Attending a college or university represents a significant investment for families. Tuition fees have continued to rise which has made it increasingly difficult for families to accurately budget and save. This problem is exacerbated for low and middle-income families where tuition fees as a percentage of median family income has increased significantly.
The Rise of College and Tuition Fees
The rise of college and tuition fees continues to outpace the median family income and other key individual economic indicators.
Just 12 years ago, the cost of a four year public college education was about 18% of the annual income of a middle-class family. Ten years later, it accounts for 25% of that same family’s annual income.
- During the last 25 years, the cost of higher education has grown 440%.
- Nearly four times the rate of inflation and double the rate of medical care cost increases.
- The cost increase at both public and private colleges.
Net College Costs as a Percentage of Median Family Income
Seemingly Unstoppable Growth
Average cost of a year’s tuition, room and baord, and fees at a private college.
Average cost of a year’s tuition, room and board, and fees at a public college.
The College Board forecasts that in 15 years, the cost of a four-year college education at a private college will top $400,000 (at the current rate of cost increases).
The Student Loan Landscape
In the United States, there are two types of studnet loans for undergraduate students.
Federal Loans Sponsored by the Government
Interest Rate Capped at a Fixed Rate
- Stafford Loans
- Perkins Loans
- Plus Loans
- From banks or other private lenders that carry no government guarantee.
- The U.S. Department of Education (for federal loans) or the private lenders (for private loans) sends the loan funds to the student’s school.
- The school uses the loan money first to pay the student’s tuition, fees, and room and board. If any funds remain, the parent receives the amount as a check that must be used for education expenses.
10% of people who graduated in 2007-08 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree receipients who borrowed while attending private, nonprofit colleges was $22,380.
Interest rates are basically free from limits and almost always higher than those on federal loans. Interest rates can change over time.
- More than two-third of all college graduates have studnet loan obligations.
- The number of graduates in debt increased by 27% over just the past five years.
- Student loan debt reached $830 billion in June of 2010, surpassing credit card debt in America.
- Over the last 14 years, the default rate for graduating seniors has grown each year.