Why College Is So Expensive In America

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College in America: it's four years of all nighters, keg stands, ethnically diverse welcome brochures, Pinterest perfect dorm rooms and crushing student debt. I have $69,812, $47,000, $90,000, $35,000, $350,000, $60,000 worth of student loans. My minimum student loan payment is $1,000 a month. It should take me about 10 years to pay that back, I will be roughly 36, 45-years-old, I don't know how old I'll be when I pay that off. I was actually on campus at Penn State and I saw that I had so much to pay and it just was overwhelming. I didn't know how to do it, I never saw a number that big. I just went to school for a few months found out that it was not what I wanted at all, and now I have this forty thousand extra dollars that I have to pay and nothing really to show for it. If I wasn't paying this student debt, oh my God, I would just invest all of my money. It feels like I will have a roommate for the rest of my life because my debt is so much. You can't point at someone and say, this person made your student debt load so much more, it's the whole system. So why is college so expensive, and is it worth it? Higher education today is made up of three main sectors. They all bring in money from tuition but where they get the rest of their revenue varies. Public schools are your state schools like SUNY or Iowa state. They get money from the government. Private for-profit schools like the University of Phoenix or Capella University get money from shareholders. And private non-profits are those like Yale an American University, they get a lot of their money from donors. More on that later. But choosing a college hasn't always been so complicated. In 1636, America's first college was founded. You might have heard of it before, Harvard University For hundreds of years college in America was a pretty exclusive club to get into. But we've come a long way from Harvard's first graduating class of just nine men in 1642. In 2018 more than three million Americans were expected to receive a college degree. The demographics of American higher education have been utterly transformed. In 1944 the G.I. bill was signed into law giving veterans money to attend school. The G.I. Bill of Rights looks after the money end too. That's right. Tuition is taken care of. Funds are provided for laboratory fees, books, supplies and equipment are included. Just a few years later, nearly half of Americans enrolled in college were veterans. You cannot underestimate the G.I. Bill. This educated an entire generation of men and some women too. And it opened the doors people who hadn't even thought that they might go to college. The G.I. Bill changed what American families could aspire to. But not everyone was able to take full advantage of the bill's benefits. It was significantly harder for women and people of color to get the tuition money and enroll in college because of the widespread discrimination by both schools and banks. Dateline Russia 1957. In a moment the story. In the 50s a little beach ball sized satellite launched into space by the Soviet Union had a big impact on the American education system. The first Sputnik. People were worried about this clash between the Soviet Union and the United States. And suddenly it was popular to study science and math. It was patriotic. In the 60s the civil rights movement helped push the doors open even wider to give women and people of color access to higher education. In those years students at University of California schools paid less than a thousand dollars in registration fees. No tuition if you were a resident. But with the 70s came the taxpayer revolt. If you want something you pay for it. Don't expect me to pay for it. It's your problem not mine. And so what happened was the student loan process exploded. And then came the U.S. News and World Report. It was one of the luckiest or most ingenious publishing decisions ever. In 1983 U.S. News and World Report published a list of America's Best Colleges. It became a highly data driven ranking. Every one of the criteria that U.S. News used depended on name recognition, traditional quality, prestige and most of all wealth. Rankings played a big thing for me. I was an athlete and so I was pretty competitive. There have been a ton of new lists since the 1983 ranking but the U.S. News and World Report still reigns king. And colleges keep a pretty close eye on it. If you ask them they will say they pay no attention to it. But within the conference rooms of the admissions office and provost offices across the land, I can assure you they pay very close attention to it. One thing they're paying attention to are their test score averages. By the 90s, colleges started boosting base tuition and using the extra money to give merit based scholarships to kids who tested well. The chief data strategist at U.S. News and World Report downplayed test scores as a major factor in their ranking, saying it's less than eight percent of the methodology today. And that "We've seen schools perform best in the rankings if they emphasize and perform strongly in student outcome areas like graduation and retention rates. He also said they further decrease the weight of SAT and ACT scores. Tuition costs at both public and private colleges have doubled since the late 80s, even when you account for inflation. Even so, more Americans are getting college degrees. But state funding for public universities has taken a hit. States spent less on higher education in 2017 than they did in 2008 before the recession. And that means students are spending more. The tuition they're paying is a big moneymaker for colleges. 2017 was the first year ever that most state schools got more money from tuition than they did from government funding. If you're sitting in the state legislature and you're looking for money, the university system is one of your biggest costs. So when you realize well we cut them 2 percent last year, they didn't go out of business. Let's cut them another 2 percent. What happens is you pass the buck. It goes from the taxpayer to the student. The average student graduates with about $37,000 in student debt altogether. The U.S. has $1.5 trillion dollars of it. I had this mindset that I was gonna go to college undergrad and then I was gonna go to grad school and get my PhD. I thought that I would get through it and then come out on the other side with a job and then be able to pay it off. But that did not go according to plan. Rachel Brandt got her undergraduate degrees in math and economics from Iowa State. Then she moved to New York to pursue her master's in economics. She left grad school after her first semester to better cope with mental health issues she was going through. I thought that I would just withdraw and be fine. But then a couple of weeks after I withdrew, I got an email from the school saying that I owed them $6,000 right away. And that was rough. So I didn't know how I was going to pay that. And that was very stressful. Three, four, five, six, seven different student loans that all have to be paid with different interest rates. The number just keeps going up. I will be paying $867 in rent a month and that's about how much I'm going to have to be paying in loans. I look at my bank account every day and it's very scary. Rachel is far from the only one not to finish a degree she started. Only about 57 percent of undergrads complete their degree within six years. One option students turn to for a more flexible and at times more affordable path to a degree are for-profit colleges like University of Phoenix or DeVry University. The industry has been in flux, but today a little more than 900,000 students attend for-profit colleges in the U.S., many of whom use federal loans to help cover the cost. I feel like I want to do something practical that would that would clearly lead to a specific job. The Art Institute of New York City was suggested to me. Now, I really regret that it was because it turned out to be a terrible financial experience. Despite for-profits being just a small fraction of all colleges in the U.S., for-profit students default on their student debt at a much higher rate. Chyna is a first generation college student from New York who studied web design and interactive media at the Art Institute of New York City when it was run as a for-profit. I withdrew from the school, that was something could have entirely taught myself using tutorials. For-profit schools date all the way back to colonial times. Not everyone could attend institutions like Harvard, so entrepreneurs saw a business opportunity and began teaching reading, writing and trade skills *** for a fee. Benjamin Franklin was a big fan of for-profit schools and the practical skills they offered. In 1994, University of Phoenix's parent company Apollo Education Group went public and laid the groundwork for the for-profit education corporations of today. But this big business approach to education hasn't come without controversy. With so much money on the line many turn to the schools that show the best numbers, the best chances at a new job when you graduate. But can you believe what some of those for profit colleges tell you? When I went there for the so-called tour it was it was basically a sales pitch. That should have been a red flag but it wasn't because I was 18, not having parents who completed college, you know, being a first generation student it's like I didn't have the discernment to just leave those kind of schools alone. The Art Institute did not respond to a request for comment. However the director of Cato's Center for Educational Freedom defended the for-profit system, saying non-profits make a lot of money too. They just distribute it differently. He said traditional colleges often use it to "make the lives of people working in them more comfortable." He also said everyone in higher education is almost certainly seeking profit and there is little evidence that people in for profit schools are less focused on students best interest. Since Chyna left, the Art Institute of New York City along with 43 other Art Institute campuses shut down. There are a number of lawsuits against various campuses. However Chyna's not able to qualify for loan forgiveness because she left the college just before the cutoff date. And she feels trapped. Since she hasn't paid off her student loans in full, she's not able to get her transcript, which she needs that to apply to state schools. So for now she's enrolled in another for-profit school in the hopes of using the degree to apply to a master's program at a state school. I feel like all these for-profit schools they prey on people who are already who come from low income backgrounds. Enter the non-profits. Amari Lilton is from St. Louis but went to undergrad at a private college in Chicago. Now she works at an advertising agency in New York City and is paying off her more than $40,000 in student debt. You want to have the college dream without the student debt, because you're just coming into something and you feel like I'm gonna have all this independence I'll be able to pick my own classes I'll have this freedom I've never had before. So you want to go to the coolest place you can. Every college wants to be the best. They want to compete with the next college. They want to attract the top students. That means they have to have the best facilities they have to build new buildings. And remember tuition discounting? While the sticker price of non-profit colleges are rising, so is the tuition discount rate. The price you see on a college website is higher than what many students end up actually paying. You would think that most of the money is going to the cost of running the school, but nearly half of undergrad tuition at non-profits goes to help other people pay for their schooling. Amari didn't pay the full price of tuition at her private college but she's still facing more debt than she was expecting. I just cried. Yeah I just cried because I had no clue how I was going to do it. I dream about it. It's always on my mind. If I'm like going out to lunch and I'll just say, oh my God I hope this goes through because I know they just took my money out. I just hope, I hope. I want to double my payments by the end of this year so $2,000 a month. My goal is to not go into my 30s with debt. If I go to Wells Fargo and say like I want a portfolio with all my best investments help me out, they won't take me seriously because I have $250 in the bank. So where do we go from here? I've been studying this for a long time and advocating for reform and this is the hardest type of problem to fix because it's structural. It's all of us. It's the whole market. Jarrett Freeman ran for New York State Senate in 2016 when he was just 26 years old. I declare my candidacy for New York State Senate. And a big part of his platform was education and student debt. I was actually on campus and I saw that I had so much to pay and it just was overwhelming. I didn't know how to do it. I never saw a number that big. Americans are becoming less convinced that a college degree is worth it. In 2013, 53 percent of people thought a four year degree was worth it. In 2017 only 49 percent of people thought so. I think that it's so ingrained in your head that you have to go to college, that college is the next step after graduation. I think in hindsight I see that college is not for everyone. Overall I feel a little jaded about college being worth it for everyone, or at least for students directly out of high school. Knowing what I know now, I would have even taken a few years off before I went to college. There is this idea that 18-year-olds are supposed to know what they want in life. And now that I'm turning 25 tomorrow, I still don't know exactly what's going on. That mindset could be a problem for the future job market. It's expected that by 2020, 65 percent of jobs in the U.S. will require people to have some college education to even be considered. So there are a lot of jobs that require you to spend some money on school before they'll pay you to work. In many cases that sum is a lot of money. Student debt is a national crisis. Unfortunately we don't have bills on the floor that are actually addressing that. The reality is there probably isn't just one solution that's going to solve everything. It will take a lot of different approaches, and different approaches are being tested across America. One of the proposed solutions is an income share agreement. Essentially, instead of taking out loans, students could agree to repay an investor a percentage of their income for a set amount of years after they graduate. The idea has support from politicians on both sides of the aisle and some schools are starting to test it out. In New York City, Governor Cuomo implemented a program that gives middle-class residents free tuition at select state schools. And some billionaires like Bill Gates are giving their own money to try and fix the system. And of course there's the idea to offer free college. I do not agree with free college. I think that when you give someone something for free they do not realize the value of it, and that's just my opinion, and I think that there should be some cost associated with it. Free college is a great idea. I am fully supportive of free college. The catch is: who's going to pay the bill? In other countries taxpayers foot most of the bill. So instead of paying student loans later in life, you're paying higher taxes. Roughly two dozen countries across the world provide free or almost free college to its citizens. The solution probably won't be that simple in the U.S. But with student debt rising and the need for a college degree becoming more and more important, the future of American education depends on figuring this out.
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Channel: CNBC
Views: 2,392,622
Rating: 4.6669793 out of 5
Keywords: CNBC, business news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, financial aid, college tuition, what is financial aid, financial aid office, financial aid appeal, student loans, student loan debt, student loan forgiveness, student loan company, student loan calculator
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Length: 18min 5sec (1085 seconds)
Published: Wed Feb 06 2019
Reddit Comments

Am I the only one who feels like this didn’t actually explain why college is so expensive in America? It touched on it...

πŸ‘οΈŽ︎ 2051 πŸ‘€οΈŽ︎ u/cpleasants πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

College experiences double the average inflation rate because student loans are not bankrupt-able in the US. If universities are guaranteed to be paid by the government if the student defaults, what incentive do universities have to lower tuition costs?

πŸ‘οΈŽ︎ 917 πŸ‘€οΈŽ︎ u/Jeremlfish πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

One of the big misses here is the ever-expanding administration complex in public universities.

It's a trend that's occurring pretty much nationally, but here in California, we are among the worst. We're actually spending more money than we ever have on higher ed in this state. Tuition, however, has continued to skyrocket.

Why? In the last three decades, the number of tenured faculty working in the CSU system has only increased about 30 percent. Over that same span, the number of administrators has ballooned by over 300 percent. And those are all people with six (and sometimes seven) figure salaries.

Worse still, most of those administrators haven't set foot in classrooms since they were students. They're careerists with post-grad degrees in something called "educational leadership," so they go straight into administration without really understanding what it means to teach.

Anyway, we're never going to solve the problem unless people are willing to cut waste at the middle management level.

πŸ‘οΈŽ︎ 20 πŸ‘€οΈŽ︎ u/CollardGreenz78 πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

What suprises me is how uniformly expensive college is. Why arent some run by forward thinking admins who keep expenses down and keep tuition down

πŸ‘οΈŽ︎ 51 πŸ‘€οΈŽ︎ u/grambell789 πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

As a college student. I am jealous that some of my friends can go back to their own countries and have a free or more affordable college education.

πŸ‘οΈŽ︎ 461 πŸ‘€οΈŽ︎ u/Moonrider257812 πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

As a parent with two kids in college (one in community college and the other a state university) it's not even a question about why college is expensive, it's a question of how we rein it in.

Let me start by going on a rant about state universities. They are resorts that happen to teach classes. Everything from world class gyms (better than your local gym), to movie theaters, to all you can eat sushi. It's frankly disgusting how bloated universities have become. This is all done to entice every student to sign up. It's advertising to kids that is hard to resist. Why? Because every kid is a large amount of free money.

The government backs student loans regardless of the value of the education. The universities have no care in the world how marketable the skills and degrees are, only that they sell you on joining so that they can get their free money from the government. Any economist in the world will tell you the easiest way to inflation is to dump free money into the economy. This is exactly what the government does by backing student loans for useless degrees. Massive amounts of free money into a captive economy.

So we are in this vicious cycle of the universities spending more to entice as many students as possible, increasing the cost of the education. The students don't know any better (nor do they care) because they get to play with puppies! Yes, my daughters university spends money to bring in puppies to help student cope with exams... WTF!!! Then the government needs to give bigger loans to students to cover the cost, which means universities need to spend more to entice more students... vicious cycle.

Student loans should be based on the marketable skills received, not just free money for any learning. Getting any degree at any cost is the biggest waste of resources and it gives kids a false sense of a future when all it's doing is ensuring they start adulthood in a mountain of debt.

/rant

πŸ‘οΈŽ︎ 60 πŸ‘€οΈŽ︎ u/Kurso πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

Because they have become country clubs.

πŸ‘οΈŽ︎ 178 πŸ‘€οΈŽ︎ u/cttime πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

Cycle of infinite demand

πŸ‘οΈŽ︎ 38 πŸ‘€οΈŽ︎ u/DonWillis πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies

Here’s a tip: stay in state

πŸ‘οΈŽ︎ 28 πŸ‘€οΈŽ︎ u/BaronChuffnell πŸ“…οΈŽ︎ May 02 2019 πŸ—«︎ replies
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