Desperemus Igitur: Universities and the Recession

The class of 2009 will be almost the largest in America’s history. More than 3m students are getting their high-school diplomas in late spring. Those who plan to go on to university have been told for years to expect a rough time: with so many students applying, winning admission to their college of choice will be a challenge. But those who clear that hurdle will find that their problems are just beginning.

College life is an enviable set-up given the job market at the moment. It comes at a price, though: an average of roughly $25,000 per year at a private university, and $6,600 at a state one. That was this year, and next year it will in most cases cost a bit more. That is ominous for students and the people who fund them. Parents have lost jobs, and seen their savings wither. “I think more parents are being emboldened to ask for more money, or to ask for financial aid, period,” says James Boyle, the president of College Parents of America.

But few universities are in a position to help. In more than 20 states, cash-strapped legislatures are talking about cutting funding or have already done so. Many public universities are therefore raising tuition fees. The private schools without big endowments are in a tight spot: they need tuition to pay their operating costs.

Top colleges with fat endowments are doing better, but they are still struggling. For years, Yale University’s endowment fund posted double-digit returns. In fiscal 2000 it gained 41%. Institutional investors marvelled. The fund’s manager wrote a book about it. In December, Yale’s president announced that the value of the endowment had fallen 25% since June. That is not unusual. A new study of 235 universities found that their endowments dropped, on average, by 24% in the last six months of 2008.

Students can borrow tuition money, but that has problems of its own. The danger is that they will end up like so many of their older siblings, saddled with loans. Cautionary tales abound. Robert Applebaum, a lawyer in New York, began his legal career as a prosecutor before deciding that, with $75,000 in law-school loans, he could ill afford to stay in the public sector. He started a Facebook group on a whim earlier this year: “Cancel Student Debt to Stimulate the Economy”. Three months later, it has more than 180,000 members.

The Facebookers have a point. If the younger generation is crushed by debt too early they will not be able to pay for the baby-boomers in retirement. But Sandy Baum, a senior policy analyst at the College Board, says that cancelling all student debt would be arbitrary and irrational. She prefers targeted loan relief: as of July 1st graduates who work in low-paying jobs can have their federal loan payments capped at a certain portion of their income. People who work in public-service jobs like teaching can have part of their federal loans forgiven altogether.

Decision time looms. The college acceptance letters have been arriving during the past month, and in many cases students have to reply by May 1st. Another annoyance for the admitted students is that they have little bargaining power. If they threaten to take their money elsewhere, the college will seldom worry, let alone offer discounts or better loans. There is always a waiting list, and an especially big one this year. But at least this year’s crop of young things will find they have plenty of friends in the same boat. (The Economist)

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