A Dream Deferred...at What Price?

(NOTE: Although this blog is lengthy, it is worth reading in its entirety!)

If you’re like most people out there, you’ve got to be tired of hearing about how bad the economy is. The rising cost of gas and home heating oil as well as increases in food, air fare and goods is through the roof. There are few places one can go without seeing evidence of increasing costs. The other day I walked into a pizza parlor that had a sign apologizing up front for the increased cost of pizza due to increases in the price of flour. That 2.00 dollar slice now cost 3.00 dollars. The next thing you know, a White Castle slider would cost as much as a Big Mac. (And I remember when they were 12 cents.)

Aside from the rising cost of fast food, which I am reminded is not good for me anyway, for many of you the most obvious increase has been in college tuition. It’s bad enough that the cost of a college education has gone up, but when students are unable to obtain loans to make up the difference, there is a big problem. While many students over the years have accepted the fact that college is expensive and will require more family contributions and the added indebtedness caused by federal and private loans, being turned down for a loan greatly reduces one’s options for affording college. Now when you consider the fact that private loans have become the middle class solution for financing a private college education, any change in the availability of loans has the potential to affect millions of college bound students this Fall. Each day I talk with undergrads, adults returning to school, parents and med students who report no longer qualifying for loans although they were able to obtain them in previous years. Many students enrolled in college programs expecting to finance their education by taking loans. Many now find themselves without adequate funding to enroll in school this year. What happens to their dreams? They are further faced with a predicament: dropping out of school means immediate repayment of loans after the 6 month grace period. Taking loans intending to repay them after earning a degree is much easier than having to do so without a degree.

So what happened? How did we get to this place? Private loans have always been a higher risk for lenders. Offering loans to college students with little to no credit history based on the assumption that completion of a college degree will enable them to pay off that debt, while not flawed in thinking, is no guarantee. Unlike the Stafford and Direct loan programs guaranteed by the federal government, private loans enjoy no such guarantee. These loans are financed by banks or private loan originators in ways similar to mortgage financing. As the credit markets collapsed this Spring in response to increasing foreclosures in the sub prime market, other credit markets were inadvertently affected, driving interest rates through the roof, scaring off investors on Wall Street and bankrupting lenders who lost sources for funding loans. In addition, consolidation loans were no longer profitable to lenders and, as a result, became unavailable this Spring. Decreased profits on federally guaranteed loans as well as no liquidity in the market further reduced the number of lenders that offered loans and significantly reduced if not eliminated the borrower benefits offered to students. As a result, many banks, credit unions, private and non profit lenders have either left the business or seriously curtailed their loan offerings The lenders who remained in the space have had to become more selective by raising credit criteria to reduce risk and maximize profit. Many lenders have chosen to focus their marketing on private and large state universities rather than community colleges, proprietary schools as well as those schools with high cohort default rates. (The rate of default on college loans amongst graduate or attendees of a particular school) And if you happen to be a student attending one of those schools, a good credit rating may not help if your school is not on the approved list.

Now try explaining this to a third year med student or first year college freshman. It is a tough job! I have spent over 30 years encouraging high school students, rich, middle class and poor to pursue their dreams, to plan on attending college and now I fear that the poor kids and many of the middle class kids will think that a college education is beyond their reach. It seems like we’re undoing all of the progress gained in the last 50 years.

At one time, it was the richest and smartest individuals who could plan on attending school. It wasn’t until the late forties and fifties that a new generation of people were able to attend school on the GI Bill. The sixties added to these numbers with a growth in state funded college programs making college affordable to middle class and working students. In NYC, a student could attend CUNY for free. Whether you saw college as a means of avoiding the draft or bettering your chances in life, college was a bargain that all but the very poor were taking advantage of. As federal grants like the BEOG (what we now call PELL) and DSL loans came on the scene, the dream of a college education was one that could be shared by large numbers of students like myself entering college as first generations in the 70’s.

Now fast forward to the present. The average cost of public college can be as much as 25,000 dollars for tuition, room and board. At a private school, the cost of tuition room and board can be in excess of 40,000 dollars. While the PELL grant and Federal loan programs are still available, the average grant award and maximum loan amount is not sufficient to cover the cost of a college education. This is where private loans have played the role in bridging the gap in funding. Unless alternative resources are found to fund loans, students who rely on these loans will have few alternatives. These alternatives may not be possible: Reduce college tuition, (Highly unlikely given the growth of tuition in both public and private colleges); Find alternative ways of paying for school; or Change expectations about college and how one will obtain a degree.

In response to high costs, many students may consider enrolling in community colleges or seek admission to technical, vocational and on line programs that offer certificate and associate degree programs which can be completed in a shorter period of time. While this may be a good alternative, there are pros and cons to do this. Community colleges are inexpensive alternatives for career training and associate degrees. Unfortunately, many of these schools still struggle for recognition of their programs, acceptance of their degrees and courses for transfer credit for their graduates. In addition, these schools will need more funding to accommodate the growing number of applicants. This may inadvertently affect those students who may find themselves locked out of school because the school is taking the more academically prepared students, leaving less room for less competitive students.

At the same time, many of the “For Profit” schools that offer specific career prep programs charge tuition that is significantly higher than community colleges. These schools rely heavily on federal and private loans to finance their high cost. These schools have fought for recognition and accreditation by the state and DOE in order to qualify for federal education programs. Many of these schools have not been approved to participate in the federal or private loan programs because of a lack of accreditation or higher cohort default rates. Interestingly, the groups most vocal in voicing concern about the loan unavailability are community colleges and proprietary schools who are the most affected by the situation.

It is hard to convince a poor student that college is affordable when they can’t get a loan to meet the costs. Why bother? The problem is that not having a college degree in 2008 makes upward mobility far less likely than in 1960. The job landscape looked very different back then. Unions were strong, a person could feel secure in having some measure of job security and home ownership was possible for both middle and working class families. This is no longer the case. Today we are faced with an economy that has seen lay offs in all sectors of business, retail, finance, manufacturing, automobiles and service. Plant closings have devastated many towns and cities across the nation, outsourcing the remaining jobs to workers in China, India and the Philippines. The jobs left for unskilled workers may offer sub standard wages, little to no benefits, and provide few opportunity for advancement and upward mobility. In other words, if you’re lucky enough to land that job rounding up carts at Wal-Mart, that may be the best you can do without having the benefit of additional skills and training. And for the immigrant who comes to the US without the benefit of education, knowledge of the language or the legal status, the future is even gloomier. Of course there are those politicians who argue that reducing incentives to come to the US is a good thing, but the fact is that many of the people who come here come from situations so bad that leaving their home is incentive enough.

I hate to be all doom and gloom, but I also don‘t believe in fairy tales and to say that this problem will be fixed overnight is a lie. While fixing the economy is something we all have little control over, there are ways you can deal with the current situation.

First of all, “Don’t Give Up on your Dreams!” Most of us can point to having ancestors that had to overcome tremendous odds to succeed in life. Compared to the challenges they faced, finding a way to pay for college is easy. It means being creative, working harder and maybe having to sacrifice, but then we tend to appreciate those things we work harder to obtain. The fact is that eventually, the economy will correct itself and you want to be prepared to take advantage of the opportunities that will come your way. Having a college degree will be very important.

Second, there are many schools out there that you can afford if you do your homework. Attending a public college in the state where you reside, commuting to school or attending part time can all significantly lower tuition costs. Applying for financial aid early, exhausting all forms of grants and loans and applying for as many scholarships as possible goes a long way in reducing costs to you. If you are an adult returning to school, make sure that you take advantage of employee reimbursement programs to help pay for school.

If you are in high school and have a chance to take AP courses, you can earn college credits that will ultimately save you money and time in school. If you are an adult starting college, you may be able to earn college credit by taking the CLEP exam in your state.

Parents should start saving early for college and take advantage of tax savings and incentives by participating in 529 plans for college. Enlist the support of grandparents, aunts, uncles and god parents to help put money away for college. Start looking for scholarships and assistance early so that you can offer your child as much support as possible. Consult with financial advisors, personal accountants, and financial aid specialists to develop strategies for paying for college.

Be smart when researching college. Do advance planning for careers and college majors. Many students change their major several times. Unfortunately, changing majors may require additional course requirements, so plan carefully.

Focus on developing strong basic skills in math, reading and writing while in high school. Not only will this contribute to better grades, but you will be better prepared to handle college courses. You don’t want to spend 5 years in college because you have to take remedial courses in your freshman year. Those courses are billed at the college rate but often don’t count towards the amount of credits you need for a degree. Take challenging courses in high school so that you will be ready for college level work from the first day of freshman year.

Research loan forgiveness programs that help you pay down college loans by working in a particular field. Take advantage of internships and cooperative educational programs that provide opportunity to gain valuable on the job experience along with college credit and a salary or stipend. Look at all of the on campus opportunities to save on tuition, room and board. If you go out of state, stay with a relative to save on room and board or look into cheaper off campus housing. Take a job as a resident advisor or campus security to save on costs.

Consider community college for the first 2 years. Rather than taking on the cost of a four year college, limit costs by completing the first 2 years at the local community college and then transfer to the school of your choice. Another option is to go to school part time and work full or part time to pay for school. It takes longer but taking courses over the summer can accelerate the process. Although it is tougher to go to school and work, if you are motivated and disciplined enough, part time college can be a good choice. Often, adults returning to school use this option because they have bills to pay and families to support.

In the final analysis, the road to obtaining your dreams, although longer and rockier, may hold just as much promise and reward for you. And nothing can replace the confidence you feel in taking charge of your life and going after your dreams. You may not have much control over the cost of a gallon of gas or a slice of pizza, but you do have control over your future…so go after it and let the politicians and banks figure out the rest.