IS A HIGHER EDUCATION WORTH IT? Trends in College Affordability Jenny Chandler Sallie Mae

Agenda This presentation is an overview of trends in the industry and the value of a college education Factors Impacting Higher Education Myths & The Larger Story Affordability and the Middle Class

Factors Impacting Higher Education

$1.2 Trillion in Outstanding Education Loans The outstanding balance for the private student loan market is estimated to be 7.5% of the total outstanding balances Through September of 2014, Federal outstanding balances were $1,130B and Private outstanding balances were $92B Source: MeasureOne Private Student Loan Performance Report Q3 2014 38 Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved.

Student Debt Levels Student Debt Levels Myth The Larger Story Student debt is at a crisis level. The Larger Story More students are going to college and therefore, more students are borrowing. Those who do are borrowing more....

Graduate & Undergraduate Enrollment In the Fall of 2013, there was a slight decrease (1.4%) in overall postsecondary enrollment after a relatively flat year prior. In the Fall of 2013, there was a decrease in undergraduate enrollment (1.6%), while graduate enrollment was flat YoY. IPEDS Fall Enrollment Survey (actuals through December 2013, released November 2014)

History of Student Loan Volume Source: Department of Education, Federal Student Aid Data Center, Federal Student Outstanding Loan Portfolio Summary; Private education loan volume estimated based on data from Measure One, “Private Student Loan Report,” December 2013 Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. 39

National Student Clearinghouse Enrollment Data Fall 2014 U nit Change YoY AY 13/ 14 AY 14/ 15 Public NFP 4 yr 26,510 169,057 Private NFP 4 yr 46,986 61,512 Public NFP 2 yr -209,311 -390,265 For Profit 4 yr -141,990 -5,940 T otal -32,916 -99,794 *Actual figures, not in ,000’s Total enrollment for the Fall 2014 semester declined (1.3%) YoY Enrollment decreased among two-year public institutions and four-year for-profit institutions Enrollments increased among four-year public institutions and four-year private non-profit institutions Part of the decrease in two-year public enrollments is due to institutions being reclassified in IPEDS as four-year institutions. Without these reclassifications, two-year public enrollments would have decreased by 3.4%and the growth in four-year public enrollments would have been 0.4%. *The Other bucket includes two-year for-profits and two-year private nonprofits **Source: National Student Clearinghouse, Term Enrollment Estimates (actuals through Dec 2014) .

College Costs Continue to Increase *Amount includes an enrollment weighted average including both in- state and out-of-state tuition amounts. *From AY 04/05 to AY 14/15, the average published tuition at private institutions has risen 56%, while those at public 4 year schools has risen 78% and 61% at 2 year schools. SOURCE: College Board Trends in College Pricing 2014.

Net Price – Not for Profit 4 Year From AY 04-05 to AY 14-15, the average net price at private institutions has risen 26%, while those at public schools has risen 59%. Private Avg Published COA $27,466 $28,746 $30,493 $31,990 $33,800 $35,071 $36,465 $37,968 $39,445 $40,954 $42,420 Growth in Published COA 5% 6% 4% Avg Net COA $18,682 $19,413 $20,499 $21,376 $21,779 $20,835 $20,689 $21,383 $22,107 $22,453 $23,550 Growth in Net COA 2% -4% -1% 3% Discount Rate 32% 33% 36% 41% 43% 44% 45% Public $11,376 $12,114 $12,838 $13,560 $14,375 $15,230 $16,178 $17,154 $17,819 $18,384 $18,940 8% $8,069 $8,685 $9,199 $9,713 $10,082 $9,988 $10,505 $11,683 $12,203 $12,393 $12,830 9% 11% 29% 28% 30% 34% 35% • The average net tuition amount is difference between the total published tuition and fee amount and the average institutional grant amount. Discount rate is the grant amount over the published tuition amount. • In AY 14/15, the discount rate at private 4 year schools decreased for the first time in over 10 years. 21 Source: College Board 2014 – Trends in Student Pricing Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved.

Financial Aid - Mortgage Level of Debt Mortgage Level of Debt Myth Students borrow over $100,000. The Larger Story Only 4% of individuals with outstanding student debt owe $100,000 or more. Most had pursued advanced degrees! Trends in Student Aid, 2013

Student Debt Levels

News Stories are Unrepresentative

Higher Debt Student Borrowers are Defaulting at a Lower Rate The Fed researchers show that the higher the debt burden, the lower the default rate. Those with burdens above $100,000 had the lowest rate at 17.6%. Likely reasons: Individuals with small loan balances did not finish their education. Low-balance borrowers attained credentials such as certificates that don’t lead to the kind of jobs and salaries that a bachelor’s degree does. Many borrowers with large loan balances are people who graduated from master’s programs and professional schools who typically end up with generous salaries Source: Federal Reserve Bank

Education has lost it’s value Myth Some families believe College cost has outpaced its value. Truth College graduates make more money, on average a BA degree earns $30,000 annually more than HS 63% of jobs will require some college education or a degree

How Value-Added is Calculated Brookings: Beyond College Rankings - The Value Added Approach to Assessing 2 Year and 4 Year Schools 2015

Will the Benefits Cover the Costs? Subtracting the costs from benefits yields a net return on college of over $420,000 Students paying $9,000 in annual college tuition for four years can break even and begin earning additional returns in nine years When tuition reaches $45,000 per year, which covers nearly all public colleges, the costs can be recouped in 17 years For those who graduated at age 22, the investment is paid in full before age 40 Federal Reserve Bank Current Issues in Economics and Finance “Do the Benefits of College Outweigh the Cost?”

Is a College Degree Really Necessary? No matter where a person starts, going to college increases the chances of moving up the economic ladder Graduates from the bottom 20 percent are over six times as likely to reach the top than those who don’t go to college The impact is also striking for those born into the second lowest 20 percent; their chances of getting to the top are five times higher with a college degree

Overview of Findings from Federal Reserve The average college graduate earns enough “extra” to recover the cost of attending most colleges in fewer than 15 years Over the past 40 years, the college earnings premium has averaged about $20,300 per year During the recession, college graduates faced unemployment rates about half as high as those for high school graduates Source: Federal Reserve Bank Current Issues in Economics and Finance “Do the Benefits of College Outweigh the Cost?”

How do your families view affordability?

What is middle class?

Define the following… Write middle class on one side, the other affordability. Provide your definition of: Middle Class Affordability

American Middle Class Everyone wants to believe they are middle class...But this eagerness...has led the definition to be stretched like a bungee cord — used to defend/attack/describe everything...The Drum Major Institute...places the range for middle class at individuals making between $25,000 and $100,000 a year. Dante Chinni Middle class is a socioeconomic term, whereas middle income is a calculable number. So, middle class involves perceived reality and is relative.

2014 US Class Structure

What is Middle Income? Is dependent upon the population Census (all citizens, employed, unemployed, retired, etc.) Only those families with college going age children Only those families with college going age children who are applying to a CSS/FA PROFILE school Real School Census PROFILE Filers 25th Percentile $34,000 $56,000 Median $52,250 $111,186 75th Percentile $107,000 $181,294

Median Family Income & Poverty Guidelines

Median Income - Michigan Household Size Median Income Total Average $ 58,632 2- person families $51,760 3- person families $61,301 4- person families $73,354 5- person families $70,363 6- person families $61,331 7 or more person families $53,826 http://www.census.gov/hhes/www/income/data/statemedian/index.html

What is Affordability?

Affordability…messages to consider Does affordability change depending on the perceived value of the education or the institution? Does affordability change if I saved and can contribute vs borrow or rely on aid? Is this a question about sticker price or net price? Is affordability a question about ability to pay or willingness to pay? Does the public still believe that there is a social value to education for all? ….What else is a topic heard and how do you respond

Questions?