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Public Universities Still Reeling from Great Recession — Plan Accordingly

David Leonhardt wrote an op-ed piece in the New York Times last week about the Great Recession's lasting damage to state funding of public universities, and how it has contributed to the hardships of lower- and middle-income Americans:

The country’s most powerful engine of upward mobility is under assault.

Public colleges have an unmatched record of lofting their students into the middle class and beyond. For decades, they have enrolled teenagers and adults from modest backgrounds, people who are often the first member of their family to attend college, and changed their trajectories.

The situation is particularly demoralizing because it’s happening even as politicians from both parties spend more time trumpeting their supposedly deep concern for the American dream. Yet government policy is hurting, not fostering, many people’s chance to earn the most reliable ticket to a good job and a better life.[...]

Over the last several years, however, most states have cut their spending on higher education, some drastically.[...] Since 2008, states’ per-student spending on higher education has fallen 18 percent nationwide, according to inflation-adjusted numbers from the Center on Budget and Policy Priorities. The cuts have occurred in both blue and red states, with somewhat larger ones in Republican-run states.

States dramatically cut funding to their respective public universities during the 2007-2009 recession, but when their economies, and their tax coffers, rebounded, their higher education funding did not. Leonhardt broke down the 18 percent nationwide decline in per student funding by state in several graphics. Below I include his chart on all 50 states, and for three states of particular concern to many of my readers, California, Colorado, and Texas.


Source: The New York Times; Center on Budget and Policy Priorities


As a result of the significant cuts in state funding, American public universities have been scrambling to make ends meet, mainly by raising tuition and by increasing their mix of higher paying students. The cost of attending college has risen dramatically for all Americans over the past 10 years, but no more so than for lower- and middle-income Americans.

The New York Times developed the College Access Index to track how "committed" each American university, public and private, is to the economic diversity in their student body, to promoting the American dream. The index is based upon the ratio of students receiving Pell grants (these students typically come from families in the lower half of the income distribution), the rate at which these Pell grant students graduate, and the net price (after grants, loans, and work study income) of room, board, and tuition for lower- and middle-income students (from households earning between $30,000 and $75,000 annually).

Many public universities have responded by enrolling fewer poor and middle-class students — and replacing them with affluent students who can afford the tuition.[...]

In the last few years, many flagships have begun to recruit more upper-income students from outside their state, including from overseas. Those students don’t qualify for in-state tuition or for much financial aid — and thus help bolster the colleges’ budgets.[...]

At the public colleges in the index, the average share of last year’s freshman class receiving Pell grants — which means they typically come from the bottom half of the income distribution — fell to 21.8 percent, from 24.3 percent in 2011-12.[...]

Some of the biggest declines have been in the University of California system, which has long been the most economically diverse place in elite higher education. On the San Diego campus five years ago, 46 percent of freshmen received Pell grants. Last year, the share had dropped to 26 percent.[...]

The thrust of Leonhardt's piece is that cuts in state funding to public universities have noticeably reduced the ratio of lower- and middle-income students at these universities. What he does not discuss is the burden from the dramatic expansion in debt being taken on by students and their families, over the last 10 years. Student debt has risen at a staggering 10.2% annual rate over this time, massively ahead of underlying 1.75% consumer price inflation rate. At $1.438 trillion, student loan debt now exceeds credit card and auto loan debit. About one-half of student loan debt is in its grace period when no payments are due. But of the other half, over 20 percent is currently "seriously delinquent," meaning a payment is over 90 days past due.

It would seem that cuts in state funding to public universities are likely to be a major contributor to this serious issue. The American dream is endangered.

Source: AlphaGlider, Federal Reserve Bank of New York Consumer Credit Panel, Equifax

What is a young American family to do? The first step is to understand the magnitude of likely cost of your children's higher education, and begin to save accordingly. The next step is to find the most appropriate savings vehicle for your situation — in most cases this is likely to be a low cost 529 Education Savings Plan. Below is a quick video I put together three years ago on the virtues of the 529, back before AlphaGlider began managing them. By the way, happy 5/29 day!

"But before any great things are accomplished, a memorable change must be made in the system of Education and knowledge must become so general as to raise the lower ranks of Society nearer to the higher. The Education of a Nation, instead of being confined to a few schools & Universities, for the instruction of the few, must become the National Care and expence, for the information of the Many."

— John Adams, in a letter to Matthew Robinson Jr., March 23, 1786