College Costs: How to Maximize Your Return on Investment
College is a major investment. But, if campuses remain shuttered in the fall due to the novel coronavirus (COVID-19) pandemic, will your student get his or her money's worth from virtual classes? Though universities may provide rebates for unused room and board costs, they're unlikely to offer discounts on tuition costs if classes remain online.
This unprecedented situation comes at a time when many families are struggling to make ends meet due to job losses and salary cuts. Likewise, many institutions of higher learning are struggling with declining enrollment, including fewer out-of-state and foreign students, more students in need of financial aid and endowment funds that have decreased in value.
Here's what families with kids in college — or nearing college age — should consider, along with tips to lower the cost of going to college.
Rising Tuition Costs
For the 2019-2020 school year, the College Board estimates that the average annual cost of tuition and fees was $10,440 for in-state students at public four-year universities — and $36,880 for students at private not-for-profit four-year institutions. These estimates don't include room and board, books, supplies, transportation, and other expenses a student may incur.
Some students pay more than the average cost. But most end up paying less than the sticker price. How? Tuition sticker prices don't factor in grants, scholarships, and tax benefits, such as:
- The American Opportunity credit,
- The Lifetime Learning credit, and
- The deduction for qualified tuition and related expenses, which was extended through 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2019.
After adjusting for these cost-savers, the average cost of tuition and fees for the 2019-2020 school year dropped to only $3,870 for in-state students at four-year public universities and $14,380 for students at private nonprofit four-year schools. Proactive students may be able to take additional measures to lower their bills below these averages.
Stay on Track
The most important thing your student can do to lower his or her college cost is to graduate on time. Unfortunately, many students get sidetracked.
The College Board reports that only 41% of 2015-16 bachelor's degree recipients completed their degrees within four years of first enrolling in college, and 59% finished within five years. For 16% of 2015-2016 graduates, their college experience lasted more than a decade.
One way to help increase your student's chances of on-time graduation is to encourage him or her to earn college credits during high school. Many secondary schools offer advanced placement (AP) classes or dual enrollment opportunities at local colleges. These are cost-effective opportunities for driven, college-bound juniors and seniors to get ahead while still at home.
Ask for Outside Help
Another important step is completing the college's financial aid forms, including the Free Application for Federal Student Aid (FAFSA) form. Regardless of your family's income level or net worth, it never hurts to apply. You might be surprised by what you receive, especially from a smaller private university.
A common pitfall when applying for financial aid involves retirement income. You don't include it as an asset on the FAFSA or any supplemental financial aid forms. For the purposes of financial aid, your retirement savings generally aren't considered when aid is calculated.
Depending on the school, a different methodology or combination of formulas may be used to calculate financial aid awards. At some schools, parents must fill out the FAFSA and generally fill out another form that asks for additional information.
Some private colleges and universities use the Institutional Methodology, which penalizes families with a great deal of home equity but permits more generous treatment of items such as medical expenses, elementary and secondary school tuition, and child support. It also assumes the student will spend some time each year working to earn money.
Another methodology, called the Consensus Approach, is used by certain private colleges and universities. Among its principles: Students' assets and parents' assets are treated the same to discourage families from moving assets between generations.
To make matters more confusing, even if a college uses one of the formulas described above, it can still be flexible when awarding its own money. In other words, when awarding federal grants, loans, and most state aid, the federal formula is used, but when awarding a school's own money, each school a student applies to may make calculations differently.
Important: Before the 2020-2021 school year starts, consider asking about last-minute financial aid. Have your child check in with his or her preferred college's admissions office this summer, especially if your financial situation has changed. School officials may have offered scholarships or grants to students who declined the awards and chose another school. That leftover aid money may now be available to other students.
Pursue Loans and Scholarship Opportunities
There are several types of federal and private loan programs that your student may qualify for. Be sure to review the terms and conditions of each loan option carefully with your student.
Parents who fill out the FAFSA also may qualify for federal parent PLUS loans. Or they may be eligible to take out private parent loans through a bank, or to co-sign with their children on private student loans. But beware: You shouldn't compromise your own financial security — or your plans to save for retirement — to pay for your child's college costs.
Above all, never borrow more money than what's needed for legitimate college expenses. Some programs make it too easy to borrow extra spending money that a student can use for, say, travel or entertainment expenses, causing a hefty loan balance to accrue by graduation.
In addition, there are billions of dollars of scholarships available to students but to be considered, your student must put forth the effort to apply. In fact, many schools have upped the ante on scholarship offerings to attract students from a diminishing pool of high school graduates. And these scholarships are generally available no matter how high your income is. So even if you don't qualify for need-based aid, you may qualify for merit-based or other scholarships.
Every dollar your child receives in scholarships is a dollar you won't have to pay out of pocket. Finding scholarship opportunities requires research, however. Your student's high school guidance counselor may be able to provide valuable assistance.
In addition to private merit-based scholarships, there are state-funded scholarships to explore. These are designed to keep the top students at in-state colleges and universities. It might convince you to reconsider a state university, instead of the pricier out-of-state option.
The Internet is also chock full of information about access to college scholarships. But beware: Some information published online is inaccurate, misleading, or even fraudulent. For example, scam websites might charge a fee for the "inside scoop" on scholarships, or they might ask for personal information or credit card numbers that can be used to steal the identity of you or your student.
Most scholarships have hard-and-fast deadlines, with an application process that requires recommendation letters, transcripts, essays, and other supporting documentation. Make sure to keep fastidious records of the process and read the fine print on each application, so you don't miss anything.
To improve your chances of qualifying for scholarships, you may need to complete the FAFSA as soon as possible. Many merit-based scholarships are offered through the colleges and universities your child applies to, and they may require the FAFSA and additional supporting items. In some cases, funding is limited to a fixed number of qualified applicants — so, it's first come, first served.
Important: It may not be too late for recent high school graduates to apply for late-deadline scholarships for the 2020-2021 school year. Some organizations accept scholarship applications throughout the summer and even into the fall.
Budget Living Expenses
Living at home during college or going to the local community college for the first two years can save a lot of money. Due to financial necessity and safety concerns, these options are getting more attention during the COVID-19 crisis. (See "COVID-19-Related Effects on the College Experience," below.)
Staying home isn't right for everyone, however. If your student prefers to go away to college, room, and board will likely be the next biggest expense category.
The College Board estimates that the average cost of room and board for the 2019-2020 school year was $11,510 for students at four-year in-state public universities and $12,990 for students at private nonprofit four-year schools. However, living expenses can vary substantially depending on where the school is located, whether the student lives on or off campus, and whether the student is fiscally responsible.
Many students have never lived on their own — and they often underestimate living expenses when they go to college. Some struggle with basic needs such as food and housing. Teach your student about the importance of following a budget before he or she leaves the nest.
A little frugality can go a long way. For example, your student can lower his or her annual room and board expenses by picking a more cost-effective meal plan while living in the residence halls, drinking home-brewed coffee rather than buying coffee out, or finding a few friends to share an off-campus apartment. In addition, a part-time job can be a great way for students to earn spending money, contribute to education costs, and build their resumes.
COVID-19-Related Effects on the College Experience
In March, around spring break, colleges and students faced an unprecedented situation: Most campuses were closed indefinitely due to the novel coronavirus (COVID-19) crisis. Dorms were mostly shuttered, spring classes were completed online, spring athletics were canceled and campus tours were suspended until further notice.
Now everyone is wondering about the fall semester. Shutting down was the easy part; deciding when and how to reopen is another story.
One Size Doesn't Fit All
A handful of four-year colleges — including University of Alabama, University of Georgia, the University of North Carolina system, University of Tennessee and Texas Tech University — expect to hold classes on campus in August. However, others — including most of the California State University system — have announced that they'll offer online-only classes through year-end.
Still, others are considering ways to alter the academic experience this fall. Possible options include delaying the start of the school year, moving lectures from cramped classrooms to auditoriums or arenas, swapping dorms for hotel rooms with private bathrooms, and playing sports in empty stadiums.
Currently, most colleges are taking a wait-and-see approach to reopening. This leaves existing and prospective students in a state of limbo and puts a damper on what should be an exciting time for students who were planning to go to college.
Grading the Remote Learning Experience
Many students who engaged in remote learning this spring gave it low scores. They say online learning is a poor substitute for face-to-face meetings with teachers and classmates. Remote learning opens doors to academic dishonesty and cyberattacks. Moreover, it largely eliminates supplemental learning opportunities, like labs, performances, internships, field trips, and collaborative projects. Depending on a student's field of study, these learning tools may be essential.
Even if classes do resume on campus in the fall, events that are part of the quintessential college experience — like attending student orientation, cheering on the football team, attending parties, and walking across the stage at graduation — may be temporarily banned or limited to facilitate social-distancing measures. Many families are understandably reluctant to pay high tuition costs for a subpar college experience.
Weighing Financial, Health, and Safety Issues
Some also may not have the financial wherewithal to pay for college this fall. The COVID-19 pandemic has caused financial strains, from layoffs and pay cuts to lower market values of investment funds earmarked for college. Parents who own nonessential small businesses may be struggling to make ends meet. For families who've lost income during the pandemic, college may seem out of reach, especially if they're unable to afford basic living expenses.
Other real-world stresses may affect students' college choices as well. For example, if a student or a student's family member tests positive for COVID-19, it can cause emotional and financial strain on the entire family. There has also been a surge in mental health issues related to job loss and shelter-in-place arrangements.
Safety concerns may factor into the equation, too. Students at out-of-state and foreign universities were blindsided when governments issued lockdown orders in March. Some kids struggled to find a safe, affordable way home. Others had to shelter in place, away from their families.
Revising Your Plan
As we head into the 2020-2021 school year, college students may be reevaluating their options. Here are some examples of ways that families are altering their college plans:
- Some students are considering taking a "gap year" until college life returns to normal. A gap year may give students an opportunity to work and save money to pay for college — and gain valuable life experience. However, work options for recent high school graduates may be limited in today's marketplace.
- Some kids are choosing colleges that are closer to home than they originally planned. Others are opting to attend a local community college for a year or two. Some are switching from campuses in densely populated metropolitan areas to more remote locations with lower risks for COVID-19 infection. These options can save money and minimize health and safety concerns.
- Some families may need to amend financial aid forms completed in late 2019 or early 2020 for changes in financial need caused by the pandemic. Others may find themselves unexpectedly applying for last-minute loans.
- Athletes may be uncertain about whether their sports will be played next school year — and, if not, whether the university will honor scholarship offers.
- Students who were planning to study abroad may postpone travel until a COVID-19 vaccine is widely available — or forgo those plans altogether.
- Students may be unable to participate in corporate internships, clinical training and student teaching programs next year if shelter-in-place orders remain in effect — or they might need to delay those plans, which, in turn, might delay graduation and increase the costs of obtaining a degree or professional license.
In addition, if the crisis continues, on-campus job fairs and recruiting programs may be canceled next spring. This could make it harder for graduating seniors to find jobs in their fields of study.
Applying to College
The crisis has also impacted high school juniors and seniors who were planning to visit and apply to colleges in the coming months. Many will apply to schools they've never visited in-person before; some may even accept college admission offers, sight unseen.
For the class of 2021, some colleges are forgoing standardized testing requirements, because the March and June 2020 SAT and April 2020 ACT test dates were canceled — and testing options for the summer and fall remain uncertain. However, many colleges are expected to use these tests for admissions decisions and financial aid applications. So, college-bound students will need to research what's required at their preferred schools and, if necessary, sign up for standardized tests as soon as possible to reserve a spot before May 2021.
Grade point averages also may be affected by the pandemic. Students with limited access to technology, at-home disruptions and learning disabilities may not adapt well to remote learning. Online grading may be stricter or more lenient than traditional grading — or it might even be waived — depending on local school district policies. These inconsistencies will make comparisons of students from different schools difficult, further complicating the college admissions process.
High school athletes may also be concerned about potential scholarship offers. If 2020-2021 sports seasons are canceled due to the COVID-19 crisis, recruiters may not have the opportunity to see players in action. This could limit some athletes' chances of receiving college scholarships.
Effects on Colleges
Besides deciding when to shut down and restart, colleges are also adjusting to changes brought on by the COVID-19 crisis. The market value of university endowments may have taken a hit during the pandemic, making it harder for schools to cover operating costs. Enrollment may suffer if foreign students — who typically pay full sticker price — are unable to travel to the United States due to COVID-19-related restrictions.
In addition, if a school decides to operate online or otherwise limit its on-campus opportunities, it risks losing student to other schools. In a competitive academic marketplace, new and existing students may decide to enroll at less expensive or closer schools — or colleges that will offer more in-person learning options and extracurricular activities in the fall. Like for-profit businesses, schools will need to balance safety concerns for their staff and students against economic concerns related to preserving income from tuition and sporting events.
These are just a few ideas for ways to lower the cost of college. Your financial advisors can provide additional guidance related to these ideas and help you brainstorm other creative alternatives based on your situation.