Colleges Slash Tuition, Pledge Loan Repayment
The cost of college is rising at a breakneck pace, and student debt rates are following suit.
Average published tuition and fees at public four-year institutions jumped 50.7 percent over the past decade when inflation is factored in, according to an annual report by the College Board.
At private colleges and universities, sticker prices climbed 25 percent beyond the rate of inflation during that time, notes the nonprofit, which administers the Advanced Placement program, as well as the SAT college entrance exam.
[See photos of the least expensive private colleges.]
These tuition increases are one reason total U.S. student loan debt surpassed $1 trillion in 2013. Default rates on loans are also growing as graduates struggle to find adequate employment. As of August 2013, more than 7 million borrowers were at least 90 days past due on a federal or private student loan.
Rather than stand idly by, some colleges and universities are taking action by dropping tuition and pledging to help graduates repay their loans.
Concordia University in Minnesota "reset" tuition for the 2013-2014 school year, dropping it from $29,700 to $19,700, and Ashland University is set to follow in fall 2014. The Ohio school will drop its sticker price to $18,908 - a reduction of 37 percent.
A handful of other small, private universities also enacted or announced tuition cuts in 2013, including Converse College in South Carolina and Ohio Northern University.
While Ashland is promoting the tuition cut as "a bold step to address the issue of affordability facing higher education," experts say the university's tuition cut - and similar reductions at other institutions - glosses over the problem.
Few students attending pricey private schools actually pay the published tuition rate, says Andrew Kelly, director of the Center on Higher Education Reform at the American Enterprise Institute, a conservative think tank. Instead, institutions discount the cost with scholarships and grants - free money. What students pay after these discounts is called net price.
"The net prices after aid at almost all of these colleges were much lower than the sticker prices," Kelly says. "This is actually a move in the direction of what students actually pay, more so than it is a real significant drop in out-of-pocket costs."
[Discover what you need to know about net price calculators.]
That is the case at Converse College, which made headlines in September for cutting tuition from $29,000 to $16,500, a 43 percent reduction.
"This price aligns more closely with the average net cost our students actually pay to attend," said Betsy Fleming, president of Converse College, during a September press conference.
What most students actually pay to attend may change very little, though, because the college is also reducing the amount of grants and scholarships offered.
Schools such as Converse and Ashland are counting on higher enrollments to make up for lost tuition revenue, but Kelly says that model does not really address the rising price of attending college.
"I think that these types of reforms, if you want to call them that, are not going to get us very far unless colleges also find ways to contain their costs," he says. "Maybe you have a big, thick, administrative layer, maybe you've invested a lot in student services and amenities, so long as those things continue to be expensive, it's not clear to me that this is a sustainable solution to the college cost problem," he says.
Some colleges are banking on those services to support another bold move - guaranteed loan repayment.
Houghton College in New York is the latest in a string of schools to offer student loan repayment assistance. The private Christian college is partnering with the Loan Repayment Assistance Program Foundation to offer repayment assistance to first-year students starting fall 2014. Spring Arbor University and Adrian College, both in Michigan, also work with the LRAP Foundation.
[Find 10 ways to pay less for your degree.]
Schools pay a fee for each student who enrolls in the repayment program, which typically reimburses 100 percent of private, federal and Parent PLUS loan payments for graduates earning less than $20,000. The program continues to pay a percentage until the student begins earning $38,000 or more annually. Graduates must work at least 30 hours per week at minimum wage to qualify for repayment assistance.
College officials say repayment assistance allows students to pursue a career path they are passionate about without stressing over debt, but the program is also a tool to boost enrollment.
A loan repayment pledge still says a lot about a college's confidence in its career and mentoring services, says Rosemary Hook, a career coach in Texas.
"Savvy universities are saying that they believe so strongly in their education and support services ... that they'll quasi-guarantee a graduate will find reputable employment," Hook said via email. "Universities are not guaranteeing six-figure incomes only reasonable salaries."
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