Media show skepticism over education financing

The Washington Post took an unflattering look at the business of education financing in a recent series titled "Dollars and Diplomas: Making Money on the High Cost of College." The series focuses on what it calls "a constellation of businesses" that have entered education financing and are apparently making a healthy profit in the process.

According to the Post, students and their parents will borrow a record $36 billion this year in federally guaranteed education loans. One-third of that will come directly from the federal government. The remaining two-thirds will come from banks and companies that take care of the distribution and collection of loans in exchange for fees and interest. Those charges generated revenue of $4 billion for the loan industry last year.

Industry officials defend their healthy revenues and tax-exempt status, saying they are an indispensable part of the education system, given the rising costs of tuition. Critics of the loan industry say the growing pool of loan money itself contributes to rising college costs. The series also focuses on the growing problem of student loan fraud and abuse among for-profit trade schools.

Another article critical of higher education costs appears in the November issue of Boston Magazine. The article, titled "Ripped Off! Inside the Higher Ed Racket," claims to uncover "lavish excesses and outrageous salaries" at several Boston-area universities. A sidebar titled, "How to Beat Them at Their Own Game," tells how to make college education more affordable.

(Source: The Washington Post, 10/27/97, 10/28/97, 10/29/97; Boston Magazine, 11/97.)

Explanations vary for rise in student debt
Two recently-released studies show that student debt has risen dramatically in recent years, but the studies differ in their reasons cited for the increase.

A study by the New England Education Loan Marketing Corporation, known as Nellie Mae, shows that the average total debt of 2,500 students studied was $18,800 in 1997, compared with $8,200 in 1991. The study cites increased college costs, decreased availability of federal grants, and lower starting salaries for graduates as reasons for the higher levels of debt.

The other study, by the American Council on Education, shows that the average amount borrowed by students in 1995-96 was $12,000 at public institutions, compared with $7,400 three years earlier. The average at private institutions was $14,300 in 1995-96 and $10,200 in 1992-93. ACE attributes the debt increase to changes in federal financial aid programs made in 1992. That year, Congress broadened eligibility for subsidized federal student loans, raised annual loan limits, and created a new unsubsidized student loan program open to all students, regardless of income.

(Sources: Academe Today, 10/24/97; The New York Times, 10/24/97; ACE Policy Brief, 10/97.)

Reprinted, with permission, from CASE Flash Points.