Some students are going to choose the cheaper option when it comes to college

Parents Forum
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In difficult dinner-table conversations, college students and their parents are revisiting how to pay tuition as personal finances weaken and lenders get tough.</p>

<p>Diana and Ronnie Jacobs, of Salem, Ind., thought their family had a workable plan for college for her twin sons, using a combination of savings, income, scholarship aid and a relatively modest amount of borrowing. Then her husband lost his job at Colgate-Palmolive.</p>

<p>“It just seems like it’s really hard, because it is,” Ms. Jacobs, an information technology specialist, said of her financial situation. “I have two kids in college and I want to say ‘come home,’ but at the same time I want to provide them with a good education.”

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The credit crisis has made it harder for students and their parents to borrow, even as their needs grow and their savings accounts dwindle. In plenty of cases, students who had been borrowing on their own have had to ask parents — and in some cases, other relatives and friends — to help cover tuition or to cosign loans, both aid officials and lenders say.</p>

<p>Officials at most four-year colleges say that they have not seen rampant problems so far, because students have found alternatives. The financing for the fall semester was mostly in place many months ago, before the severity of the credit crisis and the economic downturn became apparent.</p>

<p>Others wonder privately whether there will a rebellion by parents about paying so much for education if the country’s economic distress is prolonged. A survey of nearly 3,000 parents by Fidelity Investments released earlier this month found that 62 percent of parents planned to use student loans to help finance expenses, up from 53 percent last year.

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<p><a href="http://www.nytimes.com/2008/10/17/business/17student.html?partner=permalink&exprod=permalink%5B/url%5D"&gt;http://www.nytimes.com/2008/10/17/business/17student.html?partner=permalink&exprod=permalink&lt;/a&gt;&lt;/p>

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<p>a couple of things struck me about that NY times article.
1) the assumption by the students that their parents would work things out for them
2) they're talking about schools where the costs aren't even in the stratosphere that many of the privates are at these days -- how much harder is all of this when the cost is around $50,000 not around $30,000.</p>

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<p>Well, it is my opinion that families who are middle class are really being foolish (harsh word, but that is how I feel) if there is no discounting and the family is sending their child to any college at cost of 50k per year. An exception to this is if a family were living in a 5 million dollar home without a mortgage (how many fall into that category), or there are wealthy grandparents who plan on paying a great deal of the COA. It is my belief that most schools discount the COA to middle class families either by offering merit aid, FA, or a combination.</p>

<p>As for point #1, I agree with you, but I think a lot of 18 year olds have a hard time imagining what 10k, 20k, 30k+ actually represents. They have had nearly everything provided to them. It is not their fault, but they lack the experience of earning money to support a family, or paying household bills. Many have not earned more than a 8-10 per hour working 25 hours per week at a summer job. They may think that college is expensive, but a reasonable bill because the college feels that the family can afford to pay a certain amount of money. I think that many feel entitled because they have worked hard, earned good grades, and stayed out of trouble.</p>

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It is my belief that most schools discount the COA to middle class families either by offering merit aid, FA, or a combination.

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<p>NEM, your statement is a bit off target. Whether or not they discount is far less relevant than how much they discount. A better way to look at the situation is: For a middle class family in "X" EFC bracket, what will the cost be at various kinds of institutions? I think you will find that except for the highly endowed top dozen or so institutions who go way beyond EFC, for most families, private schools are more expensive. </p>

<p>One must also be careful about taking higher ed PR too much at face value. For example, full ride merit awards certainly exist. Huge discussions exist on these boards on this topic. But what are the odds of any one student winning one? Not high. </p>

<p>We read a lot about how much financial aid is given out, about how few people pay list price and so forth. Behind these "news items" are a number of PR machines trying to convince us that private schools are a bargain, so why not apply? Once the application goes in, the first hook is set, and the marketing machine shifts to a different gear, with all sorts of enticements all bent on maximizing tuition revenue for a class. (yield and revenue management - the real goals of adcoms.)</p>

<p>I just say to families new to this process: If anyone tells you there are easy ways to get your kid through college; "affordable" private schools; plentiful merit aid; lots of scholarship money, need based, merit or whatever, ask yourself why so many families are in tears come late April when financial aid awards come out.</p>

<p>Also ask yourself why financial aid awards are rarely sent along with an admissions letter? (Hint: don't spoil the excitement. A lot of market research has gone into how best to time and present the usually bad news while maximizing yield.)</p>

<p>Finally newcomers, become familiar with "gapping", and how few schools do not do so. While you are at it, run a fin aid calculator or two and find out how painful the bill is even if you are not gapped....</p>

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"An increasing number of college-bound students who had favored private colleges are now applying to public institutions in California and across the nation this fall as the faltering economy shrinks family savings and makes loans harder to find, experts say."

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Many people in my parent's generation have a hard time understanding why the people in my generation would think there are times when it is all right to pay Stanford-level tuitions and how the high school seniors in our kids' generation can ask their parents to pay these tuitions for four years. Private school tuition is so expensive (and was expensive before the stock market crash).

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<p>Actually, I'm not sure what the overall effect will be. While I agree that the bad economy will indeed spur students to choose the cheaper option, that cheaper option may well be the elite private school. Why go to your public school when you can go to a higher-ranked private school * and pay less?*</p>

<p>"A student may apply to Harvard, Stanford and UCLA and their decisions will be based on, 'Did I get accepted and what's the financial aid package?' ”
A student whose family earns $95,000 and who has no siblings in college would pay nearly 100 percent of the fees at UC Berkeley, said Cheryl Resh, financial aid director. At Stanford, that student would not pay any of the $36,030 tuition in the fall."</p>

<p>SignOnSanDiego.com</a> > News > Education -- State fees might make Ivy League look cheap</p>

<p>"Because many more Berkeley students need aid, and because sources are more limited, the price for our students can be significant. Harvard's new cutoff point for aid is a family income of $180,000 a year; Berkeley's is about $90,000. Consequently, a family with an income of $180,000 will pay $18,000 to attend Harvard, while one with an income of $90,000 pays about $25,000 to attend Berkeley."</p>

<p>Bravo</a> for Yale and Harvard, but what about the rest? - Opinion - USATODAY.com</p>

<p>Take my brother. He could have gone to a number of public schools. Instead, he chose Caltech, where he got a full merit ride plus stipend. In other words, instead of paying to go to school, he got paid. In other words, he effectively enjoyed negative tuition.</p>

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<p>Of course, parents are the ones that are looked at for the solutions. They are the ones that the system holds responsible. A kid who has parents who CAN pay COA by the institutions definition of ability to pay is not going to get a dime of financial aid, even at the most generous schools. Merit money is the only way he will get grants. Loans are very limited to kids and will not cover most private schools costs. Even Staffords need parental information. If the parent is not proactive in filling out the forms, the kid gets zilch. So it makes sense that the parents have to be involved, because they are integral to the outcome. You really expect a high schooler to suddenly be able to take care of the college costs? Yes, there are some, and I have the deepest respect for those kids who have been mature and involved enough that they are taking charge. But they are in the minority. Many kids have to dragged into the app process, never mind the financial aid aspect of things.</p>

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<p>I also disagree that parents are being foolish spending their money on college educations. There are ever so many other things that are foolish. If the priority is on education, and the parents, kid are of one mind about that, I don't see it as a foolish choice. The problem comes when families want it all (yes, I am in that group). We want the education but have not sacrificed the house/neighborhood, vacation, lifestyles, luxuries sufficiently to pay for it without getting into financial danger zones, particularly for the future. The change in the economy and job situations have played a great role in this as well, but I put the blame squarely on my shoulders for not prioritizing better. I wanted the education choices but did not sufficiently prepare for the cost.</p>

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<p>Also, NEM, I don't agree that wide spread discounting occurs. Yes, you might get a $5K merit award, but on a $50K+ COA, that isn't that much help. It was sobering to see a $20K award still make my son's college bill be over $30K which is still nearly twice the cost of a SUNY. My older son's got little or nothing in merit money. This one with very high test scores did get awards, but for the more selective schools, it was still going to be very expensive. The scholarships he did get for the less selective schools were because he was at the very top of the heap in terms of test scores and curriculum. Very few kids who applied to those schools got that kind of money.</p>

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<p>Since my child was born, we have been drilling into them that their college education was there inheritance. This was the single most important thing that my parents did for me. There was not expectation of support beyond my college graduation, so it was make a career for yourself that can support you. We also started saving in a 529 plan. Okay we are pretty rare, but from my perspective, this is the only asset that I feel I have to leave my children with, an education. This doesn't have to be at a 50k a year school, but I feel pretty strongly at this point, that whatever it takes, I am going to make good on my promise that if you do the work and can get it, I will make it happen. My d is a senior now and looking at some pretty expensive private schools as well as UC's. She is really competitive in her grades and scores, but I almost feel like she has a better chance at getting into those private schools that are becoming somewhat unaffordable than she does getting into UCLA or Berk.</p>

<p>Scary.</p>

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<p>Actually, in most country it is the public schools that are the admissions prizes and so I think it should be. It's backwards the way we have things.</p>

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<p>Sakky,</p>

<p>Do the math. What percent of kids heading to 4 year colleges will actually get into the "bargain elites", Harvard, Yale? </p>

<p>According to the CB, in 2008, 1.5 million seniors that graduated that year took the SAT one or more times. Assume 2/3 of them headed to college. How many seats are available to middle class families at these "bargain elites"? 10,000 total? </p>

<p>So 1% or so of college bound seniors will win one of these lottery tickets. </p>

<p>I would politely suggest that 1:100 odds are not a good basis for sound financial planning and that anyone that suggests otherwise is either spreading false hopes or is sadly misinformed.</p>

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<p>Okay, newsmassdad, I agree with everything in your post. My point was to say that very few middle middle class families are asked to pay out of pocket 50k per year, or 100% of sticker. Some middle class families might be asked to pay 43k per year, and only being offered loans to cover the difference. It is also foolish, IMO, for the guy with little retirement saving, little home equity, and earning 70k per year to try to pay this with current income and loans. If one has a nest egg for a great deal of that, well, then he might choose to spend that nest egg a dream school on a 70k dollar family income. I am not saying if that is wise or foolish. It is foolish to impoverish oneself for something one cannot afford when other options exist, in my opinion.</p>

<p>cpt, I did not say spending money on education is foolish. Spending exceedingly more than a family can realistically handle is what is foolish. If you disagree, you may be a dream customer for some schools!</p>

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<p>Ha, ha, Northeastmom. Yes, I am probably the dream customer for some schools. I will agree with you on that. It is foolish to spend exceedingly more than a family can realistically handle for nearly anything that isn't life/health intensive. All I am saying that if that is the family splurge item, there can be a lot that is much worse than that, and I can commend a family for doing that. Wantonly spending the kind of money that can wreck the family is a whole different story. But compromising on some other areas to give ones kids a dream education is a different story. I would take financial risks to send my kids to Harvard and certain other schools. A lot of people would, and would take some pretty chancey financial risks to pull it off. At what point it is not worthwhile is a dicey question and will differ from family to family. I don't know where I would draw the line, honestly. We have not really drawn it in our family, but are sure aware that there may have to be one.</p>

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<p>^but what schools are worth the extra compromise? I can see spending $$$ on some very few schools (even assuming D gets in), but in weighing most private schools against the state flagship, the state school comes out ahead for the academics and opportunities it delivers versus its cost.</p>

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<p>cpt, I am glad you have a sense of humor about my post! I was hoping that you would not be insulted. The funny part is that Harvard would not ask the family earning 70k per year to pay 50k.</p>

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Sakky,</p>

<p>Do the math. What percent of kids heading to 4 year colleges will actually get into the "bargain elites", Harvard, Yale? </p>

<p>According to the CB, in 2008, 1.5 million seniors that graduated that year took the SAT one or more times. Assume 2/3 of them headed to college. How many seats are available to middle class families at these "bargain elites"? 10,000 total? </p>

<p>So 1% or so of college bound seniors will win one of these lottery tickets. </p>

<p>I would politely suggest that 1:100 odds are not a good basis for sound financial planning and that anyone that suggests otherwise is either spreading false hopes or is sadly misinformed.

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Yeah, I agree. Even on this forum, the amount of people looking at the extremely elite colleges is still relatively low. I'd even surmise that the majority of people who are looking at elite college on this forum and have a realistic shot of getting in likely miss much of the financial aid. Double income families with two professional earners hits ~180K very rapidly.</p>

<p>For the vast majority, publics are likely to be a much cheaper option.</p>

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<p>Yes tuition has been going up, as has the cost of living in general. Higher Education gets a bad rap partly because it suffers from the Cost Disease of the Public Sector (Baumol & Oates, 1976 - a study well know among economists, but almost unknown elsewhere), but largely due to the False Economic statistics of Government (e.g. CPI), which inordinately inflate the comparison of Higher Education's cost increases. In fact, if you look strictly at M3, which is perhaps the best overall estimator of Inflation, it rose at an average annual rate of 4.4% from 1990 to 1998 and since then has risen at a rate of 10.6%. The Housing Wage Index, rose by about 7.5% from 1998 through 2004.</p>

<p>This prompted me to write a paper I presented at the AIR forum this May in Seattle titled: "Why Higher Education Appears Less Efficient than it Really Is to Legislators and the Public." I haven't yet submitted that to ERIC, but I guess I should. </p>

<p>A really important factor noted by some in this discussion is that elite schools frequently offer powerful incentives to likely prospective students. From that paper comes a quote I pulled from Haycock & Gerald's (2006) Engines of Inequality (<a href="http://tinyurl.com/6rnov6%5B/url%5D"&gt;http://tinyurl.com/6rnov6&lt;/a&gt;). The quote is: Haycock & Gerald (2006, p. 22) state, regarding public flagship institutions, most of which are in the AAU: “Even as the number of low-income and minority high school graduates in their states grows, often by leaps and bounds, these institutions are becoming disproportionately whiter and richer." Further, they record how institutional support aid has moved to higher income families: "… institutional aid dollars in Flagship Universities dwarf federal and state grant dollars. Over the past eight years, the amount spent on students from families above $100,000 per year increased from $51 million to $257 million, while the amount spent on students from families below $20,000 per year went down."</p>

<p>So, yes, need aid is rare, but if you are an underrepresented minority, and you have decent high school credentials, you could well be offered a pretty good package.</p>

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Do the math. What percent of kids heading to 4 year colleges will actually get into the "bargain elites", Harvard, Yale?</p>

<p>According to the CB, in 2008, 1.5 million seniors that graduated that year took the SAT one or more times. Assume 2/3 of them headed to college. How many seats are available to middle class families at these "bargain elites"? 10,000 total?</p>

<p>So 1% or so of college bound seniors will win one of these lottery tickets.</p>

<p>I would politely suggest that 1:100 odds are not a good basis for sound financial planning and that anyone that suggests otherwise is either spreading false hopes or is sadly misinformed.

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<p>First off, my discussion is not simply restricted to those "bargain elites". How about getting a full-ride merit scholarship? That's what my brother did. It doesn't even necessarily have to be at a school the caliber of Caltech. You can go to a lower-ranked school that will give you a full ride. If you are a strong student, you should be able to get a full ride at some school. Maybe not necessarily at a top school, but somewhere. When you're talking about cheap costs, it's hard to beat negative costs. But, it doesn't even have to be a full ride. Even some sort of merit ride can greatly defray the costs. </p>

<p>That actually leads to my real point. I would 'politely suggest' that the real question is not so much about 'sound financial planning' but really about * the willingness to put in hard work*. If you're really worried about paying for college, then I have two words for you: study harder. Study harder so that you can get into one of the 'bargain elites' like HYPSM, and/or get a merit scholarship someplace. </p>

<p>I don't want to be overly harsh, but if you simply chose not to study hard such that you can't get some merit money someplace, even at a low-ranked school, frankly, it's hard for me to sympathize with you. Sorry to be blunt, but you should have studied harder.</p>

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<p>QM, you asked what schools are worth the $$? That is a very personal matter. You might find it interesting to look at the case of my own D, who graduated college in June. Our financial situation was that our EFC at most private colleges was worth a subsidized Stafford to D or a bit of loan. In other words just on the edge of need based aid, but not much forthcoming. She won a full ride merit award to Michigan State University and turned it down to go to a private college, with our support (of course - without our support, she could not have afforded it...). Parents and D agreed that for her it was worth the sacrifice (and it was a real sacrifice for spouse and me) for what she would get at her private U that she would not get at a state U. </p>

<p>Was it worth it? Last year, she won a well known scholarship rather common for her university (2-3 per year) that is rarely won by MSU students. So I would say yes. But your mileage may vary. These decisions are deeply personal, and depend a lot on how a family values expenditures and what kind of kid is heading to college, and what the choices of public and private colleges are.</p>

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<p>Sakky, </p>

<p>I doubt the financial odds I mentioned above will be materially changed by adding full ride merit awards into the equation, especially if you limit the discussion, as one should, to institutions that are comparable to a flagship state university. In other words, would one really want a full ride to Trinity University in Washington DC over attending Penn State or U Maryland? You would need to put a particularly high value on expenditures and a particularly low value on educational outputs to make such a decision.</p>

<p>Maybe you, Sakky, don't care about educational quality factors. Most people do. So the goal for most people is not "to get a full ride at some school. Maybe not necessarily at a top school, but somewhere" as you state, but rather to balance cost and benefit. </p>

<p>Quality does matter for most folks. "Somewhere" is just not good enough, certainly not for my kid.</p>