Uncle Sam Picks Up the Slack As Colleges Raise Costs

Uncle Sam Picks Up the Slack As Colleges Raise Costs

The National Center for Education Statistics released a report earlier this week that revealed a startling fact about college education: More than half of U.S. students are depending on federal financial aid, the most since scores of returning American soldiers went to school on the GI bill.

According to the study, 71% of all undergraduate students took out some kind of financial aid in order to pay for their educations, and 57% relied on federal funds. This represents a 10% increase from the 2007 to 2008 school year. In that year, less than 66% of all undergraduates received some kind of financial aid.

Why is the need for financial help -- particularly federal help -- escalating in such a fashion? There are several reasons, but one stands out: College costs are soaring, threatening the ability of many to attain that coveted four-year degree.

Costs rising higher than inflation
Tuition and fees are increasing at a much higher rate than the current 1% yearly inflation rate would seem to warrant. According to College Board, an education support organization, average tuition and fees rose for in-state students at public colleges and universities by 4.8% for the 2012 to 2013 academic year, with a commensurate 3.7% hike in room and board charges. The price acceleration rate for private, for-profit colleges increased less, but still clocked in at a hearty 3%.

As colleges and universities begin to reopen their doors for the fall semester, President Barack Obama has called for a slowing of the uptick in college costs. Ratings agency Standard and Poor's has released a report noting that most students can't attend college without "significant" aid.

Federal money takes up a bigger portion of the student aid pie
As parents are less able to help their college-age students defray costs, many more turn to other forms of help. Just as the number of students receiving aid and the amount of that assistance has been growing since the 1991 to 1992 school year, the percentage of money coming from federal coffers has increased, as well. College Board notes that, as federal grant aid has increased, other forms of assistance have been moving in the opposite direction.

For example, institutional grants have dropped by 4% since the 2007 to 2008 school year, and private and employer funds have decreased by 7%. The money states kick in has fallen by 3%, as well -- while federal aid has jumped by 13% in the same time period.

Similarly, the amount of federal loan dollars have increased since 2007, too, as has the default rate. Last year's data on this metric showed that the three-year default rate for students who had begun paying back their loans in 2009 was 13.4%, with 47% of the defaulters having attended for-profit colleges. Though the government is usually able to collect 90% of these loans, estimates regarding the expenses incurred in order to do so could top $38 billion for the 2012 to 2013 academic year.

Students and taxpayers pay for astronomical college costs
As college expenses continue to rise, the amount of college debt that students carry will become more weighty. And, as more students default on their college loans, the taxpayer will have to pick up the tab.

It's doubtful that colleges will begin reining in costs just because the president encourages them to do so. But, as S&P infers in its report, these institutions may be in the process of putting themselves out of business, as the costs of an education begin to outweigh the benefits.

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