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Planning for college and determining how to fund it is difficult in the best of times. But during a recession, it can be…a blessing? We’re not kidding, and here’s why: When you are out of a job – even temporarily – or have depleted your savings, the cost of college is drastically reduced.
The expensive, out of state private schools – no way. The flowery degree in 15th century French poetry – not a chance. Tough times impose discipline and pragmatism, and that’s a good thing.
Seeing 5% daily swings in the S&P % after a 30% drop is a sobering wake-up call. The prospect of a job loss, on top of deep investment losses is shaking up college planning efforts for families everywhere. Also, we’re seeing that college admissions officers are dropping enrollment deadlines and relaxing standards at all but the most elite colleges. Every parent should be using that information to their advantage. It’s the equivalent of buying at the market bottom. If a family has suffered a job loss or is nervous about big expenditures, there are many opportunities to cut costs, and they can without compromising educational quality.
We’ve assembled a series of points and strategies to control costs in this uncertain environment. With this information, you can show your clients that they have many educational options that they might not have contemplated previously.
As a starting point, a family should be informed that undergraduate tuitions at four-year colleges ranges from $5,000 to $80,000 annually. Private colleges are obviously at the high end of the range, while public colleges make higher education accessible to everyone across the income strata. It’s worth mentioning to people who may question the academic quality of lower cost “state schools” that tuitions are held down because a significant component of their funding comes from taxes. In essence, you’ve already paid for a hefty chunk of tuition at a public college when you paid your taxes.
In college admissions office lingo, tuition is referred to as the “expected family contribution” (EFC). The EFC at any given college is not a set price – not even close. It’s a convoluted series of calculations, with some arbitrary and discretionary elements added to the methodology. Know in principle that the higher your income and the greater your net worth is, the more your EFC will be.
Don’t bother trying to calculate an EFC on your own – it took us months of statistical analysis of admissions data to understand the pricing model employed by colleges. We dedicated an entire article to college admissions pricing methodology, which you’ll find very helpful in saving money for your clients. Long story short, if you’ve got a client who is earning $200,000 annually and they hope to send their child to a college with a $15,000 tuition, their EFC will be north of $13,000. Conversely, if Dad has lost his job and the household income is less than $49,000, the EFC for that same college will drop to well under $5,000. If you’d like a reliable EFC estimate for a specific college, we have a program that will do the math for more than 1,200 colleges.
Your clients can absolutely negotiate with every college where they are contemplating sending their child. Every college has a pool of grant money that is referred to as “institutional aid.” Compile a list of prospective colleges, research the aid distributions through our admissions probability program and then use that info to negotiate. If you are sitting across from an admissions officer and you pose the question, “What is the range of institutional aid that you have provided to a family that is similarly situated to mine,” while reviewing an EFC printout from the probability program, you will be rewarded.
Another big opportunity to save on tuitions is if you introduce your clients to the idea of having their child start college at a two-year school or community college. In most parts of the U.S., two-year colleges have tuitions that range from $1,000 to $4,000 annually. And course credits are almost always transferrable to four-year colleges.
Many families want to send their child to college as a stepping stone to independence. Is the $12,000 for on campus living (add 75% to that for private accommodations) worth it? When the kid is away, the nickel and diming from incidental expenses adds hundreds of dollars each month in unforeseen expenditures. Having the child live at home is an easy way to save at least $50,000 over the course of earning a degree.
Supplement on campus studies with online courses. This is a strong trend where platforms such as Coursera offer accredited curriculum for degree-seeking students. Students can complete studies in fewer than four years taking accredited online courses. Inform your clients that the average time to complete a four-year degree is actually 5.3 years. Conversely, 2% to 3% of students each year complete their studies in three years. Yes, it’s ambitious. It also underscores the point that you have options to get through college.
When a family applies to any college, they will be required to submit a Free Application for Federal Student Aid (FAFSA) to the Department of Education. The FAFSA is a “global,” one-time application that guides any school you apply to in determining the EFC and other application requirements. When the family is working through the FAFSA (or they’ve hired you to do it for them) also submit a College Student Scholarship Profile (CSS Profile), which will enable them to access scholarship monies if any are available. Regarding scholarships, they’re like institutional-grant monies – you have to ask.
Shifting the discussion to ROI – in every recession, families are more discerning regarding what their child will study. Enrollments in soft academic studies decline, while business, engineering and healthcare enrollments go up. That latter degrees have starting salaries that are 2.5-times the starting salaries of soft degrees. Add in wage inflation and then multiply those earnings by the 45 years in the labor market and the ROI increases dramatically.
Education ROI not only includes the field of study; it includes the cost of education. Here are a few interesting trends in the paths through college and the academic studies people have been pursuing in recent years. Elite colleges are still as difficult as ever to get into, but when you drop a notch down, to the still very expensive private and top state colleges, students with 3.8 GPA or above can get in. The good news is that the private colleges are negotiating far more than they ever have by doling out institutional aid that reduces net tuitions by 70% in some cases. Moderately selective state colleges are open to students with 3.5 GPAs and above and they’re generally a great value.
It has been very interesting to observe the extremely rational behavior of those entering two-year colleges during the past few years. Enrollments at these colleges for students in business, computer science, healthcare and other STEM fields are way up. Conversely, enrollments in liberal arts and humanities at two-year colleges are way down – those folks have looked at the strength of the labor market and they just went and got a job.
In almost every region of the country, a child can be enrolled for less than $10k annually at a four-year public college. If the family has suffered a job loss by the primary earner, that tuition will drop to less than $5,000. Two-year college costs generally run at 50% discounts to four-year colleges, although that varies by state. Having the student live at home saves even more.
This article has been submitted by Educate To Career (ETC) co-founders, Paul Hill and Michael Havis. ETC is a nonprofit, specializing in providing college planning programs and data to over 1,000,000 families, financial advisors, and campus career centers each year. We are the leading vendor of actuarial analysis of college outcomes data to student lenders. Our charter is to help young people get an affordable education, leading to a real job, with no student debt.
Read more articles by Paul Hill, Michael Havis
