Paying for College Without Going Broke, 2017 Edition - Princeton Review, Kalman Chany (2016)
Part IV. The Offer & Other Financial Matters
Chapter 12. Looking Ahead
Future Trends in College Finance
The world of financial aid and college finance is always in flux. Making any predictions whatsoever is dangerous. However, it is safe to say that college tuitions will continue to rise at a rate faster than that of overall inflation. While we don’t believe that there will be any truly earth-shaking changes in the near future, there are some events unfolding that may be important to watch. For your benefit on this page, we have also included some tips for paying for college in these tough economic times.
FM and IM Divergence
Even though federal regulations have become more liberal over the last few years in terms of defining a student’s “need” (for example, assessing prepaid 529 funds as assets instead of a “resource” that reduced aid dollar-for-dollar by the amount of the withdrawal, and allowing the protection of assets tied to “family businesses”) more and more private colleges are becoming increasingly conservative when it comes to awarding their own funds. Schools are asking additional questions about the existence of (and distributions from) 529 plans that are owned by individuals other than the student’s parents (such as a rich aunt, or grandparent). Even though such 529 plans do not have to be reported on the aid form as an asset, colleges want to know about them, taking the position that a student with a sizable 529 plan funded by Aunt Mary should obviously be in a position to pay more.
With the growth of the Internet in the past few years, many colleges have begun to offer various courses electronically. In addition, a number of new schools have sprung up that offer all of their courses without having students visit a classroom. Unfortunately, these schools are currently unable to offer federal student aid due to restrictions in existing financial aid legislation. When the Higher Education Act (HEA) was reauthorized in 1992, the law was amended to prohibit students from qualifying for federal student aid at any school that has more than 50 percent of its students enrolled in courses as distance learners. As such, students at these Internet schools have had to rely on private loans, which have hefty origination fees and charge a higher rate of interest than federal student loans.
The latest reauthorization of HEA in 1998 contains provisions to allow a limited number of cyber-universities to participate in the federal aid programs on a trial basis. If these schools are able to demonstrate that their programs offer an education on par with traditional schools, then the limitations on aid for these types of programs will be reduced and you’ll see many more Internet schools in the near future. Since these new schools are much less labor-intensive than traditional universities, the cost of a college education may finally start to decline.
The Ivies Loosen the Purse Strings
One of the more positive developments regarding college financing has been the fact that some of the more expensive colleges finally seem to be realizing that they are pricing themselves out of the market. Of particular note was Princeton University’s announcement in January 1998 that it would be liberalizing its financial aid policies. Students from low income families would not be expected to have student loans as part of their financial aid packages and many middle income families would have more of their assets sheltered when the school is determining eligibility for its own aid funds. Shortly after Princeton’s announcement, a number of prestigious universities, including Yale, Stanford, and MIT, revealed consumer-friendly changes to their financial aid policies. While these schools have tried to put a positive spin on their reasons for these changes, in reality many of these institutions have been forced to react in order to stem the “middle-class flight” to the public universities.
Then starting with the 2001-2002 academic year, Princeton University further upped the ante by announcing that student loans would no longer be a part of any student’s financial aid package. In response to this development, 28 leading colleges and universities (including Yale, Cornell, Stanford, and the University of Pennsylvania) agreed to new guidelines to determine who qualifies for need-based student aid. Some of the changes in the agreement include: the capping of home value at 2.4 times income; a willingness to consider the higher cost of living in major cities such as San Francisco and New York City; and the assessment of certain tax-advantaged student assets at the lower parental assessment rate.
Critics have been charging for years that the price of tuition at many private colleges reflected not so much the actual cost of educating a student as what the college administrators thought the market would bear. It may be that even the most selective colleges are finally realizing that their applicants are beginning to question whether the benefits of a private college education are worth the expense of an artificially inflated sticker price. This trend is good news for students. It appears that the idea of more generous aid policies has begun to trickle down from the Ivies. For example, Bard College in New York, does not assess home equity when awarding its own aid funds.
The Importance of Planning Ahead
If history has taught us anything, it is that it is never too early to start planning ahead for college costs. At whatever stage you are reading this book, there are some tangible strategies you can use to help take control of the financial aid process and minimize college costs. The purpose of this book has been to show you those strategies. We hope they will make the dream of a college education a reality.
12 TIPS FOR PAYING FOR COLLEGE IN TOUGH TIMES
1.Start researching aid possibilities sooner rather than later. The competition for aid increases when the economy is weak. Those who plan ahead for the aid process will do much better than those who procrastinate and miss deadlines.
2.Take steps that improve your aid eligibility. For example if you have lost your job, you should avoid the temptation to spend any assets in your retirement plan. In addition to the likely early distribution penalties and additional income taxes, the higher income will reduce your aid eligibility.
3.Apply for financial aid no matter what your circumstances - flush or not. Applying by the priority deadlines, even if you think you won’t qualify, will help you if your finances take a turn for the worst. Some schools will only accept requests for reconsideration due to a decline in income from those students who filed for aid on time - even if they were turned down initially.
4.You should still not initially rule out any school as being too expensive. Many colleges - especially the private ones - have increased their aid budgets to attract applicants whose families are now more price resistant given the state of the economy. But have a back-up plan in case the aid is not enough to attend those pricier schools. Most likely this will mean also applying to a public institution in your home state and/or any school where the student can live at home instead of paying for room and board.
5.Pay less for a four-year degree. You can save on costs if the student attends a community college for two years and then transfers to a pricier school for his or her remaining two years. However, be sure that the college to which the student plans to transfer will accept the credits from the community college.
6.Encourage your student to take as many AP courses as possible and to prep well for AP exams. High scores on AP exams can save considerably on college tuition. Many colleges award course credits for them, which can reduce the amount you need to pay in tuition.
7.Apply strategically to colleges. If you exceed the school’s admission criteria, you are much more likely to get a better aid package than a marginal applicant. Be sure to prep for the standardized tests such as the SAT or ACT, so that the student is more desirable.
8.Be realistic about how much debt the student can incur, given the starting salaries for his or her probable major and career path.
9.If you have to borrow, pursue federal loans first and avoid having the student take on private loans at all costs.
10.If your circumstances have a taken a turn for the worst, request additional aid. But expect that the college may require considerable supporting documentation.
11.In addition to your aid planning, focus on planning for the various education tax benefits you can claim. After all, a dollar you can save on your taxes is worth the same as getting an additional dollar in grant or scholarship aid.
12.Don’t put tuition on a credit card. This debt is more expensive than ever, given the recent changes to interest rates and other fees that many card issuers are now charging. You also want to be sure you avoid maxing out on your borrowing limit, just in case you need to use the card to pay for an unexpected emergency.