Rising Costs Without Commensurate Returns

Between 1982 and 2007, the costs of a college degree increased 439% while family income rose 147%! How could this happen? Obviously, there are many influencers, but the biggest contributing factor appears to be the "ready" availability of federally-backed student loans. Whenever unlimited or "easy" financing is available for any large consumer purchase, price paid tends to soar.

Forty-two colleges are now over $50,000 per year (room, board and tuition) and in 2004 there were only two colleges which cost more than $40,000 per year! The dark side of this picture is that currently there are 30 million federally-backed student loans with a combined total of $500 billion, and these loans are not collateralized or dischargeable through bankruptcy!

In addition, many families utilize home equity lines-of-credit to finance college and these numbers are extremely difficult to track. One conservative estimate states that the "heloc" amount is 30% to 40% in addition to the $550 billion which are federally-backed.

Interestingly, 20% of students who graduated between 1992 and 1993 with over $15,000 in college loans had defaulted on their loans within 10 years of graduation.

Student loan defaults have increased 43% between 2008 and 2009, while among college graduates who are employed full-time and between the ages of 25 and 34 their earnings have decreased by 11% from 2002 to 2009.

More than ever, families and students must apply intelligent consumer strategies to the selection and financing of a college education. Anything less is a recipe for disaster.

FOUR YEAR DEGREES: A “DYING” BREED

Oxymorons have become a generally-accepted part of American culture. Accurate horoscope, airline food, casual Dress, good loser, long shorts, authentic reproductions, and now, “a four-year college degree”!!!

The latest polling data from the National Center for Education Statistics shows that only one-in-three of every freshman entering college in the Fall of 2009, will graduate by 2015!!

This explodes the prevailing myth that colleges are “four year degree experiences”; six-year degrees are more the norm.

This also contributes to the ever-increasing numbers of students who graduate with staggering amounts of student loans. The most recent statistics show that currently there is $85 Billion in student loans (as measured by the U.S, Department of Education); and most likely an ADDITIONAL $40 Billion in Home Equity loans that cannot be traced to college (but are being used to fund undergraduate studies).

On average, four-year colleges graduate fewer than 60 percent of their freshmen within six years---------but at many institutions graduation rates are far worse.

Examples abound: the University of Louisville (which enrolls over seventeen thousand undergraduates) has a 44 percent six-year graduation rate. At the University of Memphis, the rate is 34 percent and at the University of Alaska, Fairbanks only 25 percent of students graduate within six years.

Colleges and universities receive tens of billions of dollars directly AND indirectly from taxpayers every year, but the graduation rates suggest that many of these institutions are not serving their “customers” well-------------particularly in the area of up-front OR projected cost-of-attendance.

THE SEVEN DEADLY MISTAKES CONCERNING COLLEGE!!

With over five years experience in assisting families through the financial jungle called “paying for college”; I have compiled the seven “deadliest” mistakes most prevalent in the college process.

(1) Visit a college you cannot afford: this strategy was originated by realtors and is euphemistically called “up-selling”----------when committed in the college visit process---- it quickly leads to family arguments and eventually, MASSIVE amounts of college debt!!

(2) Closely aligned with #1, is allowing a 17 or 18 year old to greatly influence a $200,000 + college attendance decision-----------------this also usually leads to MASSIVE amounts of college debt!!

(3) Minimize the emotion associated with a massive consumer purchase----------------------particularly one being DRIVEN by a 17 or 18 year old !!

(4) CHALLENGE all financial aid packages---------------one of the biggest lies we hear is “the college gave us a GREAT financial aid package”---------our response is ALWAYS-----------------compared to what?? We have discovered most families simply cannot interpret a college financial aid package.

(5) How much is “prestige” worth in the college decision process?? It is worth a lot to High School guidance counselors (so they can boast about another graduate of their High School attending an Ivy League college)------------------however, the guidance department WILL NOT assist you in PAYING for the college!!

(6) Last year the average college graduate received a degree in 5.5 years-----NOT FOUR-----------------the most important component of saving money in college is SPENDING LESS TIME IN COLLEGE !!

(7) The average college student changes majors three times during their college career and 40% of students NEVER graduate. The only thing worst than GRADUATING college with massive amounts of college debt----------------is NOT GRADUATING college and still having MASSIVE amounts of college debt!!

“We received a TERRIFIC Financial Aid Package for our student…………”

How many times have you heard this comment from a friend or acquaintance??
Recently I was discussing the high cost of attending college with a friend.
When he mentioned the college his daughter was attending, I responded how expensive that particular school was (almost $50,000 per year!!). My friend replied that she would never have gone to that school but “they offered her a terrific financial aid package”.

That caused me to think, has anyone ever told you that their son or daughter received a TERRIBLE financial aid package? Perhaps one of the reasons we have not heard this, is that the college ALWAYS says that we are offering you a GREAT financial aid package!!

In analyzing our clients’ college financial aid packages, we have found that the offers that most parents feel are good--------------are MEDIOCRE at best.

The ONLY way to truly understand the worth of a college financial aid offer is to compare it to offers given in the past to students and families in similar situations.
Of course, our statistical database allows us to do that, and also empowers the family to negotiate with the college in an effort to increase the financial aid package.

So the next time you hear about a “terrific financial aid package”----------a GREAT response would be------------------“compared to what??”

PITY THE “POOR” COLLEGES !!!

Perhaps it is time to mount a MASSIVE fund-raising campaign for the nation’s colleges.

In the last month, I have received grave letters of concern from the president’s of two VERY prestigious institutions.

In a nutshell, both schools were extremely alarmed about the impact the nation’s deteriorating fiscal condition has had on their school’s endowment.

Both administrators alluded to 20%+ decreases in their billion dollar endowments; which will necessitate “significant reductions” in financial aid to student families.

It is interesting to note, that over the last five years (with investments growing exponentially) colleges DID NOT initiate “significant increases” in financial aid to families.

Both schools announced (lower than usual) 4% tuition increases-----------instead of the “standard” 7% to 9% tuition increases---------------which they had averaged for the last 17 years !!

When quizzed as to why they did not “hold-the-line” on tuition increases; they BOTH explained that 4% allowed them to “keep pace” with their competitor’s practices.

From my vantage point it appears as if this financial “challenge” for the nation’s colleges will simply translate into more college loans and debt for their students and families !!

Financial Meltdown - Ripple Effects?

The financial pressures on America’s families continue to mount. Recently President Bush stated that one of the areas impacted by the current financial crisis was “a family’s ability to borrow money for college.”

At the highest levels of our country, borrowing money to finance college is a NECESSARY and ACCEPTED practice.

The current economic climate in the U.S., with the subprime crisis, escalating foreclosures, and inflationary pressure on gasoline and groceries, has placed a greater strain on the family budget than ever before.

32% of families use “home equity” loans to pay for college. These loans (and, in fact ALL loans) will now be made at much higher interest rates; AND will be higher to families who have credit scores under 700 !!

Where can families go for assistance in finding a reasonably-priced college, while reducing student debt??

High School guidance counselors are really limited in their involvement with families about finances; AND colleges are really of little use beyond suggesting submitting the FAFSA (Free Application for Federal Student Aid).

Many families have used College Assistance Plus (a nationwide firm) who specializes in assisting families with the entire college process, while emphasizing the reduction of college loans.

A Real-Life Tragedy!

The average consumer has NO CONCEPT of the impact of college debt on a young person’s life and future. My wife and I experienced a tragic example of this last weekend when dining at one of our favorite out-door restaurants.

Jennie, our waitress, mentioned that she expects to graduate next May with a Master's degree in Special Education from a local college. I inquired how the local job market appeared, how long this degree pursuit had required, AND whether she had any college loans.

Jennie replied that the job market for teachers was “soft” (she expected to substitute teach for several years), it had taken her SEVEN YEARS to attain her Master’s degree, AND she will have over $85,000 in college loans upon graduation!!

Statistics indicate that 40% of college attendees NEVER consider the cost of school when making a decision where to attend...AND most families feel that “the most valuable advice with respect to paying for college comes from the college’s financial aid office."

REALLY??!!

IF Jennie obtains employment, her starting salary will be less than $40,000 per year, OR a “take-home” salary of $3,000 per month----BUT----it will cost her close to $1,000 per month to SERVICE HER COLLEGE LOANS for thirty years!!