Nearly 21 million Americans attend college each year. For students and families contemplating how much they’ll have to pay for a college education, it can feel like they’re chasing an impossible dream. College costs have risen much faster than average inflation for decades.
According to Gordon Wadsworth, author of The College Trap, college tuition that cost $10,000 in 1986 would now cost more than $21,500 – if the cost of education had increased as much as the average inflation rate. Instead, the actual cost of that tuition is now $59,800, more than 2½ times the rate of inflation.
In spite of a rise in federal student aid, including tax credits and deductions, financial aid programs still come up short in meeting the tuition bill each semester. Nearly two-thirds of undergraduates now receive some sort of grant aid, and student loan borrowing is on the upswing.
Rather than using savings or putting their homes on the line with home equity financing, many families are turning to alternative or private student loans to help pay the cost. The private/ alternative loan financing market is the fastest growing source of student financial aid today, according to college resource guide Petersons.com.
The state of student lending
- Close to 12 million college students, about 60 percent, borrow to help cover costs. (Chronical of Higher Education)
- There are approximately 40 million Americans with at least one outstanding student loan, up from 29 million in 2008. (Experian and CNN Money)
- A steadily increasing share of younger people are taking out student loans. In 2004, 27 percent of 25-year-olds had student debt; by 2012, that had increased to about 43 percent. (The Financial Brand)
Look on the bright side
Beyond the doom-and-gloom headlines that dwell on rising student debt and delinquency, there is a significant opportunity for financial institutions in the private student loan space. As college costs continue to rise, so does the need for reasonable funding options.
According to FinAid.org, a resource for financial aid information, business for private student loans is expected to see annual growth at 25 percent, overtaking the government’s share of lending by 2025. Current market dynamics favor this growth, and Forbes magazine pegs the potential opportunity for school loans and refinancing programs represent at as much as $120+ billion per year with potential annual profits of $12-13 billion per year.