Archive for ‘trends’

July 24, 2014

Loans overtook grants as the main source of college financial aid in 1982

by Grace

In the early 1980s loans begin to exceed grants as the primary form of college financial aid.

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Figure 3 shows the amount of financial aid provided in each major category since 1980, in constant dollars (institutional grants are excluded, as they are treated as a discount off of tuition). In the early 1980s, federal, state, and private grants were the largest form of financial aid. But beginning in 1982, loans began to outpace grants, and since then they have remained the largest form of aid available to students to help them pay their costs of attending higher education.

The federal government had first stepped up its role in college financial aid in the 1960s.*

… The United States has long had financial aid for students, awarded in different forms (loans, grants or scholarships, government-subsidized jobs on college campuses, and tax benefits) and from different sources (federal government, state governments, higher education institutions, and private entities). The federal government first began provision of broad-based financial aid in the forms of grants and loans to students with the passage of the Higher Education Act of 1965. This Act also had a provision, the State Student Incentive Grant program, which encouraged states to create their own grant programs. These programs, along with the continued expansion of institutionally-funded scholarships, have helped to subsidize the price paid by students for attending college and have also served to lessen the impact of rising “sticker” prices, or the amount charged by universities before any discount is provided.

*The G.I. Bill began offering federal education benefits to veterans in 1944.

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Geiger, Roger & Heller, Donald. “Financial Trends in Higher Education: The United States” (Working Paper), Peking University Education Review, January 2011.

July 14, 2014

College tuition discounts continue to climb

by Grace

The college tuition discount rate – the amount of financial aid as a percentage of tuition and fees – is “again at an all-time high”.

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College continue their “high tuition, high discount” policy.

Private colleges are continuing unabated their strategy of setting high sticker prices while giving most of their students steep discounts, according to the latest survey of private colleges by the National Association of College and University Business Officers.

The colleges, many of which are struggling to meet enrollment goals, are taking in only 54 cents for every $1 they claim to charge in tuition.

The “high tuition, high discount” business model is often confusing to students and parents, but it’s how things are done at most private colleges: the colleges charge high prices and then offer students they want huge discounts. The discount comes in the form of need-based aid for low-income students and “merit” aid for students with characteristics that make them desirable to a college. At wealthy colleges, endowments may have actual funds to replace lost tuition revenue, but most colleges are just waiving the chance of getting more.

Is steep discounting a desperate, short-term strategy?

“If you do too high a discount, then perceptions of desperation creep in,” says Rao. People start to ask: “Are they going out of business? Is this product a dud?”

Mitchell Hamilton is an assistant professor of marketing at Loyola Marymount University. He says deep discounts are a short-term strategy at best. “When you’re looking at discounts of half off or more, or buy one get one free, those are for businesses that need immediate results,” he says. “Private universities are hoping that this is just a strategy to stay afloat until the economic situation gets better.”

Most observers seem to agree that if this trend becomes a race to the bottom, the losers will be ‘”smaller-sized, ‘no-name,’ tuition-driven schools.”‘  Top ranked colleges will continue to thrive.

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Ry Rivard, “Discount Escalation”, Inside Higher Ed, July 2, 2014.

Anya Kamenetz, “How Private Colleges Are Like Cheap Sushi”, NPR Ed, July 12, 2014.

July 11, 2014

Parents help sustain their adult children’s extended financial adolescence

by Grace

Most parents are providing some financial support to their children even after they graduate from college, thereby promoting a period of sustained adolescence among 20-somethings.

… nearly 85% of parents plan to offer their children monetary aid after graduation, according to a survey Tuesday from Upromise by Sallie Mae. Almost one-in-three parents plan to provide their grad with financial assistance for up to six months, and around 50% plan to foot bills anywhere from six months to more than five years.

The new normal means that adult children continue to rely on mom and dad.

So, what has changed since my son graduated a few decades ago? Sure, new graduates are entering a much more difficult job market than he did, and even those who do secure jobs are unlikely to have the job stability he’s enjoyed. But a difficult job market is only part of the story. Social norms have shifted so that accepting help from Mom and Dad well into your 20s is “OK.”

Psychologists call this trend “emerging adulthood.” As Eileen Gallo and Jon Gallo note in their paper “How 18 Became 26: The Changing Concept of Adulthood,” for a certain socioeconomic set, growing up and moving out—permanently—means downgrading your lifestyle. The authors quote sociologists Allan Schnaiberg and Sheldon Goldenberg as stating:

“The supportive environment of a middle-class professional family makes movement toward independent adulthood relatively less attractive than maintenance of the [extended adolescence] status quo. Many of the social gains of adult roles can be achieved with higher benefits and generally lower costs by sharing parental resources rather than by moving out on one’s own!”

Keeping their 20-something children on the family cell phone plan is one common example of how “sharing parental resources” makes it easier on young adults as they transition to financial independence.  Another example is health insurance, where Obamacare now requires family policies to continue coverage for children up to age 26.  Individually these are small examples, but in total many parents are heavily subsidizing their adult children’s lifestyle.

Retirement expert Dennis Miller says parents should consider tough love instead of risking their own future financial security.

Retiring rich is hard enough without paying for your child’s extended adolescence. The job market may be tough for new graduates, but forcing your child to navigate it anyway might just be the best way to help.

Miller believes it’s possible to be supportive without hindering a young adult’s financial and emotional independence, and has some tips that can be read at the link above.

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Kathryn Buschman, “The New Normal? Some Parents Plan to Aid Children 5 Years after Graduation”, FOXBusiness, May 27, 2014.

Dennis Miller, Paying bills for adult children? Try tough love instead, MarketWatch, July 8, 2014.

June 26, 2014

More students are receiving special accommodations for SAT and ACT tests

by Grace

Some recent numbers show the increase in students receiving special accommodations for SAT and ACT testing.

During the 2010-11 school year, 5 percent of all test takers were provided with some feature that was intended to adapt the test to their needs, ACT spokesman Ed Colby said, compared with 3.5 percent of test takers in the 2007-08 school year.

The numbers of requests have been rising among SAT takers, too, along with an increase in test takers overall. Once students are approved for an accommodation, they don’t have to reapply. Of new requests—almost 80,000 during the 2010-11 school year, compared with 10,000 fewer five years earlier—about 85 percent are approved, said Kathleen Steinberg, the spokeswoman for the College Board. The ACT said roughly 90 percent of requests made are granted.

Rich kids are more likely to receive accommodations.

Controversy has swirled for years about which students deserve special help. A 2000 California audit concluded that those getting college entrance testing accommodations “were disproportionately white, or were more likely to come from an affluent family or to attend a private school.”

More than a decade later, the Tribune’s review of data obtained under open records laws indicates that’s true in Illinois, where the percentage of test takers with accommodations doubled the national average.

Schools in wealthy enclaves with predominantly white students were at the top of the list when it comes to students getting ACT testing accommodations in Illinois, the 2011 data show.

A recent report from the General Accountability Office found that testing for qualifying disabilities “can cost from $500 to $9,000″.  Wealthy families can afford to pay these costs when the schools will not.  They also tend to have the expertise and money to force schools to pay for legally required testing.

One local affluent school district recently had a long list of applications for accommodations that was waiting to be submitted, probably typical for high-income locales.

The most commonly requested accommodation is extended time, but some others include “a quiet testing room, a reader or a scribe, enlarged print test booklets and/or answer keys, the use of a computer, additional or extended breaks, and multiple-day testing on the ACT”

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Nirvi Shah, “More Students Receiving Accommodations During ACT, SAT”, Education Week, May 14, 2012.

 Diane Rado, “Many Illinois high school students get special testing accommodations for ACT”, Chicago Tribune,  April 29, 2012.

Jed Applerouth, “SAT and ACT Accommodations”, Independent Educational Consultants Association, April 9, 2014.

June 4, 2014

Home equity loans regain popularity as college costs continue to rise

by Grace

A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.

College costs continue to rise, so home equity loans may rebound in popularity as a tuition-funding vehicle.

Ian Feldberg planned to open a $200,000 Heloc this week with Belmont Savings Bank to help pay his son’s college tuition. The medical-device scientist purchased his home in Sudbury, Mass. for a little over $1 million in 2004, and estimates that its value dipped as low as $800,000 during the financial crisis. However, after applying for the line of credit, he found that its value had completely recovered.

“I’m very pleased about that. My options for tuition fees were either that or to cash in on my pension prematurely,” he said.

A too-big-to-fail bank steps up home equity lending, and Tyler Durden of Zero Hedge expresses some concern.

The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14. Some banks are more aggressive than others, and perhaps we shouldn’t be surprised to see TBTF government welfare baby Bank of America leading the charge, with $1.98 billion in Helocs in the first quarter, up 77% versus 1Q13.

What could possibly go wrong?

As HELOC delinquencies are off their highs (for now) but remain elevated… (we are sure this renewed ATM usage on the back of created wealth and stagnant wages won’t harm that downward trend at all…) – will we never learn?

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And then there’s this.

Think about that for a minute. A “medical-device scientist” can’t send his kid to college without either a Heloc or cashing in on his pension.

Life goes on.

Related:  “Federal Direct PLUS or home equity loan for college costs?” (Cost of College)

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Tyler Durden, “Home Equity Loans Spike As Americans Scramble For Cash”, Zero Hedge, 05/31/2014.

May 28, 2014

American teens are not interested in summer jobs

by Grace

Fewer teens are working.

… In 1978, nearly three in four teenagers (71.8%) ages 16 to 19 held a summer job, but as of last year, only about four in 10 teens did, according to data from the Bureau of Labor Statistics for the month of July analyzed by outplacement firm Challenger, Gray & Christmas . It’s been a steady decline, seen even during good times: During the dot-com boom in the late 1990s, when national unemployment was only about 4%, roughly six in 10 teens held summer jobs….

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And they are not very interested in getting jobs. Only 8.3% of teens who were not working last summer said they even wanted a job.

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This doesn’t mean that teens are simply tanning by the pool or binge-watching Bravo (though some certainly are). Challenger says that many teens are in summer school (rates of summer school attendance are at one of the highest levels ever, he says), volunteering, doing extracurricular activities to pad their college applications and trying out unpaid internships. And all of these are worthwhile endeavors (well, minus the tanning and Bravo), especially as it becomes more competitive to get into many elite colleges.

Lack of work experience can be a disadvantage.

That said, experts say that paid work has value for a number of reasons — and that teens (even those who plan to go to college) who don’t do it may be at a disadvantage. “It’s critical for teenagers to work, to begin to understand the working world, the value of a paycheck” says Gene Natali, co-author of “The Missing Semester” and a senior vice president at Pittsburgh investment firm C.S. McKee. “Choosing not to work a paid job has consequences.”

The good old days?

One of my older relatives had a job in high school delivering both the morning and afternoon newspapers.  He and a friend would rise early each day to roll up and deliver papers before their first class, and then repeat the routine after school.  He was also in the school band, played varsity tennis, and maintained good grades, clearly demonstrating he was able to manage his time effectively.  A generation or two later, it’s hard to imagine many kids successfully maintaining a similar schedule of activities. Many of them need reminders to take their Adderal in the morning, and think they are too busy for a part-time job.  Maybe my relative was a remarkable young man, but many of his peers also worked during high school.

Times have changed.  Expectations have changed.  Kids have changed.

Related:  “Teens are too busy preparing for college instead of working” (Cost of College)

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Catey Hill, “American teens don’t want to work”, MarketWatch, May 3, 2014.

‘Teen Summer Job Outlook Teen Employment Culd Remain Flat as More Say “Nah” to Summer Jobs’,  Challenger, Gray & Christmas, Inc., April 28, 2014.

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May 26, 2014

2014 college graduates are ‘the most indebted class ever’

by Grace

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000 … Even after adjusting for inflation that’s nearly double the amount borrowers had to pay back 20 years ago.

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… A little over 70% of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994.

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 … According to a new Pew Research report, a record 37% of young households had outstanding student loans in 2010, up from 22% in 2001 and 16% in 1989….

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Related:  ‘Growing student debt may be a reason for weak housing market’ (Cost of College)

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Phil Izzo, “Congratulations to Class of 2014, Most Indebted Ever”, Wall Street Journal,  May 16, 2014.

Richard Fry and Andrea Caumont, “5 key findings about student debt”, Pew Research Center, May 14, 2014.

Richard Fry, “Young Adults, Student Debt and Economic Well-Being”, Pew Research Center, May 14, 2014.

May 14, 2014

Fewer high school graduates are enrolling in college

by Grace

Fewer high school graduates are choosing college.

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Just under 66 percent of the class of 2013 was enrolled in college last fall, the lowest share of new graduates since 2006 and the third decline in the past four years, according to data released Tuesday by the Bureau of Labor Statistics. Among all 16- to 24-year-olds, school enrollment experienced its biggest decline in at least two decades. The report echoes other recent evidence that college enrollment has begun to ebb after surging during the recession.

Many analysts have attributed the slowdown in college attendance to the rapidly rising cost of a higher education. But while mounting concern over costs does appear to be putting downward pressure on tuitions, the evidence suggests that the drop in enrollment is being driven by a different factor: the improving job market…

College enrollment surged during the recession as young people hid from the weak job market by staying in school. The increase was particularly pronounced at community colleges and among older students — those in their late 20s and early 30s — likely the result of people who lost jobs returning to school.

The drop in enrollment was strongest among women.

… Women still attend college at a higher rate than men, as they have for decades. But the gap is narrowing: In 2013, 68.4 percent of female high school graduates enrolled in college, versus 63.5 percent of male grads. In the class of 2009, by contrast, 73.8 percent of women attended college, versus 66 percent of men.

The disparity may reflect the better job opportunities available in female-dominated industries than in male-dominated ones. For example, the construction sector, a major employer of young men, has only recently begun to recover from the housing bust, while the health care sector, which employs many young women, has added jobs throughout the recovery.

Half of all universities and colleges may close within 15 years.

If you combine this falling enrollment with the end of the steep increase in the numbers of high school graduates, it’s easy to understand the downsizing trend in higher education.

Meanwhile, competition for spots continues to rise among the top four-year colleges, where enrollment and costs are still on the rise.

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Ben Casselman, More High School Grads Decide College Isn’t Worth It”, FiveThirtyEight, April 22, 2014.

April 25, 2014

Decline in teen birth rate

by Grace

The teen birth rate in the U.S. is at a record low, dropping below 30 births per 1,000 teen females for the first time since the government began collecting consistent data on births to teens ages 15-19, according to National Center for Health Statistics data.

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Why is the teen birth rate falling?

In addition to the correlation between declining birth rates and a distressed economy, other reasons have emerged.

 … Less sex, more contraception and more information.

For one thing, there has been a significant decline in the percentage of never-married teenage females who ever had sex, from 51% in 1988 to 43% in 2006-2010, according to National Survey of Family Growth data. Furthermore, among never-married teens who have had sex, 78% used a contraceptive method the first time they had sex, 86% used contraception during their most recent sex and 20% used dual methods (e.g., a hormonal method and a condom) during their most recent sex, all significant increases since 1988.

Pregnancy prevention programs and messages directed to teens may also have played a role. A recent Brookings report found that the MTV programs 16 and Pregnant and Teen Mom, reality TV shows that follow the struggles of teen mothers, may have contributed to up to a third of the decline in teen births since they began airing in 2009.

Teen abortion rate has also dropped.

But teen pregnancy rates have fallen, too, over the past 20 years. Looking at data reaching back to 1976, the pregnancy rate peaked among teens ages 15-19 in 1990, at 116.8, and has fallen 44% since then. The abortion rate among females ages 15-19 has also fallen over roughly the same time period—from 43.5 per 1,000 teens in 1988 to 16.3 in 2009. Of the roughly 700,000 pregnancies among teens in 2009, about 58% are estimated to have ended in live births, 25% in abortions and 17% in miscarriages or stillbirths.

The marriage status of teen mothers has changed dramatically since 1960.

… Back in 1960, most teen mothers were married—an estimated 15% of births to mothers ages 15-19 were to unmarried teens. Today, it has flipped:  89% of births are to unmarried mothers in that age group.

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Eileen Patten, “Why is the teen birth rate falling?”, Pew Research Center, April 21, 2014.

April 21, 2014

Downsizing trend hits higher education

by Grace

20140419.COCSorryClosed3Half of all universities and colleges may close within 15 years.

Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years. The growing acceptance of online learning means higher education is ripe for technological upheaval, he has said.

With budget problems “particularly acute at small, mid-tier private’ colleges“,  Moody’s anticipates a “death spiral” in failing institutions.

“What we’re concerned about is the death spiral — this continuing downward momentum for some institutions,” said Susan Fitzgerald, an analyst at Moody’s Investors Service in New York. “We will see more closures than in the past.”

Moody’s, which rates more than 500 public and private nonprofit colleges and universities, downgraded an average of 28 institutions annually in the five years through 2013, more than double the average of 12 in the prior five-year period.

Falling enrollments are a problem.

Dozens of schools have seen drops of more than 10 percent in enrollment, according to Moody’s. As faculty and staff have been cut and programs closed, some students have faced a choice between transferring or finishing degrees that may have diminished value.

At Dowling College in New York a “dormitory is shuttered, as are a cafeteria, bookstore and some classrooms in the main academic building”.

Dowling, which got a failing grade for its financial resources from accreditors last month, epitomizes the growing plight of many small private colleges that depend almost entirely on tuition for revenue. It’s been five years since the recession ended and yet their finances are worsening. Soaring student debt, competition from online programs and poor job prospects for graduates are shrinking their applicant pools.

Franklin Pierce University in New Hampshire will drop six majors.

Net tuition revenue fell 14 percent to $30.3 million last year from 2009 as Franklin Pierce boosted financial aid to attract freshmen and keep students from transferring. Standard & Poor’s cut the Rindge, New Hampshire-based school’s credit rating last year to B, five steps below investment grade, from BB. Moody’s reduced its rating to B3 from B1 the year prior.

Ashland University in Ohio cut its tuition.

Ashland University, a 136-year-old college in Ohio, reduced tuition by about $11,000 — and direct aid commensurately — for the coming school year, with the goal that a lower-tuition/lower-discount model will eliminate sticker shock and lure students. In November, Moody’s downgraded Ashland’s rating to Caa2, eight levels below investment grade, saying the probability it will default has increased after three years of enrollment declines.

As a strategy for survival, diversifying takes on a new meaning.

Some colleges are looking beyond belt-tightening for more permanent solutions. Morgan State University in Baltimore, a historically black college, is targeting more Hispanic applicants and those of other ethnicities, according to Moody’s. Chatham University in Pittsburgh, whose undergraduate program is women-only, said in February it was considering going co-ed to boost enrollment.

This just in:

Mid-Continent University, a private institution in Kentucky, will close June 30, KFVS 12 News reported….

Related:  Private colleges see declining enrollment (Cost of College)

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Michael McDonald, “Small U.S. Colleges Battle Death Spiral as Enrollment Drops”, Yahoo Finance, April 14, 2014.

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