Rising Costs Without Commensurate Returns

Between 1982 and 2007, the costs of a college degree increased 439% while family income rose 147%! How could this happen? Obviously, there are many influencers, but the biggest contributing factor appears to be the "ready" availability of federally-backed student loans. Whenever unlimited or "easy" financing is available for any large consumer purchase, price paid tends to soar.

Forty-two colleges are now over $50,000 per year (room, board and tuition) and in 2004 there were only two colleges which cost more than $40,000 per year! The dark side of this picture is that currently there are 30 million federally-backed student loans with a combined total of $500 billion, and these loans are not collateralized or dischargeable through bankruptcy!

In addition, many families utilize home equity lines-of-credit to finance college and these numbers are extremely difficult to track. One conservative estimate states that the "heloc" amount is 30% to 40% in addition to the $550 billion which are federally-backed.

Interestingly, 20% of students who graduated between 1992 and 1993 with over $15,000 in college loans had defaulted on their loans within 10 years of graduation.

Student loan defaults have increased 43% between 2008 and 2009, while among college graduates who are employed full-time and between the ages of 25 and 34 their earnings have decreased by 11% from 2002 to 2009.

More than ever, families and students must apply intelligent consumer strategies to the selection and financing of a college education. Anything less is a recipe for disaster.