For most college students, parents are a major partner. They help shape college choices, career paths, and are likely to help foot the education bill. So what parents have to say about the process matters.
A survey of parents by HSBC finds that parents are growing more pessimistic about higher education. Nearly three quarters of those surveyed – 71% – now believe higher education is unaffordable for the majority of Americans.
At the same time, almost two thirds – 60% – consider a college degree to be essential in enabling their children to achieve important lifetime goals.
No doubt skyrocketing tuition costs have fueled parental pessimism. The cost of a college education has risen many times faster than the rate of inflation over the last few decades.
Some critics of higher education have blamed the increased availability of student loans and financial aid, and a new report from the New York Federal Reserve Bank lends some ammunition to that argument.
Higher tuition and loan demand
“When students fund their education through loans, changes in student borrowing and tuition are interlinked,” the report concludes. “Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs—for example, by relaxing students’ funding constraints.”
The authors said they found colleges and universities more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65%.
“We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong,” they wrote.
The analysis found that the subsidized loan effect on tuition is most pronounced for expensive, private institutions that “are somewhat, but not among the most, selective.”
Housing bubble parallels
The Fed report explores an interesting parallel between the rising cost of college tuition and the rapid increase in home prices during the housing bubble. It examines the argument that one big reason home prices escalated so quickly is because so many consumers had access to so much credit they were able to bid up prices beyond what was justified.
While noting there is little empirical evidence linking credit availability and rising tuition, the report notes that the two events occurred at about the same time.
“Yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012, with about 90% of originations in recent years occurring through federal student aid programs,” the authors write. “Against this backdrop of increased borrowing, average sticker tuition rose 46% in constant 2012 dollars between 2001 and 2012, from $6,950 to $10,200, resembling the twin house price and mortgage balance booms.”
Parents, meanwhile, are squeezed between daunting costs and the desire to see their children succeed. The HSBC survey suggests they will continue to go into debt to reach that goal. And the debt may spread across two generations.
Sixty-five percent of parents with children under the age of 5 expect that their children will personally contribute toward their own tuition, and 59% admit their child will need to take on debt in order to do that. Around 3 in 10 – 29% -- of parents surveyed whose children are yet to begin their college education anticipate that grandparents will also share the financial burden.