WSJ: College Loans Hit Upper Middle Class Hardest

Paying for College
1

<p>According to the Wall Street Journal, the demographic being hit hardest by the rise in college tuition are reasonably well-off families.<br>

[quote]
The Journal's analysis defined upper-middle-income households as those with annual incomes between the 80th and 95th percentiles of all households nationwide. Among this group, 25.6% had student-loan debt in 2010, up from 19.5% in 2007. For all households, the portion with student loan debt rose to 19.1% in 2010 from 15.2% in 2007.</p>

<p>The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflation, according to the Journal's analysis.

[/quote]
</p>

<p>One effect of the fast pace of college cost increases is that even this group is looking hard at college costs and, in many cases, choosing lower cost options like in-state public universities. The article suggests this will put pressure on colleges and limit tuition increases at schools that aren't major brand names.</p>

<p>One reason for the rising debt load: "More than one-third of parents with incomes of $95,000 to $125,000 with a child who entered college in 2011 didn't save or invest for that child's education." The article also mentions the drop in home values and the 2008-9 stock market decline as reasons for the squeeze in this demographic.</p>

<p>College</a> Debt Hits Well-Off - WSJ.com</p>

2

<p>The article states the obvious and it doesn’t take an Ivy League Economics degree to understand. Higher education has priced itself out of reach of millions of more households. I like how they try to blame the parents for not saving enough instead of understanding their costs are out of control. My D will be graduating with honors this coming year and is being recruited for athletics by Ivy’s as well as a number of other great schools. Our HH income is high and we will not qualify for financial aid. But not so high that paying $50k/year doesn’t matter. Therefore she will not be attending an Ivy and instead will go to a state school or another where she qualifies for merit aid. We do not believe the benefit derived by an Ivy degree, or any other over-priced institution, justifies the cost. We don’t need to incur debt or leverage our financial future. Any bright kid will do well in life without paying over $200k for a degree.</p>

3

<p>^ Really. Tell us something that the regulars on this forum haven’t been telling the rest of us for years.</p>

4

<p>But it is the parents who should have been saving. Yes, costs are outrageous but who did they expect to pat for school?</p>

5

<p>Sports scholarship
;)</p>

6

<p>Interesting how they would consider $95k/yr to be upper middle class, where I live we make just under that and we basically live paycheck to paycheck. Then again, a lot of other people do too.</p>

<p>Basically, it sucks to be middle class, period. And I like how WSJ feels the need to point out the obvious.</p>

7

<p>I think some parents have just assumed that their kids are going to commute to the local CC and/or state school, so the incentive to save for “going away to college” just isn’t there. </p>

<p>When this generation of parents were having babies, the cost to go to the local state school was likely VERY low…so low that the “saving for it” was really not needed. </p>

<p>When I was raising my kids in California, the cost to go to a UC was really low. Tuition (aka fees) was about $4k… and…R&B wasn’t the $13k+ it is today. The whole shebang could be had for less than $10k per year if the child lived on campus. If the child commuted, then the kid could be educated for a bargain price… And, of course, the CSUs were even cheaper and the CCs hardly charged anything.</p>

8

<p>Great point, m2ck. I know more than one set of older parents who just assume their kids can pay for their own education by working summers, the same way they themselves did. Many parents, even college educated, don’t stay informed about college costs during their child raising years. They have other preoccupations and just assume that paying for college is much like it was when they went to school. If they notice a headline about skyrocketing costs they assume it’s about attending fancy private or out of state schools, not the kind of local state university that they attended and expect their kids to attend.</p>

<p>For example, a midwestern colleague suggested (kindly) that we were spoiling our kid by contributing to a 529 plan, and said that his kids would be paying for their own college educations, the same as he did. I tried to suggest this might not be practical, but I don’t think he believed me.</p>

9

<p>I started a thread for this in the Parents Forum but there’s more activity over in this one.</p>

<p>I think that it’s nice that the WSJ put this in numbers.</p>

<p>It’s interesting that even with all of the economic headwinds that the US has faced in the last five years, that about three-quarters of this demographic didn’t have student-loan debt - at least not in a detectable form. This means that the vast majority in this demographic are saving, getting merit aid, grants, and discounts or going to affordable schools. It isn’t good that the percentage is up from 19.1% but it isn’t a disaster - considering what our economy has been like. Huge amounts of economic stressors have only resulted in a 6% difference.</p>

<p>It would be nice to know if there has been a shift in admissions choices made in this demographic over the last five years to confirm that parents are making choices to adjust for economic adversity. For many, it is a choice - they can send their sons or daughters to full-pay but they wouldn’t mind a big discount.</p>

<br>

<br>

<p>I think that savings is an issue along with costs.</p>

<br>

<br>

<p>I think that the cost-benefit equation is different for every student.</p>

<p>State universities are getting whacked because of the end of Federal
Stimulus dollars for funding higher education.</p>

<p>“The fee increase, approved as Trustees met at UMass Boston, is not the University’s only means of closing the budget gap. The $54 million gap will be closed with comparable amounts of new fee revenue ($26 million) and budget cuts ($28 million).”</p>

<p>[News[/url</a>]</p>

<p>$28 million in budget cuts at UMass on top of four years of budget cuts will affect quality of education. I would guess that this is happening with most states.</p>

<p>I found it interesting that even some top schools are scaling back on costs:</p>

<p>"Cornell, the Ivy League school based in Ithaca, New York, will force students whose families make more than $60,000 a year to seek other financing to pay for part of their studies starting in 2013. This fall, MIT is raising the amount low- income students contribute by 36 percent to $6,000 a year. "</p>

<p>[url=<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?]Cornell</a>, MIT Scale Back Aid Even as Endowments Rise - Businessweek](<a href=“http://www.massachusetts.edu/news/news.cfm?mode=detail&news_id=1656]News[/url”>http://www.massachusetts.edu/news/news.cfm?mode=detail&news_id=1656)</p>

10

<br>

<br>

<p>The median household income in the US from 2006-2010 was $51,914 according to the US Census Bureau, so $95K/year would definitely be upper-middle-class unless you want to lump a very large number of households into the poor category. In some places, $95K would be a lot and in other places, it would be very little - but we’re one country so we just use a relatively static measure of class.</p>

<br>

<br>

<p>I’d disagree but my circumstances may be far different from yours.</p>

11

<p>When you look at the stats and say “Oh, but those parents didn’t save” there are a number of explanations I can think of:

  1. Second parent may only have recently entered the workforce. The equation assumes that your last three year’s income is the income you’ve had for the last eighteen years and you should have been saving accordingly. In reality, among two income families, it’s often the case that mom goes back to work once kids are older and more self-sufficient – OFTEN AFTER JUST GOTTEN CREDENTIALLED HERSELF (i.e. she gets a nursing degree when kids go to elementary school and enters workforce when they are in middle school/high school. I know a lot of these!)</p>

<ol>
<li><p>Among these families, unless the parents came from money and had their own loans all paid off by parents, they may not finish paying off their own educations until the kids are 10 or 11 years old – particularly if they got a master’s degree or law degree or something similar.</p></li>
<li><p>Often if you are still establishig yourself in a profession when you have young children (as might be the case for lawyers, doctors, academics, military, etc.) you may move a lot when kids are little, making it difficult to pay into state-run tuition plans.</p></li>
</ol>

12

<p>It’s also tough to blame some of the parents for not saving (though not all) with how crazily college costs have been going up. As someone upthread said, going to a UC in the past would have been on the order of $10k a year. Say a parent had been saving $5k a year (match their IRA savings). Over 18 years that would amount to $90k. This is still significantly short of being able to fund what it now costs to attend a UC. Now imagine the family had two kids. That rate of savings for college for someone earning $95k now seems like a pittance has been put away.</p>

13

<p>The comment about sports scholarships, while well meaning, is somewhat smug. Excuse me for being blunt. </p>

<p>Not all kids are gifted with athletics. Some are gifted in the arts and those are very very few scholarships. Most are at conservatories which are not the normal college experience. </p>

<p>There is a huge debate about athletic scholarships, because they are either just paying athletes to play a sport for the school while they take a light load of classes, or they are paying Title 9 money to athletes for sports nobody watches or cares about. (Yes, I know that women’s basketball is big time in some conferences). I am not against athletic scholarships. I am only stating the statistical facts and being the messenger about the raging debate (some of that internally at prestigious schools with HUGE athletics budgets).</p>

<p>The NCAA publishes the scholar athlete scores…athletes who have high gpas and colleges who have a very high graduation rate…and that is all good and well. But we also know the trend is for athletes to play one or two years and enter the professional draft. </p>

<p>Bottom line is athletic scholarships are helping a few at the expense of many…those who are truly academically gifted, but fall just short of the normal expectation of a 1400 SAT (1600 score)…</p>

<p>the problem is for kids in that never never land of 1200-1400 SATS, with middle income or upper middle income, good enough to get into wonderful schools, even out of state flagship state schools, and their parents are now strapped…and unable to get a home equity line of credit…as tuition continues to skyrocket. </p>

<p>The other problem is there is no pot of gold at the end of the rainbow…no jobs. Law schools are now curtailing admissions by as much as 30% (UCal-Hastings) because there are no jobs for law grads! </p>

<p>Its a conundrum, and its not temporary or seasonal or even cyclical. Its permanent and structural. Repeat, its permanent and structural! So sending your kid to school and depleting your hard earned savings or worse…taking on debt…may be a horrible decision. And then there are the tears of disappointed kids who have to go to a local state school (which may or may not be a good school), live at home, while others with scholarships, athletic or otherwise, go off to their dream schools. </p>

<p>Its creating a lot of tension and anxiety. Class warfare in academics. Fact, Jack.</p>

<p>This is further frustrated by the “minority scholarship” scenario, where minorities with lower SAT scores and GPAs are being given substantial scholarships, even full rides, while white kids (and asians) with higher scores and gpas but not quite 1400, are being denied…and then having financial aid from the school come in the form of student loans! I’ve seen that over and over and over. (Not a political comment on diversity admissions.) </p>

<p>Its all a giant mess. </p>

<p>Finally…the rise of online courses at top schools like Stanford and Duke, some of them for free…may well be the canary in the coal mine for colleges with big campuses…where the campus becomes the white elephant and people flock to cheaper classes.</p>

<p>Strap in people. Take off the pollyanna sunglasses.</p>

14

<p>I think the sports was a joke…</p>

15

<p>I’ve also seen a difference between some families who’ve gotten “help” over the years from extended family vs families who didn’t. Not 100% of course…there are always exceptions. But, there are those who had “help” with house down payments, cars, inheritances, maybe Gma babysat for free while mom worked, etc. Those things can make a huge difference for families. </p>

<p>While other families are saving (sometimes for many years) to buy their first home, paying hundreds each week for childcare, and never get any help from extended family, they aren’t as likely going to have a lot of discretionary income to put towards college savings. </p>

<p>My SIL always bragged about how much they were saving for college…the dirtly little secret was that her in-laws gave them their house down payment, always gave them their “hand me down cars” (ha ha…2 year old pricey models), paid for their kids K-12 prep schools and uniforms, and gave them all (parents and kids) very generous cash gifts for birthdays and Christmas.</p>

16

<p>

Many parents don’t have the ability or the knowledge to do so, though. </p>

<p>

The students themselves, through some combination of full-time work over summer, part-time jobs, scholarships, and (if necessary) loans. This is how it worked for many, many years.</p>

<p>

This, exactly. As recently as a generation ago, the idea of “putting money away for college” was almost unheard of - kids could easily pay for it themselves by having a part-time job or taking summers off to work and save up. It wasn’t the huge ordeal it is today, and unless the parents are keeping up with higher education economic trends long after they graduate, they might not even know it’s expensive nowadays.</p>

17

<p>"The NCAA publishes the scholar athlete scores…athletes who have high gpas and colleges who have a very high graduation rate…and that is all good and well. But we also know the trend is for athletes to play one or two years and enter the professional draft. "</p>

<p>It is not a trend to play for “one or two years” and then enter the draft. Rarely does a player only play one or two years and then go pro. For football, most aren’t ever drafted. And for the ones that are, they generally have been in college for FOUR years…usually one year red-shirt, and 3 years playing…so in college for 4 years.</p>

<p>I’m not saying that it has never happened, but I don’t know of any that were drafted after being in college for only 1-2 years.</p>

<p>*the problem is for kids in that never never land of 1200-1400 SATS, with middle income or upper middle income, good enough to get into wonderful schools, even out of state flagship state schools, and their parents are now strapped…and unable to get a home equity line of credit…as tuition continues to skyrocket. *</p>

<p>I agree…those who don’t qualify for much/any FA and don’t have the scores to get merit or into the best schools that have great FA are in a gray area.</p>

18

<p>I believe the rather snide “sports scholarship” comment was directed at the parent in post #2, who stated that her daughter was an Ivy-recruited athlete . . . who wouldn’t be able to attend an Ivy because of cost. What the person making the comment apparently didn’t realize is that there’s no such thing as a sports scholarship at some schools. Recruitment will boost your chances of admission, but it won’t pay the tuition at a school that offers need-based aid only.</p>

19

<p>Whoops sorry dodge, missed that. I am all over the place this morning.</p>

20

<p>Honestly, to suggest that a family making, say, $100,000/year could have saved enough to put more than one child through a private college today is absolutely absurd. Just run the numbers! You’d have to have saved $10,000/yr. per kid from the time the kids were born! (And that assumes the money was saved under the mattress and not in an investment fund that tanked in 2008.) Once taxes are subtracted, how are you supposed to live on that???</p>

<p>Sure, plenty of people live on significantly less, so of course it’s possible . . . but you’d also have to have been able to predict, in the early 1990s, that living like a pauper, despite a generous salary, was the only way you were going to be able to put your kids through college.</p>

<p>Here we are, 20 years later, and parents are STILL saying, “Apply to any college you want. We’ll figure out the finances later.” People understand that costs have gone up . . . but they still can’t fathom how much they’ve gone up!</p>