The payoff from higher education is clear—college graduates generate 65% more in lifetime earnings than people with only a high school diploma. Their advantage has more than doubled since the 1980s, largely because innovation has increased demand for highly skilled workers. Still, such gains require a large upfront investment that for decades has increased faster than inflation. This rising cost of a college diploma has helped fuel the growth in student debt.
While the burden of such borrowing is widely known, low graduation rates make the debt especially ill-advised, according to the speakers at the NOW 2016 panel titled, “The Future of College: Is It Worth the Money?” For example, community colleges, while charging a student just $6,000 to $10,000 per year, achieve an average graduation rate of just 9%, largely because of the composition of the community college population. Many students are adult learners, transfer students or they are enrolled under an ESOL (English for Speakers of Other Languages) program. The comparatively high student-to-advisor ratio also elevates the dropout rate, according to Philip Bronner, CEO of American Honors.
In contrast, private colleges charge as much as $60,000 per year but achieve an average graduation rate of 59%. Catharine Bond Hill, president of Vassar College, said her institution annually spends about $80,000 per student, exceeding the college’s tuition of $52,000. The college fills the gap to meet its commitment to a low studentteacher ratio and to maintain wellregarded faculty and staff. Vassar’s graduation rate is around 90%.
U.S. college dropout rates are elevated in part because lenders and colleges do not accurately determine the probability of graduation among student borrowers. Colleges receive payment from lenders regardless of the success rate among students, according to Raj Date, managing partner at Fenway Summer. With both lenders and schools paying insufficient attention to graduation rates, debt will probably persist as a significant challenge for many students, Date said. The fact that student loans are not forgiven in the event of bankruptcy makes the burden especially onerous.
If graduation rates remain low and college costs continue to rise, students and their families will have to become more selective. During the next 20 years, some 500 to 1,000 of the 4,500 colleges and universities in the U.S. will probably consolidate or close down.
Restricting student loans is not a reasonable way to push up graduation rates and reduce costs, Hill said. Such a move would put students from lower-income groups at a disadvantage. Instead, institutions could increase affordability by providing online courses. Also, educators should shift the incentive structure to ensure that students, lenders and institutions are accountable for their choices. Promoting responsible decision-making would curb debt, improve graduation rates and ensure that more students graduate onto a path toward prosperity.
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