Beyond Tuition: Using Student Loans For Educational Expenses

 Beyond Tuition: Using Student Loans For Educational Expenses - Begrudgingly, I have had to sit through many financial advice talks with my grandfather since entering college, usually with the theme, "Back in the day, I paid my way through college by working," followed almost always by a conclusion like "you should too!" I, like most students today, know that this is no longer an option. Working part-time will not eliminate student loan debt in four years.

Average tuition during the 2019-20 academic year for the four-year institution was $29,436 — compared to $10,973 during the 1963-64 academic year (both adjusted to 2020-21 dollars). In recent years (again accounting for inflation) tuition has risen 10% in public and 19% at private four-year institutions. This trend of tuition increases has resulted in the average student loan debt after earning a bachelor's degree sitting at $32,880 for public institutions and $42,551 for private universities.

Beyond Tuition: Using Student Loans For Educational Expenses

It is important for today's students to understand the post-pandemic economic implications of college costs and to understand the demographics that will bear those costs.

Things You Can Use Student Loans For (besides Tuition)

Pre-pandemic tuition fees, from 2020 to now, there are major fluctuations in tuition fees. While the general trend over time has been steady increases, the pandemic has seen tuition rise more slowly than inflation. This is largely due to pressure from students to reduce tuition in response to online classes. In the midst of lawsuits against at least 26 different universities due to poor educational opportunities while online (although tuition is still at pre-pandemic levels), many universities are lowering tuition fees in 2020 and 2021 - with institutions such as University Princeton and Georgetown University both discounted tuition by 10%. Many other universities have responded with a less drastic "tuition is stuck", or stopped raising tuition.

This kind of tuition reduction is generally possible through government assistance like the 2020 CARES Act, a stimulus package aimed at reducing the economic hardships from COVID-19 that provides $14 billion for American post-secondary education. With the end of the COVID-19 emergency just two weeks ago, legislation such as the CARES Act will no longer be in effect — meaning no more stimulus will be provided, possibly ending the government's increased spending on higher education.

The downward pressure on tuition as well as a 0.6% drop in college enrollment led to lower results for colleges during the pandemic, with financial losses of up to $100 million for some universities. As the current pandemic season draws to a close, many universities are continuing the trend of tuition increases in order to make up for lost time and keep pace with rising inflation. Institutions such as the University of Southern California and Columbia University announced a 5% tuition increase for the 2023-2024 academic year, matching the 5% inflation rate this April. Some colleges, including Baylor University, are even exceeding inflation today with a 6% tuition increase.

While the financial burden of college tuition may have eased for many students during the pandemic, post-pandemic tuition increases will restore this strain. But not all students and families face these strains equally; middle-class families (defined as households making between $48,500-$145,500 per year) will be more affected by tuition increases compared to their classmates of higher and lower economic status.

Student Loans Weighing Down A Generation With Heavy Debt

When most middle-class families fill out the Free Application for Federal Student Aid form, they are often offered unnecessary financial aid. This is because many middle-class household incomes are too high for this financial aid, with valuable federal grants like Pell Grants only fully guaranteed for families making $27,000 or less. This threshold is low enough that the middle class does not qualify for this kind of assistance.

Federal student aid relies heavily on this calculation of family income to determine aid, assuming parents will contribute significantly to college. While this may be true for upper-class families who often contribute heavily to their children's tuition and can withstand tuition hikes, many middle-class families are unable to make this contribution, leaving many students without financial support when tuition rises.

Other policies closely related to the government will also affect tuition fees. Starting in March 2022, the Federal Reserve has been steadily raising interest rates in an effort to slow inflation.

Because of the inextricable link between loans and interest rates, student loan repayments become more expensive amid higher interest rates. Because 43.8 million Americans and more than half of college students have student loan debt, higher interest rates are a major concern for college students. The impact of rate hikes will not be the same for all students, however, as middle-class students disproportionately suffer from rate hikes because, on average, they take out more loans than other students. Furthermore, the type of loan taken out may increase the repayment costs for middle-class students.

Of Students Worry They Won't Have Money To Cover College Costs

When financing college, many students must consider taking out public (federal) or private (non-federal) loans. In addition to having fewer borrower protections and having a higher base interest rate than public loans, personal loans are more vulnerable to the effects of interest rate hikes by the Federal Reserve. Public loans are guaranteed to have a fixed rate (meaning that changes in the federal interest rate will not affect the agreed repayment rate), while personal loans often do not offer this guarantee, making them less agreeable when interest rates rise. rate.

Many middle-class students will find it more difficult to finance college when they discover that public loans are reissued on a need-based basis and only cover $5,500 to $12,500 per year. This often leaves unsecured personal loans as the only option for middle-class students attending college.

Mitigating the impact of changing economic conditions depends on how financial aid is handled at the university and federal level. Universities have begun expanding financial aid to better serve middle-class students, with programs like the "Go Blue Guarantee" — which offers free tuition to in-state students from families earning less than $65,000 a year — at the University of Michigan and many other colleges. which promises to meet "100% of financial need," meaning that students will not have to pay more in debt than their parents contribute.

The program helps bridge the gap between financial aid and middle-class families. But there is still a long way to go to make tuition affordable for middle-class students who are still above the income threshold to qualify or without parents contributing what is considered an expected contribution to determine financial need.

Student Loan Tips You Absolutely Can't Do Without

The federal government has also passed legislation to improve the FAFSA and the aid award process. The FAFSA Simplification Act, which took effect in 2020, overhauled the federal aid process by creating a more accurate measurement of need (though still assuming middle-class families will contribute to college) and simplifying the FAFSA form.

While this legislation is also a step in the right direction regarding general federal aid, it primarily serves low-income students and does not target the middle class. However, more immediate solutions such as raising the eligible income threshold for federal student aid and moving away from a system that relies on household contributions for tuition payments can further reduce this problem and help reduce the pressure of schooling and student loans on middle-class students.

In this time of uncertain economic fluctuations, we must better address the challenges middle-class students face regarding college costs to promote fair and accessible higher education for all, regardless of economic circumstances.

Molly Amrine is an Opinion Columnist from Columbus, Ohio who writes about the intersection between economics and social issues. He can be reached at mamrine@umich.eduMaking public college "free" is a popular Democratic campaign proposal, but free college may have had a smaller impact on student debt than expected.

Post Pandemic Tuition, Student Loans And The Middle Class

Nearly a quarter of students who earned bachelor's degrees from public colleges and universities in 2015-16 enrolled "for free" — tuition and fees are fully covered by grant aid — in their final year. (The use of public four-year college students who pay tuition and zero fees is highest for first-year students and lowest for students in their final year.) However, two-thirds of those students graduate with debt.

College funding is more than just tuition. Students must pay for books and supplies and cover living expenses while in school. It's hard to work full time and succeed in college, so students need more resources.

Whether he and his family have saved in advance, how much he can earn while still in school, how long it will take to complete the program, responsibilities to family members, and lifestyle choices all contribute to the need for debt to supplement his budget. (You can learn more on the Institute's tuition affordability website.)

Proponents may argue that if college is free, some students will rely on loans. But data on college graduates suggests otherwise. Even among students who do not pay tuition and fees,

Private Student Loans, Pick What You Pay

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