Bob Samuels, HuffPo: College Students are Using Credit Cards for Tuition

[Amerigo Vespucci]

College Students are Using Credit Cards for Tuition

Bob Samuels

President, University Council - AFT

Posted: March 15, 2010 12:44 PM

http://www.huffingtonpost.com/bob-samuels/college-students-are-usin_b_499322.html

In reading Steven Hill's brilliant Europe's Promise, I came across this shocking statistic, "Over a third of all students in college are now using credit cards to pay for escalating tuition costs". Hill goes on to detail how many of these cards come with initial teaser interest rates followed by variable rates just like the famous subprime mortgages that helped to cause the global fiscal meltdown. This means that students are not only being squeezed by private and public loans, but they are also being set up for a lifetime of fiscal servitude due to the easy credit that these cards promise.

Standing back a bit, we see that as states have reduced their funding for public colleges and universities, tuitions have skyrocketed, and students have been asked to take out multiple forms of credit to finance their educations. Sallie Mae reported in 2008 that the average undergraduate in 2007 carried $3,173 in credit card debt; surely, this number has gone up in the last two years. In fact, according to USA Today, "In 2008, college seniors with at least one credit card graduated with an average of $4,138 in card debt, up 44% from 2004. By comparison, freshmen's average credit card debt jumped 27% to $2,038."

What most people do not understand is that one of the driving forces behind growing student debt is the move to base financial aid on merit and not need. This change has been made so that selective universities and colleges can attract the students with the highest SATs by offering wealthy students "competitive" merit-based financial aid. In turn, the main way that higher education institutions fund financial aid for the wealthy is to raise the tuition rate for everyone else. Not only have private universities mastered this art of the "high fee, high aid" model, but several states and public universities have gone down this path by replacing state aid based on need with state aid based on merit.

As Peter Sacks shows in his Tearing Down the Gates, states like Georgia, have decided that the best way to attract wealthier students with higher SAT scores is to make state-funded grants available for students with high test scores. The end result is that some of the schools from Georgia have increased their ratings in the U.S. News & World Report College Rankings, but students on average are paying more and taking on more debt as students without wealthy parents are being replaced by students who come from the richest families.

To be precise, a transfer of wealth and opportunity is being made from lower- and middle-class families to upper-class families, and to add insult to injury, the non-wealthy students are being forced to take on a lifetime of debt to subsidize the aid for the wealthiest students. Meanwhile, many people are profiting from the student debt bubble that is now being securitized and leveraged at record rates.