Part 2 of 4

U.S. colleges have problems. Here they are.

Runaway Tuition Levels

The price of college has become unmanageable for many families and students.  For example, as advertised, the average annual cost of a private 4-year college — including tuition, room and board, and various unavoidable college-related fees and expenses — is now $54,880.    

Colleges often discount tuition by issuing scholarships, and many students qualify for public tuition assistance, notably Pell Grants.  Even so, the resulting net cost of college remains onorous.

One sobering measure of college prices is the burden they put on household income.  

To an American family in the lowest 20% of the income distribution, the net annual cost of a 4-year private college — that is, the true cost of college, after college-issued scholarships and public tuition aid like Pell Grants — now equates to 145% of annual household income. For too many American families, paying for college means flirting with bankruptcy.

Runaway college tuition is the result of decades of price hikes by incumbent colleges.  In part because of their access to public funding, U.S. colleges have increased prices ahead of inflation for nearly half a century.

Student Debt and Financial Distress

Because of their pricing practices, colleges expose students and their families to indebtedness and financial distress, often in the extreme.

  • Prevalence of Financial Aid. College is so expensive today that only 25% of households can afford the published price of college from their savings and borrowing. The remaining 75% of college-goers rely on federal tuition aid (notably Pell Grants) or for college-issued scholarships to bring the price of college within reach.
  • Magnitude of College Debt. With every passing year of the college pricing debacle, college debt and debtors multiply. America is home now to $1.7 trillion in outstanding federal college debt and, additionally, to $100 billion in private college borrowing.

    Among undergraduates who borrow to finance college, a typical federal loan balance upon graduation now ranges from $16,000 to $34,000 depending on the college setting.  Some of these students also borrow privately or have parents who borrow on their behalf.
  • Burden of College Debt. For too many students and families, college debt will be a lifelong shackle. Among federal college loans issued in the last five years, for example, approximately 10% of loans have entered default, about 50% of loans are being serviced only with interest payments, and about 50% of loans have been restructured around income-driven repayment schedules.

The Graduation Rate Travesty

College graduation rates — in almost all college settings and for almost all student populations — are objectionably low.

  • College Completion as a Coin Flip.  Students entering college today face roughly even odds of finishing or dropping out.
  • Graduation Rate Emergencies. These coin flip odds of graduating deteriorate starkly in certain types of colleges and for certain student populations. For example, only 18% of  Black students in community college graduate within three years.

Erratic Salary and Employment Outcomes for College Graduates

For the fortunate sub-set of college students who at least earn a degree or credential, the perils of college persist into the labor market.

  • Wage Premiums from Degree Completion.   Overwhelmingly, the primary reason that students attend college and reluctantly suffer its hefty price tag is the prospect of a better and higher-paying job after graduation. Unfortunately, the job and salary benefits of going to college are now unreliable and, in many cases, non-existent.

When researchers examine the wage premium that follows from completing college — that is, when they estimate the  bump in earnings that a person gets after graduating from college, instead of entering the labor market after high school — they find regrettably that many graduates will never make added wages equal to the cost they incurred for college or that they will need to work for decades to do so.

  • Debt and No Degree. The financial and employment returns from going to college are, of course, most problematic for the roughly half of college-goers who never finish and who, in a majority of cases, end up with college debt and no degree. For these non-completers, college is often devastating.

    Approximately two-thirds of drop-outs from 4-year colleges and one-third of dropouts from 2-year colleges carry substantial debt, typically in the range of $8,000 to $15,000, after they leave college with no degree.

The Human Toll

From the perspective of some 19 million American college students, the dysfunction of the U.S. college sector is devastating. Its human toll is enormous. College has become too frequently a recipe for no degree, debt, and personal and professional setback. In far too many cases now, college hurts people.

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  1. Unless otherwise noted, data in this document is available publicly from the College Board and from various federal sources, notably the Integrated Postsecondary Education Data System (IPEDS) and other data files within the National Center for Education Statistics (NCES), the College Scorecard, the Database of Accredited Postsecondary Institutions and Programs (DAPIP), and the National Advisory Committee on Institutional Quality and Integrity (NACIQI).
  1. Throughout this document and unless otherwise noted, for-profit colleges are excluded from our analysis for the sake of brevity and simplicity.  For profit colleges, while controversial, enroll a small and shrinking fraction (currently 5%) of U.S. college students.
  1. In Figure 1: College Cost (2020-21), the total cost of college attendance includes student payments for tuition, fees, room, board, and typical college-related expenses such as supplies and transportation. Net cost of attendance is total cost of attendance minus public tuition grants (notably Pell grants) and college-issued discounts and aid. Cost of attendance data on public 4-year colleges is for in-state students.
  1. Figure 2: College Cost & Household Income compares household income with the net cost of college attendance.
  1. Figure 3: Advertised Tuition and Fees vs. Inflation compares price changes to published tuition and fees with growth in the Consumer Price Index.
  1. Figure 4: Loan Balances of College Graduates reports debt balances of college students who have graduated and who took out federal loans while in college. It does not include borrowing by parents of graduates or private borrowing by graduates.
  1. Figure 5: Graduation Rates and Figure 6: Black Student Graduation Rates report graduation rates for first-time and full-time students in the graduating classes of 2012 (at 4-year colleges) and 2016 (at 2-year colleges). In these charts, a graduate is a student who earns an Associate’s degree within 3 years of starting a 2-year college or a Bachelor’s degree within 6 years of starting a 4-year college.
  1. Figure 7: Wage Premiums from a College Degree is excerpted from Michael Itzkowitz’s article, “Which College Programs Give Students the Best Bang for Their Buck?”  (Third Way, August 2021).
  1. Figure 8: College Debt of Dropouts reports debt balances of college students who took out federal loans while in college but did not complete a degree. It does not include borrowing by parents of these students or private borrowing by these students.