Loans rise to keep up with tuition

The cost of obtaining a four-year university degree continues to outpace inflation, and in an era of declining federal aid, students are increasingly relying on private bank loans to finance their education, the College Board said Tuesday.

The cost of tuition and fees at four-year public universities rose 6.3% from 2005 to 2006, capping an inflation-adjusted increase of 35% over five years, the nonprofit board announced. At the same time, the amount of federal financial aid available through Pell Grants declined to a new low, the organization said.

“If we want to maintain a strong middle class in this country and remain competitive with other leading economies, we’ve got to make it possible for more young people to benefit from our excellent higher education system,� said College Board President Gaston Caperton.

“What we need is a national commitment -- on the scale of the Manhattan Project, the interstate highway system or the Apollo program -- to double the number of college graduates within one generation,� he said.

The College Board, best known for administering the SAT, concluded in its annual report on college pricing that the rate of tuition increases at public universities and colleges has slowed over the last three years but still exceeded inflation by 2.4 percentage points for public four-year institutions.

The news was better at community colleges, where the 4.1% average increase in tuition and fees was only slightly higher than the rate of inflation. (In California, fees at community colleges are scheduled to drop from $26 to $20 per unit in January.)

Nevertheless, the board concluded that the continuing high cost of getting an education prevents many qualified low-income candidates from obtaining a college degree.

“Talented low-income kids are less likely to go to college than high-income students of equal talent,� said Catharine B. Hill, president of Vassar College in Poughkeepsie, N.Y. Hill spoke at a news conference broadcast from Washington.

For those who enroll, the difficulty of paying for an education often means they take longer to get through school -- about 5.3 years for students attending four-year universities, according to a study of graduates in 2000.

Nearly two-thirds of all students rely on some form of financial assistance.

The board found that financial aid from all sources increased by 3.7%, but the amount of federal aid for students declined. Even without factoring in the rate of inflation, the average Pell Grant -- the most important source of financial aid for needy students -- fell by $120, the board said.

“It’s a dramatic decline in the ability of the Pell Grant to cover tuition and fees,� said Sandy Baum, a senior policy analyst with the College Board and a professor of economics at Skidmore College in Saratoga Springs, N.Y.

Last month Education Secretary Margaret Spellings called for a revamping of the financial aid system. She didn’t call for increasing the amount of the Pell Grant, but said she would work with Congress to increase federal aid to needy students.

The amount students borrowed from banks was negligible a decade ago, but it now makes up 20% of student borrowing, she said.

Typically, these loans have a higher interest rate than the loans that students can get through financial aid programs.

Despite the cost, getting a degree pays off for students once they enter the workforce. Graduates under 34 earn an average of $14,000 a year more than their counterparts who do not have degrees.

Caperton said the board’s findings pointed to the need for greater financial aid for low-income students. “Though student aid makes it possible for many students from low- and middle-income families to afford college,� he said, “we still face inequality in access to higher education across ethnic, racial and economic lines.�

The report is posted at college.board.com.

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