families...
...With aid programs increasingly targeted at the disadvantaged student, the offspring of many middle-income families may no longer be able to attend the more selective private universities, limiting the pool of potential students to the poor and the very comfortable...
...Obviously, scholarships and loans alleviate some of the unfortunate side-effects of high college costs...
...It it also worrying about how they can afford the things that really matter in life-things like paying for the college educations of their children...
...Students might be able to afford expensive private institutions like Harvard, but the onus would be on the school to prove that it is worth the additional money...
...The Yale experiment demonstrates the limits of trying to establish an effective and comprehensive deferred tuition program without the financial backing of a government agency...
...Public higher education fosters its own elitism as well...
...Institutional torpor is often the result of the easy existence that comes from the assurance of full classrooms and continued public subsidy...
...And there is little way most families can get off the hook...
...Under such a plan, educational debt would not be a significant burden to students at any point in their lives...
...As a result, many career decisions are undoubtedly premised on the need to produce that additional $11,000 a year by age 40 to send two children to college...
...But state deferred loan programs are something like state-wide gasoline rationing-they are no substitute for a national system...
...Like the voucher system, deferred college costs might introduce some element of competition into the educational system...
...This 80 percent “tuition gap” is usually made up by appropriations from the state government...
...As a rule of thumb, tuition providesa little less than 20 per cent of the cost of educating a student in a public institution...
...Their moderate cost and the inability of many students to afford to go elsewhere provide an almost captive enrollment...
...Moreover, the size of scholarship funds has not kept pace with the steady increase in college tuition...
...Lundberg’s decision was somewhat akin to George Meany leaving the AFL-CIO to return to repairing leaky pipes...
...Although such a program can-and should-be justified on other grounds, there is no reason to minimize its potential as a limited form of income redistribution by following Yale’s model and allowing high-income individuals to “buy out” of the repayment program...
...Children are never asked whether they want parents who scrimp and save to put aside money for their college educations...
...College graduates might be required to repay two or three per cent of their annual earnings (depending on the amount borrowed) over a 25-to-35 year period...
...In explaining his decision to leave the bench, the Suffolk County judge was refreshingly candid-the Walter Shapiro is an editor of The Washington Monthly...
...Educational Bargain-Hunting Competition may also work to prevent a too-rapid escalation of educational costs...
...Yet an examination of the student loan program indicates that it provides only a limited amount of relief for middle-income parents...
...Suddenly they must come up with about $1 1,000 in additional income (enough to produce $8,000 after taxes) to absorb these yearly college costs...
...The Courage to Say ‘No’ The benefits of such a national loan program are not just financial...
...Yet many of these people are genuinely afraid of what might happen to their families if they ever stepped out of their secure little niches...
...For many breadwinners, the fears begin long before the first child is ready for college...
...A father who settled for a much smaller income in order to spend more time with his family probably feels rather guilty about not providing for the educational future of his children...
...In contrast, Milton Friedman has said, “I have tried time and again to get those who make this argument to be specific about alleged social benefits...
...The response was immediate...
...New Hope for ParentsA Way to Beat the Costs of College by Walter Shapiro There in the middle of The New York Times was the kind of old-fashioned human interest story that says something important about the way we live...
...Most students and parents denounced it as a way of masking tuition increases...
...Instead, the report suggests that these limited scholarship funds be supplemented by an increased reliance on federally supported student loans...
...It is difficult to quantify the impact these educational costs may have on the attitudes that many Americans bring to their work...
...New legislation expected to pass Congress this year will do little to help students from families with an adjusted income of more than $1 5,000...
...Yale may modify its plan somewhat this year to enable students to qualify for the interest subsidy in conventional federally supported loan programs...
...A significant increase in traditional government aid to higher education would merely stimulate college administrators to inflate their costs, since they know they would be repaid from the federal or state treasury...
...Such competition might actually produce some of that educational diversity that has been always been alleged to be one of the strengths of American higher education...
...Students who worry about this debt may be channeled into purely vocational programs, recognizing that academic experimentation is an expensive luxury for which they will be paying all too soon...
...Since the era of the immigrant push-cart peddler working 14-hour days to put a son through medical school, parents have been expected to sacrifice to provide the best possible education for their children...
...issued last year by the Carnegie Commission on Higher Education) have two major concerns-the financial problems of the institutions themselves and the plight of the disadvantaged student...
...This means that the wealthier students are the prime beneficiaries of public higher education, since it has been estimated that the state subsidy per student was roughly 250 per cent greater at the University of California than at the community colleges...
...M?incston As Popular as an Edsel -~ What happened to Gilligcs deferred tuitioh plan is an illustration of what happens when an innovative idea threatens the educational status quo...
...A new deferred college loan plan was recently offered by James Jung, head of the Wisconsin Higher Education Aids Board...
...The problem is more than just finding a personally rewarding job that would put food on the table and gas in the car...
...In 1967, a White House task force, under the direction of MIT physics professor Jerrold R. Zacharias, proposed establishing a deferred income-contingent loan program in the form of an Educational Opportunity Bank which would allow students to “sell participation shares in their future earnings...
...Meanwhile, newly elected Ohio Governor John Gilligan was proposing to the legislature that the state adopt deferred tuition as a way of paying for higher education...
...Scholarships, however, are inevitably arbitrary...
...essentially changes the nation’s post-secondary education systems from child-oriented systems to adult-oriented systems...
...This means that recent college graduates are confronted with the burden of making fixedloan payments during their twenties when their earnings are apt to be the lowest of their careers...
...If an 18-year-old’s own financial resources become the only relevant factor in allocating educational assistance, almost all students, except for those with trust funds, would demonstrate financial “need...
...Lundberg-in perfect health, praised by his colleagues, and untouched by even a hint of scandal-explained that he was returning to the private practice of law...
...But 15 years ago, even the most doting of parents was unlikely to have anticipated that four years at an Ivy League school would today cost more than $20,000...
...The foreword to the Carnegie report began with the assertion, “Benefits from higher education flow to all, or nearly all, persons in the United States directly or indirectly...
...Special Pleading Pure and Simple Since the expenses of attending public and private colleges will continue to rise, there are only two ways that these costs can be absorbed without accelerating the current trend of sorting students out based on their ability to pay...
...In any economy where there seem to be considerably more talented college graduates than challenging jobs available (especially in such “glamour” fields as publishing and television), it is difficult to deny that an elite degree gives a job applicant a certain edge...
...So, when it is time to write your daughter a check for another semester at Bryn Mawr, just remember, it doesn’t have to be this way...
...But financial problems are far from limited to students who opt for a university with an historic name...
...An Idea Whose Time Came-and Went For a while in 1971 deferring college costs looked like an idea whose time had finally come...
...Yale and 21 other leading educational institutions were discussing the prospects of jointly adopting a modified deferred tuition arrangement (under the aegis of the Ford Foundation) to cover, at least, the most recent tuition increases...
...This financial obligation might also give many 18-year-olds the courage to say honestly, “I’m not ready for college yet...
...According to Carnegie Commission figures, an increase in the public subsidy for college education would disproportionately benefit students from high-income families...
...Loans for non-repossessable items like a college degree are inherently short-term,’ (Under current regulations, governmentbacked loans must be repaid within 10 years of leaving school...
...Who Should Pay...
...Since conventional student loan programs with fixed repayment schedules are a regressive form of taxation for lowincome individuals (they must pay back a much higher percentage of their income than the more affluent), the Wisconsin report recommends that the state begin to move toward some form of long-term deferred loan arrangement under which at least the interest rates would be keyed to future earnings...
...In 1971...
...Too many 18-year-olds go off to college out of a feeling of social obligation to their parents rather than any real desire to immediately pursue their education...
...Students like these tend to regard college as a nuisance that must be endured in exchange for continued parental support...
...Banks like the Chase Manhattan have two types of training programs for college graduates...
...The situation is somewhat different at private colleges and universities, which derive about three-fifths of their income from student tuition (the remainder comes from gifts, endowment, and government support, both state and federal...
...But one can see why a parent would avoid taking any serious risks knowing that Johnny will be starting college in the fall...
...Even labor unions (who theoretically should have seen its potential for relieving the tax burden of the lower middle class) attacked the proposal as antithetical to the liberal tradition of low-cost or free college education...
...Since private colleges tend to cater to the offspring of affluent families, increased government backing would represent an income transfer from the general taxpayer (whose children, in all likelihood do not attend college or enroll at low-cost community colleges) to The alternative, of course, is to expand the scholarship and loan programs...
...Since the total amount of repayment made by a healthy 20-year-old would be potentially much greater than a 55-yearold’s, equity would require some adjustment in the formula to take age into consideration...
...The other program-where three-piece suits and an Ivy League pedigree are the sine qua non-is, of course, the training ground for future bank vice presidents...
...For college costs, more than any other expense in contemporary life, are what deprive even many high-salaried professionals of ‘any feelings of real financial comfort...
...From Meritocracy to Aristocracy Underlying the Sloan Foundation report is a sobering message-a generation of democratization at our leading colleges and universities may be at an end...
...One approach would be to decrease the percentage of an institution’s budget that comes from student tuition...
Vol. 6 • April 1974 • No. 2
