In last Wednesday’s post, we discussed the recent introduction in the House of Representatives of the Student Loan Forgiveness Act of 2012 by Hansen Clarke (D-MI); a bill that, if enacted, would provide student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers. To provide some background on where this bill came from and why student loan forgiveness should be considered despite the current fiscal environment, we wanted to use today’s post to look at the historical data showing the growing cost of an undergraduate education in the United States.
According to the U.S. Department of Education’s Digest of Education Statistics, the annual cost in 2008-2009 (including tuition, room and board) was $12,804 at public institutions and $32,184 at private institutions. In comparison, in 1980-81, a full-time undergraduate student paid on average (and adjusted to current dollars) $2,372 at public institutions and $5,470 at private institutions. And as the following chart makes clear, the cost of an undergraduate education has increased in every year in between, with no sign of letting up:
This significant rise in the costs of education wouldn’t be such a big problem if median incomes were also rising. But as we showed in a previous post, income levels have been remarkably stable since 1967, with the exception of the richest quintile of the population (see the charts below). For many college grads (e.g., the majority who do not end up in this richest quintile), this means that they exit college facing significant student loan debt and, for those lucky enough to find a job (let alone one in their field or requiring an advanced degree), a low median starting salary that makes it challenging to pay this debt back. (According to a 2011 study by the John J. Heldrich Center for Workforce Development at Rutgers University, median starting salaries for students graduating from four year universities fell from $30,000 in the period 2006-2008 to $27,000 in 2009-2010).
In short, it is this interplay between growing annual costs for college education and stagnant income growth that has led to the numerous proposals in Congress for some form of student loan forgiveness. And for the growing number of recent grads who are behind in debt and unable to do much about it as a result of on low starting salaries, it is certainly an idea that should be given serious consideration.