The Contract For College

Education has long been recognized as a primary means of improving one’s economic prospects. Today, a postsecondary degree or certificate has become increasingly necessary for earning a middle-class living. The last two decades have greatly heightened the demand for a highly educated workforce—and the earnings differential between those with and without college degrees has widened substantially. A worker with a bachelor’s degree now earns about 66 percent more than a worker with only a high school diploma. Over a lifetime, that wage gap will add up to over $1,000,000. At the same time, a college education has become more difficult for students from modest backgrounds to afford.

The rising cost of higher education is a problem in and of itself—and colleges and universities must act to keep their tuition in check. But students are also hindered by the way student aid is allocated. Over the last 20 years, federal financial aid has steadily shifted away from grant-based aid to a predominantly loan-based system. As a result, borrowing has become the most common way for students to finance their education. In 2009, the average graduating college senior from a four-year institution was saddled with $24,000 in debt, a number that has been rising steadily. This works out to a monthly payment of $276, or 9.5 percent of the typical graduate’s income. Yet repaying student loans will be even more difficult for many graduates given that the unemployment rate for young degree-holders soared to 8.7 percent in 2009. The picture is still darker for students who left school without completing a degree—of the students who entered college in 2003 (the most recent year for which data is available), 31 percent of those with student loan debt in excess of $22,000 had not earned a degree six years later. The student loan burden is taking a toll on young adults’ lives: almost 1 in 5 significantly changed their career plans because of student loans; nearly 40 percent delayed buying a home and just over 20 percent reported their debt burden caused them to delay having children.

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— Amy Traub, Tamara Draut, and David Callahan.