As of April 2017, 44.2 million Americans bear $1.41 trillion in United States student loans. Student loans have recently surpassed US credit card debt by approximately $620 billion. Average student loans for graduates in the state of Virginia amounted to $27,717 in 2015, only ranking 25th among other states. Is the cost of attending college necessary if it takes the average student 21 years to repay their student loans?


Cost of Attending College


Tuition, fees, room and board for a public four-year in-state college cost approximately $1,405 in 1971 (or $8,307 in 2016 dollars). On average, costs of attending these same universities increased to around $24,610 by 2016. Troy Onink, a writer for Forbes, projects these costs may steadily raise to $73,000 by 2030. As the cost of education grows, students from low-income families will require additional loans in order to attend college. This will drive student loan debt to levels never before seen.



Why is the cost of college increasing so rapidly? Danielle Douglass-Gabriel, a writer for the Washington Post, notes two causes. Many colleges are expanding their administrative and IT staff to provide more services to their student body. According to the Education Department, these positions have increased by 60% from 1993 to 2009. Another cost driver for college tuition is a reduction in state funding since the financial crisis of 2008. Tuition accounted for 17% of school funding in 2003, but by 2012 that percentage increased to 25%. Over the same time period, funding provided by the state fell from 32% to 23%.


As state funding has declined for public universities, the federal government has stepped in with subsidy programs such as the Pell Grant to aid students with the high cost of tuition. Unlike student loans, Pell Grants do not need to be repaid and are provided to students in financial need. For the 2016-17 academic year, the maximum amount a student received was $5,815 while for 2017-18 the maximum amount will be $5,920. Although this program is beneficial to students in need, these grants have not grown with the rising costs of college. Pell Grants were able to fund 77% of enrollment costs in a four-year university in 1980 which has fallen to 36% in 2011. For many of these students, student loans are the only way to afford the remaining balance of attending college.


Why Attend College with Student Loans?


Post graduation earnings vary depending on major, university, employer and many other factors but one thing is certain. Demand for higher education is increasing as individuals realize the additional lifetime earnings obtained with a bachelor’s degree or higher. Statistics have proven that attaining higher education will lead to higher income relative to those with only a high school diploma. As a result, the United States has seen an increase in the number of workers age 25 and older with bachelor’s degrees since data collection began in 2006.



Individuals with a high school diploma are estimated to earn $1.3 million in lifetime earnings on average. College graduates are estimated to earn $2.3 million and those with a doctorate degree will earn $3.3 million over their lifetimes. Not only are there more lifetime earnings, but employers are also beginning to require more education from their employees. Researchers from Georgetown University estimate that 63% of American jobs require some form of higher education. If employees are required to attend college and cannot afford it, then student loans are their only option.


Length of Student Loan Repayment


Depending on salary and spending habits post graduation, paying off student loans may take some time. A group of current students aged 18 and 24 were surveyed and believed that their average student loan balance between $39,000 and $42,000 would be repaid by age 31. The group of former students between the ages of 18 and 40, with an average loan balance of $30,000, believed their loans would be paid off by 41.


Whether student loans are subsidized or unsubsidized determines when interest will begin to accrue on remaining student loan balance. If someone were to pay off $39,000 in student loans with 0% interest per month over 10 years, the overall cost of loan repayment is $39,000. However, unsubsidized undergraduate student loans carry a 4.66% federal interest rate which begins accruing immediately. To pay off the full balance of student loans over 10 years, monthly payments will be $407.20 with a total cost of education of just under $49,000. To extend loan repayment over 20 years, monthly payments become $250.11 but the total cost of repayment is just over $60,000.


Graduates want to repay student loans as soon as they can so interest does not compound the cost of their education. Unfortunately starting salaries, depending on the major studied during undergrad, affect how much money someone can set aside for loan repayment. Average starting salary for those who study social work is $34,700 while those who study computer science average $66,800. When accounting for other expenses such as taxes, rent, utilities, groceries, and 401k contributions, the remainder must be split into entertainment and student loans. When breaking down these expenditures, we must begin to wonder if attending a traditional 4-year college is worth the cost if the salary earned is not high enough. If the earned salary of an individual is not high enough, there are alternatives that people may pursue.


Other Educational Options


One alternative to a traditional four-year college to save on cost is to attend community college. Average cost of tuition for community college was $3,347 in 2014-15. However, enrollment in community colleges has been falling since 2011. As enrollment in community college has fallen, enrollment in online education courses has been on the rise. The cost of online education is lower than a public four-year college, but only 29.1% of chief academic officers stated that their faculty accepted the value and legitimacy of online education. As enrollment in online schooling has increased, four-year universities have begun to make online courses available to undergraduate and graduate level courses. These schools include public universities like James Madison University and private schools like Harvard and Princeton. Degree selections are limited, but as the cost of tuition is on the rise, we may see a shift into more online education degrees from more prestigious universities.


As the cost of education increases, students will begin to alter their preferences on how to receive an education. Education will always have a high demand because it provides more employment opportunities and higher lifetime earnings. However the education system is becoming expensive and will need reform for affordability. New York became the first state to allow free four-year college to students with family income less than $100,000. One stipulation of the deal is that students must work within the state for as many years as they receive funding. New York may have found a way to provide education without crippling student loan debt and, depending on its success, other states may use it as a model in future years.

Student Loans: Is a Traditional Four-Year College Worth It?