The cost of college is the cause of stress for graduates, but it’s now going to start causing the college itself some stress. Colleges that receive federal funding, specifically for-profit colleges and schools which provide training for a trade, are coming under scrutiny by the government. In order to continue to receive the federal funding they are accustomed to, they will soon have to start generating reports proving they are doing what they are promoting they do. That is, helping their graduates get income-generating jobs. The criteria specifically is that the graduates get jobs where their annual student loan payments are no more than 8% of their total earnings, or less than 20% of their discretionary spending.
To put these percentages into perspective let me break down a very typical recent graduate financial scenario for you.
Average income for a student fresh out of college is about $35,000 a year. This boils down to about $1,700 take-home pay a month. Student loan payments tend to average $400 a month. In this scenario, the student loan payments are 23% of their take-home pay. This is not uncommon.
These new standards for for-profit colleges will really crack down on colleges overselling degrees that won’t draw the income they promise. It’s for this exact reason University of Phoenix, the largest for-profit college, has recently announced they’ll be shutting down several degree tracks. This is a preemptive measure to ensure they maintain their funding.
I’m super fascinated by this. Looking forward to seeing how it all shakes out. You can listen to me work it out in this segment of The Pete the Planner Radio Show on WIBC:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.