Debt and Despair: Pennsylvania Students and Our Broken College Loan System

With Pennsylvania students leaving school with the second-highest debt in America thanks to runaway tuition, it's time to call our college loan system what it is: morally bankrupt.

Let’s acknowledge a blunt reality: Ea­rning a B.A. or B.S. buys you more earning potential than a high-school diploma—a great deal more. According to a 2011 Pew Research Ce­nter study, over the course of a 40-year career, college grads earn $550,000 more than those who call it quits after high school. You need a college degree. But college is expensive. By one oft-cited estimate, college tuition rates have increased 498 percent since 1985. By contrast, in those same two and a half decades, the general cost of living in this country has increased 115 percent.

What’s going on?

Theories abound. Some have argued that the very abundance of student loans encourages colleges to raise tuition. Many schools argue that they need to boost tuition because of inflation: Fuel and labor, they point out, cost a lot more than they used to. Moreover, many reputable colleges and universities have intimated, on and off the record, that to survive fiscally in the global economy, they must behave like savvy corporations. To compete with other schools, they have to rehab facilities or build anew, and keep technology in laboratories and libraries state-of-the-art, particularly at big research universities. And of course there are athletics. But there’s also high-priced talent recruiting. Colleges and universities fight for the best presidents, scientists, engineers, professors and coaches from around the world, often offering them CEO-style compensation packages to win.

Let’s put aside for the moment the fact that most reputable, accredited colleges and universities aren’t corporations, but rather nonprofits, and thus don’t pay any corporate taxes. Let’s get back to the ethics question.

To understand why student debt is so high at the public-university level, I went to see Temple’s acting president, Richard M. Englert, and Anthony Wagner, the university’s CFO and executive vice president for financial affairs. Englert emphasized that Temple froze tuition fees for this school year to help students, and also pointed to a $100 million fund-raising campaign launched this past fall to reduce student debt. When I mentioned the stories I’d heard about long lines in the financial aid office, and the trouble families were having sorting through complex loan and grant options—such as Brandon Baker’s story—Englert challenged me to find another university that did a better job of financially counseling its students.

In fact, many top-tier schools in the Philadelphia area do an excellent job of aid counseling. Some, like Princeton, even have no-loan policies for the express purpose of keeping students out of debt. Indeed, according to the Project on Student Debt, a division of the independent, nonprofit Institute for College Access & Success, top-tier private colleges and universities in general have done a far better job of reducing students’ debt, and even eliminating it, than public institutions. “Almost nobody pays the full sticker price at the top-tier privates,” says CAS vice president Pauline Abernathy.

Of course, not everyone can get into a top-tier private college. According to U.S. News & World Report, a little more than 15 years ago, in 1997, the acceptance rates at top-tier schools—we’re talking Yale, Penn, MIT, the University of Chicago—typically fell between 18 and 60 percent. Not anymore. In 2012, Harvard accepted only 5.9 percent of kids who applied; Yale took 6.8 percent. Stanford accepted 6.6 percent; Northwestern took just 15.3 percent. While the shot at Columbia was a little better in 2012 than the year before, its acceptance rate was still under 10 percent. At Penn State’s main campus, however, about half of applicants are accepted. Temple? Sixty-seven percent. Many students, like Brandon, rule out top-tier privates to opt for what they have been told is the more reasonable route: a good, affordable public education. Only to discover it isn’t reasonable at all.

Indeed, in terms of net cost, many of the top-tier private colleges in the Philadelphia area have far lower student debt averages than the publics. Haverford, Swarthmore, Penn—the mi­nority of students who graduate from these schools carry debt.

So first things first. Elite liberal arts colleges have big (and in some cases huge) endowments. They also enroll a lot more students whose parents can afford to pay the full ride. Look closer, and you’ll also note that these same colleges have restructured their financial aid policies and counseling procedures to reduce college debt. In December 2007, the Swarthmore College Board of Managers replaced all loans in financial aid awards with scholarships, effective with the 2008-’09 academic year. The decision extended loan-free aid awards to all students with demonstrated need. Where was Temple with restructuring its financial aid policies?

Wagner, the CFO, was frank. First of all, he said, Philadelphia is among the few major U.S. cities without a public hospital—Temple is it, and it costs a lot of money to care for people with no health insurance. Moreover, Wagner admitted, “The last decade has been just lousy.” Since 2008, Temple, as a public university, has lost about $41 million from state appropriations. In the 1970s, 60 percent of its total budget was covered by the state; today, it’s 12.7 percent. Moreover, the relationship between the Commonwealth and the federal government has meant that appropriations are “gobbled up,” he said, by Medicaid, pensions and more, leaving less state money for higher education. Wagner acknowledged that Temple needs to—and actively plans to—bulk up administrative infrastructure, such as its financial aid counseling. Still, he said, the bottom line is pretty clear. “What it costs to educate kids hasn’t gone up,” he sighed. “It’s a question of who’s paying for it. And the kids are paying for it.”

And kids are paying much more at non-top-tier private colleges and universities in Pennsylvania, like Widener, La Salle and St. Joe’s. So, what are we really looking at here? Kids who don’t get into top schools—those who, arguably, need the most help affording college tuition—may be paying the highest net college costs, are graduating with the most debt, and may thus be doomed to live out their adult lives in a kind of collegiate indentured servitude.

Time to get back to ethics.