Cost of college may be decreasing
Last week, the U.S. House of Representatives approved a bill that would reduce interest rates on subsidized Stafford loans from 6.8 percent to 3.4 percent incrementally by 2011, at which point Congress will have to act to keep the rate from jumping back to its original value. But the bill, which the Senate is set to consider next, is a disappointingly light version of what some Democrats had promised.
Earlier this month, Senators Richard Durbin (D–Ill.) and Edward M. Kennedy (D–Mass.) proposed legislation that would additionally boost the maximum Pell Grant award from $4050 to $5100, limiting loan repayments to 15 percent of a borrower’s discretionary income, and restructuring loan programs to encourage the use of the government’s Direct Loan Program.
The changes in interest rates will, on average, save students graduating this year from a four-year college about $2000 over the lifetime of their loan, but more dramatic measures will be critical to bringing the cost of higher education under control so all young adults have the opportunity to go to the college they would like to attend, regardless of the cost.
For most Carnegie Mellon students, though, these changes are unlikely to let them breathe more easily, because it is Carnegie Mellon that falls short in providing for its students.
In 2005, 19 percent of the average student’s financial aid need went unmet, leaving those students to close the gap with unsubsidized loans with higher interest rates. Most colleges in our peer set meet all of their students’ need with grants, self-help, and more affordable subsidized loans.
Among the universities Carnegie Mellon uses for benchmarking, only Cornell students graduated with more debt on average in 2005, according to self-reported data. The average Cornell graduate left with $27,235 in loans that year, while the average Carnegie Mellon graduate was saddled with $26,500. And that doesn’t include the expensive, privately secured loans of which the colleges might not have been aware. Not only that, but debt upon student graduation from Carnegie Mellon has increased much faster since 2001 than it has for students at our peer institutions.
Without a doubt, Carnegie Mellon is at a disadvantage: With such a short history, the university has not had the time to build an endowment that compares to that of our peers. In fact, the endowment supports less than 10 percent of financial aid given each year; more than 50 percent comes from the annual operating budget. It is impressive that the university provides as much as it does, but that doesn’t change the fact that Carnegie Mellon must do more if it hopes to compete for top students.
If the Senate and President Bush approve the interest rate reductions, Congress will have taken a first step in the right direction. But for Carnegie Mellon, there's a long road ahead before college becomes affordable.