Logo Background RSS


Thoughts on Student Debt: Update

  • Written by Syndicated Publisher No Comments Comments
    July 23, 2013

    I am reposting this commentary to share links to a fascinating series of articles called to my attention this morning by Kimberly Green:

    These three articles provide an excellent context for my observations below.


    My friend Robert Brokamp, one of the stalwarts at The Motley Fool, called my attention to an interestingAtlantic article published earlier this week: A Mystery Behind the Rise of Student Debt. The mystery is embedded in this set of observations:

    “…out-of-pocket spending started to slide during the ’90s. Adjusted for inflation, students contributed about $4,000 of their own money a year towards tuition at the start of that decade. By 2000, though, student contributions were down to about $3,000. They roughly stabilized until the recession, at which point they plunged once more. Today, students are paying just $2,125 out of pocket.”

    The mystery, it seems, is how to explain the 25% decline in real (inflation-adjusted) out-of-pocket funding during the roaring ’90s, when real household incomes actually rose, unlike the 21st century (more on household income here).

    The Atlantic article comes to no conclusion, and I have nothing definitive to offer in that regard. However, it’s useful to consider the out-of-pocket funding in the context of the long-term trend for college tuition and fees. Here is a chart of data from the relevant Consumer Price Index subcomponent reaching back to 1978, the earliest year Uncle Sam provides a breakout for College Tuition and Fees. As an interesting sidebar, I’ve thrown in the increase in the cost of purchasing a new car as well as the more substantial increase for the broader category of medical care, both of which pale in comparison.



    During that decade of the ’90s, when real out-of-pocket funding declined 25%, tuition and fees rose 92%, which sounds substantial … until you compare it to the 1140% across the complete data series. Since the days of my own modest private college expenses (a decade before the timeframe in the chart above) paying for college was sort of like buying a car. But in recent decades, it has become more like buying house, for which the strategy of a minimum down payment is commonplace for first-time buyers.

    The annual stair-step rise in college costs is probably the most dramatic visualization of inflation data I routinely produce. The only chart I have that rivals it is my quarterly snapshot of federal loans to students from the Fed Flow of Funds report.



    Sadly, the chart above illustrates only about half of student loans outstanding. I don’t have a data source for private loans for college expenses, but most estimates I’ve seen suggest that federal loans only constitute about half the total student indebtedness.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.