The Student Debt Problem and College Costs in New Hampshire

Why does college cost so @#$% much and is there anything we can do about it?

College is supposed to do more than just set the stage for a career. The mission of higher education is to reveal the whole world to students in new ways, to forge intimate relationships between the mind and ideas, to make us into better people. How can you put a price tag on that?  Well, you can’t, but the colleges can and do. It’s a big one that just keeps growing.

What would you do with $100,000? Buy a nice car? Put it toward a house? Go on lavish vacations? Or what about exchanging it for a fancy piece of parchment paper that may or may not open doors to even more money in the future?           

Joan Hair is willing to take that risk. She knows what it takes to work for what she wants because her future depends on it. Growing up the only daughter of her single mother, Hair learned early on that, if she wanted something, she had to pay for it herself, which included a college education at the school of her choice: University of New Hampshire. Despite the help of a $10,000 grant from the university, the Somersworth resident relies on roughly $11,000 worth of loans to help cover the annual cost of her tuition, not including any housing costs. “Basically what I do is go to school semester to semester,” says Hair. The rest is covered by the paychecks from her $10-per-hour food service job and contributions from her grandfather. “If it weren’t for him, I probably wouldn’t be able to attend school.”    

Despite the financial strain, Hair is dedicated to giving herself a fair shot at success in the future. The 21-year-old works overtime to avoid falling any further in debt. “This past semester was the second semester since I’ve been at UNH that I haven’t had two jobs,” the incoming senior says. “It’s so hard to sit by and watch people who only have to worry about school, going to school and getting good grades. But that’s not my reality.”    

Bad Things Can Happen
Among the penalties for defaulting on federal student loans:

• Entire balance of loans and interest is immediately due and payable
• Account assigned to a collection agency
• Credit report damage (a minimum of seven years)
• Wage garnishment
• Seizure of federal and state tax refunds
• Legal action in federal district court
• May have difficulty obtaining car loans, mortgage loans and renting an apartment
• May be turned down for jobs

Despite that, according to the US Department of Education, 6.8 million borrowers have now defaulted. To be in default with federal loans means the payer is at least 270 days behind on payments. Delinquency rates are increasing as well.

However, in less than a year, Hair’s reality will soon revolve around repaying her student loan debt. “I’m pretty much embracing leaving school with at least $80,000 in loans,” she says.                 

But with a staggering 60 percent of the 20 million college attendees every year borrowing money (90 percent of it federal loans) to help fork over tuition payments, Hair falls among the majority of today's degree-seekers.

And it doesn’t just affect college students. Around $1 trillion of student loan debt is part of the American economy today. In 2012, the Federal Reserve Bank of New York confirmed that the figure had surpassed the amount of both credit card debt (about $700 billion) and auto loan debt (about $730 billion), two former leaders.

If the situation wasn't difficult enough, in July the rates for federal student loans doubled, from 3.4 percent to 6.8 percent because lawmakers in Congress couldn't agree on a way to extend the 3.4 percent rate for another year. After a number of proposals from both sides of the aisle were defeated, Congress finally passed a bill that provides a fixed rate plus the yield on a 10-year Treasury note. That would keep rates about where they were — at 3.86 percent — for undergraduates borrowing this year. The rates would be fixed for the life of the loan, but would change for new borrowers each year. Though the loans are subject to inflation, Congress provided a cap of 8.25 percent. The numbers are different, higher, for grad students.

If Congress hadn't agreed on a plan, students would have had to pay an addition $1,000 in interest over the life of their loans for every year the rate wasn't reduced.

Borrowers are feeling they don't have any money left to give. College students, prospective students, grads and parents are fed up with passively shelling out $20,000 to $30,000 per year for in-state tuition and up to $50,000 or $60,000 for private schools. A college education is something society demands people earn, yet its cost seems unattainable for most. New Hampshire residents and college students nationwide are desperate to know: why does college cost so much?        

Tara Payne, vice president of college planning and community engagement at the New Hampshire Higher Education Assistance Foundation (NHHEAF), says it’s supply and demand. Colleges have a product that families desire for their children. “We have seen some examples of innovations where colleges don’t charge as much but maybe you don’t get as much available for your money,” she explains. And the desire of most families is to send their kids to the best college they can, so there’s a stigma to seeking out a bargain. “As long as they’re willing to pay for it and market is there, colleges will continue to charge,” she says. 

We're # 1
NH has a lot of "firsts" to its credit, but for this one … nobody's giving high fives. According to the College Board, which researches such things, NH has the highest average in-state tuition and fees for public four-year higher education institutions. The number is $14,576. Not only that, you could also say NH is first when it comes to being stingy about state aid to education. We rank last among the states.

Economist Dennis Delay of the New Hampshire Center for Public Policy says the banking system plays a role as well. Student loans cannot be dismissed through bankruptcy, so this makes them desirable for lenders who then make it easier for students to borrow $40,000 for school than to get a car loan. "If it’s that easy to get a college loan, why not get one?” he asks, which presents a "moral hazard" to students and parents as lenders offer them loans for much more than they could afford to pay up front with the promise that payments won't be required until somewhere down the road. A similar dynamic has been in play in the health care market where people consume medical services but buy insurance, says Delay, "which mutes the price signals between buyer and seller."     

And it’s part of a larger economic debate that has gridlocked our political system. “When we take taxpayer money and provide discounted loans for colleges, we are essentially transferring wealth from individuals to universities,” says Joe Malchow, founder and editor of Dartblog, a pugnacious weblog run by students and alumni that features daily news and commentary about Dartmouth College. “We are tempted to think that since college is so expensive, we ought to increase federal aid for college,” Malchow says, "and yet they keep increasing their tuition anyway."

An article published by Forbes.com [“The Reason Why College Is So Expensive Is Actually Dead Obvious,” May 9, 2013, by Pascal-Emmanuel Gobry] concurs. "Colleges, as a rule, will try to charge as much as someone is able to pay," says the Forbes article. By giving out billions of dollars in federal aid, the government subsidizes each student to the greatest amount of money they can pay. "If you dramatically increase consumers' willingness to pay by giving them free money, they will pay more," says the Forbes article. If tuition is $50,000 and federal aid covers $10,000 for every student one year then $15,000 the next, the college loses $5,000 from every student. To compensate, colleges can raise tuition inconspicuously. Indeed, data from a 2012 study by the National Bureau of Economic Research shows that for-profit colleges that do not accept federal financial aid charge roughly 75 percent less in tuition than those who do. 

Such figures confirm the suspicions for students like Hair who see the college investment as a game that's leaving less and less of the outcome in her control. “That ‘get it now, pay it later, think about it then’ mentality," she says. "That’s how we’re treating education. You can go here now if you can kind of afford it, but put the rest for later."                   

Unfortunately, most graduates who do save their loans for later end up struggling on barely-there paychecks while they establish themselves in the working world. Recent UNH graduate Kristen Kouloheras weighed in with her own concerns. “The thing that sucks the most is the debate about standard of living. If you want to pay off the loans ASAP, it is doable if you seriously make adjustments to your life. Like no cable, Ramen for groceries, never going out, no trips, no vacations, no nothing. If you devote most of a yearly salary to a big debt, you can aggressively pay it off in a few years,” she says. But extended payment plans that are spread out over more time can wind up costing as much as $50,000 more in interest.

Finally …
After months of squabbling about what student loan interest rates should be, Congress has decided on a plan. You'll remember that the rates doubled to 6.8 percent in July because lawmakers couldn't agree (what a surprise) on a plan to extend the 3.4 percent rate for another year.

Several efforts to reinstate the low interest rates failed. The bill Congress finally approved a plan that provides a fixed rate plus the yield on a 10-year Treasury note. That would keep rates about where they were — 3.86 percent — for undergraduates borrowing this year. The rates would be fixed for the life of the loan, but would change for new borrowers each year. Though the loans are subject to inflation, Congress provided a cap of 8.25 percent. The numbers are different for grad students.

Looking ahead to a year of graduate school at Imperial College in London, Kouloheras, who is from Tyngsboro, Mass., is hoping to find a high-paying job with her marketing degree that will fund her growing debt.        

On the other hand, tuition price in general is just a reflection of a college’s overall offerings and resources, according to two experts from the College of William and Mary. Authors of the book, 'Why Does College Cost So Much?' David Feldman, economics chair, and Robert Archibald, chancellor professor of economics, explained in an interview what they found to be driving tuition costs.       

“Schools spend to produce education,” Feldman says. The more resources a school has to offer, the more it’s going to cost. But be aware of what it all means, Feldman says. "Price and cost are not the same things. Price is what students pay; cost is what schools spend on students." Those price-hiking expenditures include state-of-the-art technology, high-caliber faculty, well-maintained buildings and more. 

Outside of the classroom, colleges’ tuition and fees often include the many amenities offered to students in the form of top-of-the-line buildings or awe-inspiring facilities. Consider the $50 million Peter T. Paul College of Business and Economics that opened up at UNH this past spring. Although $25 million was donated by the building’s namesake, $5 million was funded in smaller donations and $8 million was transferred from the Whittemore School of Business and Economics reserves, the final $12.5 million was taken out as a loan with University System of New Hampshire and intended to be paid back out of UNH’s operating budget. Although the building is large enough to accommodate 800 more students into the business program, that money still needs to be paid by every UNH student. And in 2012, Keene State College finished building the $16 million Technology, Design and Safety Center. The project was also funded by the University System of New Hampshire and private donations.  

Colby-Sawyer College in New London, one of the Granite State’s private schools, boasts the same hefty price tag for in-state and out of state. But with the help of endowments, private schools do not rely on state funding. "A school that has more money will be able to provide more funding for students," says Robert Archibald. Although Colby-Sawyer College's price tag reaches a daunting $49,800 per year for 2013 to 2014, Jessica Mascola, 21, pays less than half that price with the help of grant money. "I'm not really worried about the loans because I'm hoping I get a good job to pay them off," says Mascola, who lives in Atkinson, NH.    

Some schools, like New Hampshire’s Thomas More College of Liberal Arts in rural Merrimack, offer small class sizes and a low price. The Roman Catholic private school has only 96 undergraduate students but claims a student-to-faculty ratio of 10 to 1. As if the small, hands-on learning environment wasn’t attractive enough for a college student who is desperate to avoid getting lost in a 600-person lecture course, the school only costs $29,200 per year for on-campus residents. To put it in perspective, Dartmouth College — though it’s Ivy League and vastly more well-known — features an 8 to 1 student-to-faculty ratio and costs nearly $35,000 more.                   

“It certainly seems ridiculous to pay so much for an intangible knowledge base, but college is essentially a brand that you get sold on,” Kouloheras says. “People will pay more for a product if they believe they are getting a higher value."

Meanwhile, Joan Hair credits sky-high college costs to politics: “College costs so much, in my humble opinion, because of capitalism. We have turned our education system into a capitalist function. So whoever has the money who can afford to do it will be successful.” And with every school competing for a better ranking over the others, tuitions continue to rise. 

Challenge from Online?
Some education experts think the soaring cost of college is precipitating a technological revolution, where students take their courses online at a greatly reduced cost — or even free. Not only does it save money, it also allows them to more easily take courses if they're working or a distance from a college. There are disadvantages as well, including lack of group interaction, no experience of campus life, the need to spend a lot of time online and the ability to procrastinate.

Despite frustrations with tuition, New Hampshire’s largest public university has taken some serious hits to its state appropriation. For the fiscal years 2012 to 2013, the state accounted for only 6 percent of UNH's operating budget after a 49 percent cut of state funding to the University System of New Hampshire, according to USNH documents. That statistic merely reinforced New Hampshire's spot in last place with the least amount of state funding to higher education per capita in the nation. Meanwhile, other New Hampshire public colleges and universities were having their own troubles. USNH provides for all four state public institutions: Keene State College, Plymouth State University, Granite State College and University of New Hampshire.   

However, in June of 2013, the New Hampshire Legislature restored funds to USNH. The decision prompted a unanimous vote by the system's board of trustees to enact a two-year tuition freeze for in-state students. The University System of New Hampshire will receive $69 million for the first year and $84 million for the second, which ensures, for the first time in 25 years, that tuition price will not rise for in-state students and families. The funding, they say, is also being used to provide scholarships based on financial need and merit.      

Costs for good professors and up-to-date campuses may be high, but the connection to the quality of education is at least easy to make. Among the more eye-opening figures associated with the state university system are administrative salaries. University of New Hampshire President Mark Huddleston took home the most in 2011 with $333,658. Behind him, UNH Vice President Peter Weiler with $299,350 followed by the now-retired USNH Chancellor Edward MacKay with $289,427. The salaries of 18 officials from UNH fell consecutively below President Huddleston, but above Keene State College President Helen Giles-Gee. Her salary, the next-highest of the state college presidents, was $211,687, followed by Plymouth State University President Sara Jayne Steen at $200,618. Granite State College President Todd Leach was the lowest-earning school leader in 2011 making $199,771.94. However, in response to the 49 percent budget cut for fiscal years 2012 to 2013, UNH President Mark Huddleston implemented a hiring and salary freeze for fiscal year 2012. The move was intended as a quick fix to minimize the effects of the cut and reduce the impact on tuition.

After calculating the mind-boggling array of facts and statistics, people still must decide whether college is actually worth the cost. William Bennett, former United States secretary of education, believes that most colleges are not worth the money, according to the Daily Ticker, Yahoo! Finance’s daily commentary on business news. The list of 150 colleges he says actually deliver a post-graduate income greater than the sticker price features top schools like Massachusetts Institute of Technology (MIT), Princeton University, Harvard University and our very own Dartmouth College. The least expensive of these schools is Harvard coming in at $38,891 per year (for tuition only).              

Why Are Textbooks So #@&!% Expensive?
It used to be that college students could pay for tuition by working a summer job. Now you can barely buy your textbooks with that amount of money. According to the American Enterprise Institute, the cost of textbooks has soared 812 percent (!) since 1978 — faster than health care and home prices, and way faster than inflation. Why?

According to a report in The Atlantic, it's mostly because professors pick titles with little consideration for cost, that textbook publishers bundle in software that forces students to buy new editions rather than cheaper used copies and that they sue low-cost textbook startups over flimsy copyright claims.

The National Association of College Stores, according to the story, says the average college student  at a four-year college pays about $655 for textbooks and supplies each year. The cost has come down a bit, from $702 four years ago, because of efforts to promote used books, plus a program that lets students rent rather than buy their books.

Others quote statistics showing that the financial rewards of attending college are significant. According to the College Board, in 2011 the median income for college graduates, which was $100,096, was more than twice the median income for families of a high school graduate. Though most people are feeling sticker shock from today’s tuition prices compared to two decades ago, there is evidence to suggest that the overall income of today’s college graduate has increased accordingly. In comparison to a high school graduate, a college grad in 1980 earned an average of $250,000 more throughout his or her life. But in 2010, tuition increase considered, a college graduate made an average of $450,000 more than a high school graduate, according to The Hamilton Project, an economic policy initiative comprised of academics, business leaders and former public policy makers.  

Despite the social work career path she chose, which grosses an average median salary of around $50,000 a year, Hair says the amount of her paycheck isn’t enough to push her toward a degree she isn’t passionate about. “What I actually want to be doing is helping people and being there for that process,” she says. “But I can’t tell you how many friends I have that hate their major. And it’s so upsetting for me seeing people who hate what they are going to school for but are only doing it from a financial standpoint.”   

However, having a degree to show off to an employer definitely increases an applicant’s chances of landing a job. The Hamilton Project found that college candidates who earn a college degree improve their chances of becoming employed by almost 20 percent over those who do not.

But for the price, it's still a gamble whether a grad will find a job lucrative enough to pay off their student loan debt comfortably. “My inexpert opinion is that college financing should be regarded as an investment, like buying so many shares of Apple or Exxon,” says William Fischel, professor of economics and Hardy professor of legal studies at Dartmouth College. “We don't evaluate those investments without thinking about the expected future rewards, so maybe we shouldn't think of higher education any differently. As best as economists can tell, the rewards of higher education are large and rising, so perhaps the better question is why tuition hasn't risen faster."

While the solution remains unclear, there are those who believe that a college education will always be highly regarded by society, despite the cost. With the future of the college experience looking toward advancements like online education, there is still hope that the high-priced tide may turn. But for now, at least those of us who are drowning in student debt are drowning in it together.

Helpful Things You Might Not Know

Saving for College
You can save for college with a fund that grows tax-free. The 529 savings plan, established by the IRS a few years back, is an IRA specifically for education expenses for college and/or graduate school. There are no income limits and anyone can contribute up to the lifetime limit of the plan. The money is usually invested in mutual funds. There are also 529 prepaid tuition plans that are guaranteed to increase in value at the same rate as college tuition — you essentially lock in today's prices.

Canceling Loans
It's also possible to have all or part of your Perkins federal student loans canceled. Taking certain full-time jobs makes you eligible. The jobs are: a teacher in a designated school serving students from low-income families, a special education teacher, a professional provider of early invention services for the disabled, teacher of math, science or other fields designated as teacher shortage areas, public or nonprofit child/family services agency providing services to families from low-income communities, nurse or technician, law enforcement or corrections officer, Head Start staff member, Americorps VISTA or Peace Corps volunteer, service in the US armed forces. Stafford loan forgiveness is also available, but is more restrictive.  For more information, visit the NH Higher Education Assistance Foundation (NHHEAF) website, nhheaf.org.

Repayment Plan
Last year a new federal loan repayment plan was put in place. Called "Pay-As-You-Earn," the plan allows students to pay loans off at a designated percentage of their income. To qualify, you must have a "partial financial hardship" and be a new borrower as of October 1, 2007. For more information, visit http://studentaid.ed.gov.

Private Loan Assistance
If you have private loans, help could be on the way. The new federal Consumer Financial Protection Bureau is gathering information to develop options for private borrowers, who now have few options for mitigating the burden of their debt.

Tuition Break
If certain degree programs are not offered by any NH state colleges or universities, you can enroll in those programs in other New England states and get a break on the tuition. Currently, that break — called the New England Regional Student Program (RSP) — is $7,000 on average annually for full-time students.

Bright Idea! Is Help on the Way?

Why Pay it Off When You Can Pay it Forward?

Wouldn't it be cool if everyone could go to college for free?

Oregon’s legislature thinks so. When Congress allowed the interest rate on subsidized federal Stafford student loans double back in July, Oregon’s legislature was busy passing (unanimously, to boot) HB3472, or the “Pay-it-Forward” debt-free higher education plan.

The bill, which was born out of a college senior project at Portland State University for a course called “Student Debt: Economics, Policy and Advocacy,” would enable students to completely bypass the traditional loan process. Oregon high school graduates would attend public colleges or universities in the state for free. Upon graduation and eventual employment, a small percentage of the student’s future earnings would be taken and put into a fund to pay for the next generation. The payments would come out as pre-tax payroll deductions and the more money the student makes, the more he or she would pay.

Is this too good to be true? Maybe. The bill is not fully implemented — that depends on several votes in the legislature and from the public over a number of years, and the start-up money will obviously have to come from somewhere.

However, Tara Payne, the vice president of college planning and community engagement at the NHHEAF Network (NH Higher Education Assistance Foundation), sees the mere act of a state taking such an innovative approach to solving the student debt problem as a great sign. She hopes it will spur more states — like New Hampshire — to start thinking creatively.

“It sends a message to the rest of the nation: ‘Wake up,’” says Payne. “Something needs to be done and the states need to be involved.”

What Payne likes about the bill itself is the fact that it will encourage students to follow their passions as opposed to choosing careers based on potential salaries. 

“We’re starting to hear parents ask more questions about return on investment,” explains Payne. “I’m not hearing as many students choose careers in social services, education, art and music because this return on investment idea is very much on their minds. And how can it not be when students and parents are dolling out $50,000 on college?”

With “Pay-It-Forward,” adds Payne, students can pay back what they can afford regardless of their career choice.

But all things have potential downsides. For one thing, she questions, if the state holds the purse strings how much else does it control? Can it say what classes should be offered? Who should be hired? Where does the influence end? And, of course, the bill still faces multiple hurdles — such as initial funding — and may never work at all. 

Still, Payne is encouraged by even one state government taking an innovate approach and demonstrating that it recognizes that affordable higher education is vital to building a strong community and economy.

Could it happen in New Hampshire?

“You need the will for people to do something this radical,” Payne says. “In New Hampshire many of our students go to college and many of our residents are college educated. Are we at the point where we would take a leap to do something like this? I don’t know.”

Granite Staters are rightly proud of our many “firsts” — it doesn’t seem so outlandish to think someday we might add “first state to solve the student debt crisis” to the list.
– Erica Thoits