Alternate Methods of Paying for College Tuition and Dealing with Our Nation’s Debt

Posted on by Charles Carlin

The college graduation class of 2014 graduated with the highest average debt of any college class in the history of our country.1 College student’s student loan debt now amounts to $1.2 trillion dollars, and economists and business leaders are beginning to worry that student loan debt, which amounts to 6% of the total national debt, is affecting our economy.2

Christ Denhart, a writer for Forbes, notes that this level of student debt has negative consequences for the rest of the economy.3  One of which is hindering economic growth, another being increased interest rates, and a third being that if the student defaults on their loans, taxpayers pay for the uncollected loans.  4 In any case, the huge amount of student loans are making life tougher for college graduates, either because the lagging economy is not producing the job opportunities needed to pay off their loans, the high interest rates make it harder for recent graduates to get the loans they need for a mortgage, or just delaying new professionals from beginning to save for later in life.5

Successful entrepreneur, Mark Cuban, has also weighed in on the issue.  Cuban’s suggestion is to, “limit the allotted amount of loans each student is allowed to receive each year to no more than $10,000.”6  Cuban believes this would lead universities to decrease the cost of tuition and that, because young college graduates will not be ‘bootstrapped’ by their college loans, they will put the money back into the economy.7

Putting Cuban’s solution aside, there are several new ways that college students are funding their education, and they do not involve taking on student loans, at least in the traditional sense.  One of those ways is Crowdfunding.  Madeline Stone from Business Insider reported that “college students are turning to sites like “GoFundMe,” “Pigit,” and “Zerobound” to raise funds to cover tuition, living expenses, books and other school supplies.”8  “GoFundMe,” one of the crowdfunding sites listed above, reported crowdfund campaigns relating to “tuition” have increased by over 4000% since 2011. 9  In addition to the number of crowdfund educational campaigns increasing, the amount of donations has drastically increased as well.  In 2013, GoFundMe campaigns raised $4.63 million for education. 10  But already in 2014, GoFundMe campaigns have raised $13.14 million.11

Crowdfunding is not the only new option for college students looking for help on their loans.  Venture capital firms also want a piece of the action. 13th Avenue Funding, a venture capital firm aimed at funding students’ college education, considers student loans akin to equity, and “places bets on a student’s potential achievements and earnings.” 12  A few years ago, 13th Avenue Funding sponsored four students at a community college as they transfered to a traditional four-year college. 13  Once the students graduate, the students “must pay a percentage of their salary each month if they make more than $18,000 and if they make more than $25,000 a year they’re required to pay 13th Avenue Funding 5% of their income for the next 15 years.” 14

It is not just private actors participating in this process either.  In 2013, Oregon decided to develop a new program aimed at getting rid of tuition and fees for students in Oregon state schools. 15  In this program, the state of Oregon will not charge tuition and fees for those students who pay “about 3% of their income for the next 20 years” to assist other students to attend Oregon state colleges.16  This New York Times article notes that Oregon adopted this new plan “on the same day that federal student loan interest rates doubled to 6.8 percent from 3.4 percent.”17

Whether or not you think these are good ideas, it is certainly interesting how alternatives to traditional federal student aid have developed.  Hopefully, perhaps in one of the ways suggested above, the rapid growth of college tuition and student loans will be checked.

  1. Jon Fortenbury, How Much Student Loan Debt Is Too Much?, USA Today (Aug. 26, 2014), http://college.usatoday.com/2014/08/26/how-much-student-loan-debt-is-too-much-2/. ↩

  2. Chris Denhart, How the $1.2 Trillion College Debt Crisis Is Crippling Students, Parents and the Economy, Forbes (Aug. 7, 2013), http://www.forbes.com/sites/specialfeatures/2013/08/07/how-the-college-debt-is-crippling-students-parents-and-the-economy/. ↩

  3. Id. ↩

  4. Id. ↩

  5. Id. ↩

  6. CNBC, Lower Student Debt to Save the Economy, CNBC 25 (Oct. 13, 2014, 11:35 AM), http://www.cnbc.com/id/102078906. ↩

  7. Id. ↩

  8. Madeline Stone, Tons of College Students Are Now Crowdfunding Their Tuition On the Internet, Business Insider (Sept. 17, 2014), http://www.businessinsider.com/college-students-are-turning-to-internet-donors-to-pay-their-tuition-2014-9. ↩

  9. Id. ↩

  10. Id. ↩

  11. Id. ↩

  12. Courtney Subramanian, This Venture Capital Firm Bets on College Students, NationSwell Beta (June 13, 2014), http://nationswell.com/venture-capital-college-student-debt-13th-avenue-funding/#. ↩

  13. Id. ↩

  14. Id. ↩

  15. See Nancy Folbre, Let Your Rich Uncle Pay for College, N.Y. Times Economix Blog (July 15, 2013, 12:01 AM), http://economix.blogs.nytimes.com/2013/07/15/let-your-rich-uncle-pay-for-college/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_r=3&. ↩

  16. Id. ↩

  17. Id. ↩

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