Higher education costs
Higher education costs
Financial Health
July 27, 2015

Panel: Keeping the faith in higher education despite rising costs, debt

In a program sponsored by Wells Fargo, a trio of education-finance experts offer an analysis of rising student-loan debt and make a case for still believing in the value of a college education.

Amid skyrocketing college costs and student loan debt, a trio of education finance experts recently highlighted the value of higher education as they offered an analysis of the debt problems faced by families and students.

John Rasmussen

John Rasmussen, head of Wells Fargo’s Personal Lending Group; Wells Fargo Senior Economist Eugenio Alemán, author of a new report on college costs and minorities; and Johnny C. Taylor Jr., president and CEO of the Thurgood Marshall College Fund, spoke in a panel discussion sponsored by Wells Fargo and its Get College ReadySM program.

Each speaker highlighted an aspect of the debt problem and emphasized that college remains a good investment, despite the affordability challenges. They also voiced concern that the media’s characterization of the issue may deter many from attending college.

Minority concerns

Johnny C. Taylor Jr.

African American families could be especially vulnerable to the negative “media swirl” since they participate in federal college loan programs more than any other demographic, said Johnny, whose nonprofit supports historically black colleges and universities. He noted that those who contend that the value of college is outweighed by the costs could seriously undermine the role of higher education as “the great equalizer” for African Americans and other minorities.

“My fear is with all of the media conversation about the growing debt, and the questioning of whether or not it is wise for someone to invest in their kids’ college — all of this is going to have an unintended [negative] effect on our community,” he said.

He said that families often hear:

  • College is too expensive.
  • You need to take on a great deal of debt to pay for an education.
  • Students would be much better off getting a job when they finish high school.

“If that’s the message, then America is going to have a real challenge as it browns and grays all at once in the coming years,” Johnny said. “The reality of the matter is college is still a great investment.”

Investment returns

Eugenio Alemán

The returns on investment in higher education are still undeniable, even against the backdrop of the student debt problem, Eugenio contended. Figures show that college graduates see far less unemployment, higher incomes over the long term, and a higher standard of living than their counterparts without college degrees, he said.

“It is true that college has become very, very expensive, and is expected to become even more expensive as we go forward,” Eugenio said. “But those who have a college education today have an unemployment rate of only about 2.4 percent, and that did not go up to more than 5.5 percent even during the Great Recession.

“So if you are a college graduate, not only do you have the ability to improve your earnings potential over your lifetime, but you also are employed over a longer period of time than those without a college degree,” he added.

Still, there are financial hurdles to overcome, Eugenio said. Since the recession, states’ funding of educational grants that in the past didn’t have to be paid back has fallen off considerably. The federal government has tried to fill that gap through loans, which must be repaid, while states have also cut funding for public colleges. Those factors have created massive inflation in tuition, which has fueled skyrocketing costs and the student debt problem, he said.

“Today, college graduates are burdened with higher debt that tends to delay their engagement in the U.S economy,” he said. “To deal with that debt, they often put off . . . buying a house or car or more consumer goods. And to some extent, this is true for everyone — Hispanics, African Americans, whites or Asians; all are in the same boat.”

Taking action

Fortunately, there is a growing consensus that something must be done about the problem, John said. Some actions are well within reach, such as:

  • Simplify: “We see a growing belief that federal loan programs are too complex, with too many options. There will be an effort to figure out ways to make the process simpler for students,” he said.
  • Service: Focus on the loan-servicing practices of the industry, especially in the federal student loan space. The theme there will also be simplification, he said.
  • Reality check: Provide more data to students about the true cost of an education loan as well as the overall repayment track record on federal student loans: “The private sector does something called APR, or annual percentage rate, but that doesn’t exist today in federal loans,” he said.
  • Investment return: Provide families and students with data on projected salaries, earnings, job placements, and other returns on their investment from a college degree.

On the lender side, John said he expects to see more student-loan refinancing and loan modification activity in the industry, much like the loan modification program Wells Fargo launched in 2014, which has helped many college graduates struggling to repay their debt.

He also noted the company’s investment in financial resources — such as Get College Ready, My Money MapSM, and the College Planning Blog — which help families make good decisions about the financing process, as well as its support for nonprofits such as the Thurgood Marshall College Fund.

Despite the turbulence in the student-loan market, John said he hears many Wells Fargo customers say they feel positively about higher education.

“They still view a college education as a priority,” he said. “They know it has gotten more expensive, but they feel the investment is worth it if they can come out with an undergraduate degree for $20,000 to $30,000 . . . It’s a concern, yes, but not a crisis to them.”