Some schools are choosing to opt-out of federal funding, which will make getting to graduation even more expensive. Image: Flickr / jamesalmond / CC-BY-SA

For most post-secondary schools in the United States, federal student loans are a large portion of funding. New rules enacted last year set limits on the percentage of loans that can go into default. Some schools are considering rejecting federal loans all together, even though they are not hitting this limit.

The federal student aid program

The federal government provides several programs to help students finance their education. Federal grants do not need to be paid back – they are simply money given to students to help their education. Federal student loans, on the other hand, are low-interest installment loans backed by the government that students must pay back after they leave school. The federal student loan program guarantees billions of dollars in loans each year. The American Recovery and Reinvestment Act committed another $195 billion to purchase even more loans.

New rules on student loan defaults

In late 2010, the Government Accountability Office suggested new rules intended to target for-profit schools. Called the “gainful employment” rule, the amount of debt a student carries is measured against their income after graduation. If that ratio is consistently high, the government reconsiders the school’s eligibility for receiving loans. The rule is also tripped if a high proportion of students default on their loans after graduation. In short, any school that turn out graduates that cannot make enough money to pay back loans would no longer qualify for these personal loans.

Pulling out of the student loan program

Though the new rules are intended to cut for-profit schools out of the federal student loan program, other schools could get caught in the net. Small community colleges often cater to underserved communities — groups that take out a higher proportion of their income in student loan debt. Student loans cannot be written off by bankruptcy, and if the student eventually defaults, the school is responsible for at least a portion of the debt. Facing these realities, many small schools are considering pulling themselves out of the federal student loan program entirely.

What no federal loans could mean

For both for-profit and community colleges, pulling out of the federal student loan program could have wide-ranging effects. Students who wish to attend school would still qualify for higher-rate, more-difficult-to-qualify-for federal loans. This means students will have to find co-signers or outside funding for their average $23,000 in educational loan debt. For the average taxpayer, this means fewer people in college and fewer federal student loans.

Sources

News Channel 5
New York Times
Miami Herald
FinAid.org

Peter Thiel has created a buzz by offering $100,000 to 20 students for dropping out of college to pursue high-tech entrepreneurial dreams. Image: CC David Orban/Flickr

Peter Thiel is a high-tech billionaire who was one of the first investors in Facebook. He is known for his flamboyant lifestyle and over-the-top libertarian ideology. Last month Thiel invited controversy by announcing the Thiel Fellowship, a program offering young entrepreneurs $100,000 to drop out of college and launch high-tech start-ups.

The Thiel Fellowship

Peter Thiel’s Thiel Fellowship will award 20 entrepreneurs younger than 20 with grants of up to $100,000. In a press release, Thiel said some of the innovations that changed the world the most were created by college dropouts who had “ideas that couldn’t wait until graduation.” Thiel, who has made billions with PayPal, Facebook and the Clarium hedge fund, cites such rare examples as Elon Musk, who dropped out of graduate school to start Zip2, which he sold to Compaq for $307 million.

Reaction to Peter Thiel’s offer

The reaction to Peter Thiel’s $100,000 offer to drop out of school has been negative and positive. Jacob Weisberg at Slate said Thiel is simply feeding his enormous ego by encouraging kids to emulate him and that his offer deflects college students “from the love of knowledge to the love of money.” On the other hand, Nick Saint at Business Insider said “it’s ridiculous to suggest that most people who go to college do so from the love of knowledge for its own sake.” Jesse Walker at Reason points out that Thiel has a graduate degree, so the Thiel Fellowship college dropouts aren’t exactly emulating their benefactor.

What a university thinks about Thiel

Higher education, directly confronted by the Thiel Fellowship, has also weighed in. Dr. Jeff Cornwall at Belmont University posted an invitation for Thiel to come visit Belmont’s programs for experimental learning. Cornwall wrote that he would introduce Thiel to some student and alumni entrepreneurs who came back to school after they dropped out when they realized what they were missing.

Sources

Slate

Business Insider

Reason

For decades parents have pushed their kids toward college. For decades employers have cried out for better-educated workers. For decades, educators have steered students toward higher education whether they wanted it or not; whether they were equipped for it or not. Parents started saving for college educations, virtually, at conception. The federal government enticed young people to put their lives on the line in order to get a free college education.  And hordes of young people did just that.

Now, according to Daniel Pink, an author who writes about motivation in the workplace, a bachelor’s degree “does little more than verify that you can show up on time and stick with it.” A college degree is still desired by most employers, but it lacks the significance it once had.

Why so many college graduates?

Why are so many college graduates in the job market? One reason is supply and demand. The market place demanded college degrees, so the education system found a way to provide them. Unfortunately, degrees were provided by pushing through under-qualified students. After the 1970s, a four-year degree became what a high school diploma was in the 1950s. According to federal statistics, in 1973 only 47% of high school graduates went on to college. That number had risen to 70% as of October 2008.

Who can say what’s really in a college degree today? According to Marty Nemko, a career and education expert who has taught at U.C. Berkeley’s Graduate School of Education, “That piece of paper no longer means very much, and employers know that. Everybody’s got it, so it’s watered down.”

The irony of supply and demand

More people have pursued higher education, thus increasing the demand for a college degree. This increase in demand has driven up costs consistently since the 1970’s. Higher education costs rose an average of 6.5 % for the fall of 2009 and the amount of debt carried by graduates rose to an average of $23,200 in 2008. Ironically, as the cost of a degree has risen over the last 35 years its value has declined.

Return on investment

Is a college degree still worth it? Most employers still see it as a basic requisite for hiring and promoting. The question is moot from that perspective; but how much a dollar spent on education is actually buy in terms of career advancement can’t be answered if you can’t even get a job without one. Interestingly, the unemployment rate for recent college graduates was 10.6% or pretty much the national average for everyone. That figure is a record high, and it may, at a minimum, suggest that a college education does nothing to forestall a layoff.

What’s next?

According to a survey conducted by the Higher Education Research Institute, 42% of college freshmen today plan on getting their master’s degree, up from 31% in 1972. Perhaps the one clear conclusion to drawn from this trend is that more parents with college students can delay making plans for an empty nest, since their fledglings won’t be getting jobs until age 24!

Williams College in Massachusetts is facing financial aid cutbacks. More students will resort to personal loans as a result. (Photo: flickr.com)

More students are using personal loans to fund their college costs due to changes in financial aid policies. Along with the rest of the world, colleges and universities are feeling the financial strain of the recessionary economy. They are cutting spending, putting off new projects and programs and instituting hiring freezes. Some experts are speculating that schools soon will be forced to make more cutbacks in the financial aid programs.

Morton Schapiro, president of Massachusetts’ Williams College, is in just that position. Williams College has had a long-standing reputation for not considering a student’s financial situation when deciding on their acceptance. Called a “need-blind” policy, this is a way for students of varying income levels to get accepted to the school of their choice without having to worry about financing. Shapiro agreed that this policy may not be able to withstand the recession. “The major dial you turn for most financial crises is that you admit more students who can pay, as a way of increasing revenues…with the tremendous decline in wealth, I think fewer people will hold to the need-blind [policy].”

Even Worse News

Molly Corbett Broad, president of the American Council of Education, stated that endowments are getting smaller while enrollments are getting larger. “The farther down the food chain you go in terms of endowment per student,” she stated, “the harder it will be to sustain need-blind admissions.”

This change in policy could affect all universities and colleges on some level. Douglas Bennett of Indiana’s Earlham College, is one of the strong proponents of college admission reform. At Earlham College, almost 20 percent of the students are from low-income families and receive some form of financial aid. Bennett stated, “If you are truly need-blind, you can go broke…It is like writing a blank check to the world.”

Endowments

As of now only schools with large endowments are impervious to the recession, but even they are experiencing declines in funding. As Bennett added, “Nobody thinks the market will turn around and go back to do what it did before. That means everyone is having to plan for a more difficult and turbulent financial environment to bring our expenses in line with resources.” Students are bracing for the after effect of the economy by looking at second jobs, personal loans and family aid. They know that the scholarships and financial aid that once was available is no longer there.

The Goal of Educational Institutions

Regardless of the economy, the goal of colleges and universities is to make the degree accessible to as many students as possible. Many are looking at their projected budgets and project management scheduling as a sure-fire place to cut back. Stanford University is cutting five percent straight across the board in every department and cutting $45 million from its operating budget. The school is planning on issuing moderate yearly raises to staff in an effort to remain “committed to its financial aid” plan. Ms. Lapin, Stanford spokeswoman, added, “Maintaining access to Stanford for top students, regardless of costs, remains a top priority.”

Students of the Future

Students of the future face some hefty financing problems to fund their college years. Hopefully, with the help of personal loans, family assistance and part-time jobs, they will be able to complete their degrees. If colleges and universities are equally committed to making school affordable, sticking staunchly to their financial aid plans, students will be able to reach their goal of a higher education.