When it comes to student loan caps and rising college tuition rates, there is no chicken-and-egg type mystery.
According to a recently released report by the Federal Reserve Bank of New York, colleges and universities react quickly to increases in federal student loan funding, eagerly gobbling up the limits of what is made available.
Private colleges are among the biggest culprits in raising tuition to pace (or outpace) student loan availability.
These schools raise their tuition by an average of 65 cents for every dollar the federal subsidized loan program raises its cap, the report revealed. The costs surge by 55 cents on the dollar for Pell grant increases afforded to low-income students.
The scenario has set up college tuition rates to far outpace U.S. inflation for years.
Rising Debts, Rising Costs
With the annual cost of tuition at some private colleges running $65,000, the overall pool of outstanding debt has climbed to $1.36 trillion, the Federal Reserve Bank reports.
Government loans represent the lion’s share of that number, adding up to nearly $1.2 trillion. All told, an estimated two-thirds of undergraduates take out loans to fund their education.
In 2012 alone, students borrowed $120 billion, which was up dramatically from the $53 billion logged in 2001. The federal government backed 90% of those loans.
Between 2001 and 2012, tuition rose by 46%.
20 Schools Capture High Percentage of Graduate School Loans
A separate report released by the Center of American Progress revealed that a handful of American universities, public and private both, are responsible for a large percentage of student loan borrowing at the master’s degree level.
The 20 universities in question enroll some 12% of the total of the country’s graduate student population and accounted for some 20% of all graduate federal loans issued in the 2013-14 academic year.
Schools on the list of top creators of graduate student loans come from all over the country.
Walden University leads the list, followed by Nova Southeastern University and the University Phoenix. George Washington University, Rutgers and Columbia are also among the 20.
With college tuition costs surging along with student loan dollars, the Federal Reserve report likens the developing scenario to the mortgage crisis.
Referencing the 46% rise in tuition between 2001 and 2011, the reserve’s report noted the surge on average tuition costs resembles “the twin house price and mortgage balance booms.” Whether the bottom will fall out as it did with the housing market remains to be seen.
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