I would hope that 10 years from now I can look back and say that was a great decision and I’m glad I went to school because it worked out, but I don't really believe that it will happen soon. —Mark Smith
Mark Smith thought he did everything right.
When it came to paying for college, almost 40 percent of his fellow undergrads were borrowing an average of $7,100 a year to pay for school. But Smith attended a less expensive state university and he earned his bachelor's degree without any debt. He didn't have a car payment, he worked hard in school, and he paid enough attention to the economy to know that he needed to be careful with his money if he wanted to get ahead.
And so, when Smith thought about going to law school, he was hopeful but hesitant. It was going to cost a lot of money, and he would need to borrow it from somewhere.
"Everybody said to me at that time that law school is an investment so it is worthwhile to take on this debt even though everyone finances it through student loans," Smith says now from his office in Washington, D.C. "Everyone said when you come out of law school you'll be an attorney and you'll make more than $150,000 starting salary."
But by the time Smith graduated from law school in 2011, times had changed. The economy was struggling, Smith had accumulated more than $100,000 in debt and his starting salary in the public sector was nowhere near $150,000.
As the amount of student debt in America has grown to nearly $1 trillion and the average cost of college tuition has dramatically increased by more than 40 percent in the last decade, some experts say that the model of higher education is reaching a critical level that must be changed or crisis awaits.
One way to address the problem is for schools to change their approach to spending and curb tuition increases. But universities aren't the only ones who can change their behavior. Enterprising students who take a creative approach to school by making sacrifices that lessen or eliminate student loans may turn the tide first — although it could be at a different cost.
Students of today are learning from the students of yesterday, like Smith. Looking back, Smith says there are some things he would have done differently in charting his education — starting with reconsidering his decision to go to law school.
"I would hope that 10 years from now I can look back and say that was a great decision and I’m glad I went to school because it worked out, but I don't really believe that it will happen soon, and I don't believe it will happen because I went to law school," Smith says. "I feel like if I do well it's because I worked hard and busted my hump."
The cost of college
Thomas Lindsay didn't have to look far to see one reason why college for his son was so much more expensive than college for himself.
On his son's first day at the dorms, Lindsay was in awe at the state of the campus. There were state of the art wellness centers with top of the line gym equipment; sparkling new coffee shops with a cozy, modern atmosphere; and the dorm rooms themselves were nicer than the first apartment Lindsay had shared with his wife after earning his Ph.D.
As the director of the Center for Higher Education at the Texas Public Policy Foundation, Lindsay knows current college studies and statistics like the back of his hand. The amount of time students study has dropped by 10 hours since the 1960s, he says, referring to a study published in the Review of Economics and Statistics in 2011. More than half of students think a college degree is not worth the cost, and 75 percent think it's unaffordable, he says, referring to a 2011 study from the Pew Research Center.
And 36 percent of college students gain little to no increase in their critical thinking, writing skills and complex reasoning after four years, Lindsay says, referring to a study published in the book "Academically Adrift: Limited Learning on College Campuses."
And yet, as learning is going down, prices are going up. Between 2001 and 2010, the estimated cost to attend a four-year public university jumped from $8,653 to $15,918, including room and board, according to the National Center for Education Statistics. During the same period of time, the cost of attending a private not-for-profit four-year institution increased 31 percent, after adjustment for inflation. These are the things that Lindsay and other higher education experts say need to change in order for students to survive going to college.
"Universities have spent so much time and so much money over the last 30 years doing things other than educating students," Lindsay says from his office in Texas. "The result is education is much more expensive and there is much less focus on teaching students."
In order to cut the cost of tuition, universities would need to get creative and adopt a new model, experts say. Schools could offer testing for certification when students are ready, rather than requiring a set number of hours of class time. They could develop more of a working relationship with local high schools and community colleges to establish course credit that counts in college.
They could expand their online interaction, increase the hours professors teach and decrease the number of administrators. They could streamline the number of majors they offer, use their buildings seven days a week, year-round and stop subsidizing sports, says Richard Vedder, director of the Center for College Affordability and Productivity.
But that's something colleges don't have much incentive to do.
Experts argue that a lack of competition between existing universities and would-be universities filtered out through the accreditation process cuts down on the motivation to lower prices. And there is even some evidence that colleges that raise their prices do better because people equate price with quality, says Andrew Kelly, a research fellow in education policies at the American Enterprise Institute.
"What most of the elite (universities) have in common is they charge a lot of money," Kelly says. "You have a system when you have an expensive product to provide, and when revenue from one source drops, you have a few options. Reduce the cost of providing it or raise the price charged to consumers, and as long as they keep coming in to fill the seats I won't worry about it."
Worth the sacrifice
Andrew and Sutton Jensen worry plenty about how much they're paying to fill a seat in their respective universities. But rather than leave their monetary fate up to the school, they've taken matters into their own hands.
They chose to attend schools that were close to family so they could score free housing — in a basement. They share one modest car that they paid off before starting their second degrees. And they have no debt from their undergraduate education.
They watch with some longing as their fellow students get their own places to live, take vacations and start to have children. But they know those students owe double or triple the amount that they do, so the Jensens hold back.
When Andrew Jensen finishes school this spring with a master's degree in public policy from American University and his wife finishes her accelerated second bachelor's degree in nursing from Georgetown University, they will owe less than $50,000 between the two of them.
"It's been hard at times, because sometimes when you're 'sacrificing,' so to speak, you just wonder to yourself, 'When will I start paying this off? When will this be done and out of the way?’ ” Andrew Jensen said this winter from his in-laws' house in Virginia.
Students are increasingly borrowing money to pay for college. In 2007-08, approximately 49 percent of full-time undergraduates at public four-year institutions received federal loans, compared with 61 percent of students at private, not-for-profit four-year universities, according to the National Center for Education Statistics. It's ironic, but experts say the loans students use to pay for school could be part of the problem that is making college more expensive, thus students have an equal role in altering how universities function.
"I think it's a contributing factor," Vedder says. "What we put in as a well-intended program designed to help lower-income students make it through college has a sort of unintended consequence, if not the opposite effect, that while there are more dollars being handed out, the cost of going to college has gone up so much the added aid has not increased (their) participation."
But there is a bright side. Aside from living frugally, experts say students can make choices that will significantly decrease their debt burden and increase the value of their education. For one thing, they can choose to have a job while in school. While the number of full-time students who work more than 35 hours a week has increased slightly in the last three decades, the number of part-time students who work 35 or more hours per week dropped from 60 to 37 percent between 1970 and 2009, according to the National Center for Education Statistics.
On average, female students work more while in school than their male counterparts. In 2010, about 17 percent of full-time female students worked 20 hours or less a week, compared to 13 percent of men, according to the National Center for Education Statistics. Similarly, women graduate at higher rates than men. According to a 2012 study of graduation rates in higher education, the odds of a man starting college in 2004 and earning an associate's or bachelor's degree by 2009 were 32 percent lower than the odds of a woman obtaining a degree in the same circumstances.
Another thing students can do to keep their debt in check is to choose a degree that directly correlates with a practical career path. Gone are the days when college was a luxury of discovering self-identity, says Kevin Carey, director of the Education Policy Program at the New America Foundation.
"Now that college is more expensive, the stakes are higher for these decisions," Carey says from his Washington, D.C., office. "You can't go anywhere and take some classes and maybe you finish and maybe you don't. If you're going to be walking out of school with debts to repay, you can't afford to not be serious about it."
The Jensens learned that lesson a long time ago. There are days when they'd like a little more privacy, and days when they might like a little more freedom. But in the end, they believe their financial restraint is worth it.
"It goes without saying that we had to sacrifice a lot of things to be at this level, but it's going to pay off," Andrew Jensen says. "We clearly understand that by saving money now and being frugal and conservative, later in life we'll have more flexibility."
The long run
It's the times when Mark Smith thinks about buying a house or working at his dream job that he wonders if law school was worth it. House, job, family — it's all tied to that law school loan.
"Anything like that is so far off for me that I don't even consider it," Smith says. "If I increase my salary, you'd think I could afford a home, but my student loan will go up and I'll be paying more then."
Two years out of law school, Smith earns a base salary of less than $40,000. His loan payments, about $100 a month, are determined by an income-based repayment plan that was established the first year he graduated, when he was making less than $25,000 a year. The $100 a month doesn't even keep up with the interest accumulating on his loan, never mind the principle, and it will adjust this year, based on his increased income.
If Smith didn't adhere to an income-based payment plan, his monthly payment would be about $2,000 a month — more than 60 percent of his monthly income. With rent ($1,325), utilities ($300), cellphone ($170), car insurance ($70), payments on his wife's student loan ($150) and consumer debt from moving to Washington, D.C. ($300), paying $2,000 a month is out of the question.
And Smith is not alone in his predicament. Many recent graduates in his shoes are making the same decisions — putting off having children, not buying a house, choosing a job based on pay rather than principle. While the student debt alarms some economists, it is the long-term impact of a debt-saddled population that raises more worry among education experts.
"When you combine larger amounts of debt for a larger amount of students with a weaker job market, that combination is not a good one and it will have serious long-term effects on people's ability to be prosperous and financially independent," says Carey.
The prospect and ramifications of debt for education is daunting, but on the other hand, the collective voice that told Smith that law school was a good investment wasn't totally mistaken. In 2010, men who earned a master's degree or higher made twice as much in their median annual salary as those who had a high school diploma, according to the National Center for Education Statistics.
Higher degrees at well-known universities also help students make contacts and have access to alumni networks that can help them have an advantage, says Rick Hess, director of education policy studies at the American Enterprise Institute. Employees may be more willing to consider graduates from certain schools over others as a means of weeding out an overwhelming pool of applicants.
But students must be wise, because the benefits of a diploma from a more expensive, better-known institution can be lost, Hess warns.
"The big impact is on your first job," Hess says. "If you go to a respected institution and then you go and make candles for a decade and come back, you have lost most of the benefit. Most of the benefit is as long as you stay on the treadmill. That's a reality."
After graduating, Smith has done his best to stay on the treadmill, but at this point, he's thinking about changing the speed. While money is always an issue, he has a new reason to look for more financial stability — a baby is on the way. It was now or never for Smith and his wife, and they chose now.
"We took it on faith that things would work out," Smith says, sounding excited and scared. "This baby is the only opportunity we have. We're just going to have to try to make ends meet somehow."
Questions to ask
Questions to ask when considering a college, according to Kevin Carey, director of the Education Policy Program at the New America Foundation:
How many students graduate from this college?
How much debt am I going to walk out with?
What is my monthly payment before me?
How many people before me paid back their debt?”
Answers to these questions for specific universities can be found on College Navigator, a free online service provided by the National Center for Education Statistics and the Institute of Education Sciences.