Paying For College For Dummies

Introduction

Welcome to Paying for College For Dummies! I know this may be a stressful and challenging topic. But, not to worry! You’ve come to the right place — this book will help you to lower your anxiety, increase your knowledge, and take control of the process.

In this book, I emphasize these important topics:

Making the most of your finances and developing your children’s potential without breaking the bank.

Getting the best education at an affordable price. Spending more doesn’t equate to getting a better education or better employment prospects. You should look for value — meaning seek out service providers that deliver quality at a reasonable, or in some cases even an attractive, price.

Understanding proven alternatives to traditional and costly college education. Increasingly, high-cost, four-year colleges are seeing their enrollment squeezed while far lower cost and faster alternatives to college are seeing enrollment growth.

Navigating and making best use of financial aid. After baring your financial soul to colleges, they will tell you how much they will charge you. They aren’t actually giving you money when they award aid so much as they charge different customers widely differing prices based upon the college’s assessment of your ability to pay. I help steer you through understanding the various ways to get better pricing as well as filling out all those forms.

About This Book

College price increases, for too many years and decades, outstripped the general rate of inflation. While particular degrees from leading schools do still seem to provide a ticket to some well-paying jobs and careers, now more than ever families are questioning the value of a college degree. A recent Wall Street Journal poll found that 47 percent of Americans no longer believe that having a college degree will lead to a good job and higher lifetime earnings. Among Millennials, only 39 percent continue to believe in college.

Paying For College For Dummies helps you to sort through the range of post-high school options, including attending a traditional four-year college. If you think buying a car or a home was complicated, just wait until you begin to understand the intricacies of how colleges set their prices. Colleges charge each of their customers different prices based upon their own (hidden) analysis of your supposed ability to pay. I will explain how various colleges determine what to charge you and how you can best complete college financial aid forms and position your finances to receive more favorable pricing.

As a former financial counselor, I have counseled thousands of clients on a variety of personal finance, investment, and spending decisions, including higher education and college. With four years at the best private colleges having broached $300,000, and the best public college educations costing well into the six figures, more and more people who aren’t wealthy are questioning the value that such an experience will provide. And increasingly, folks are wanting to evaluate and consider the alternatives, which this unique guide will also help you to do.

Foolish Assumptions

Whenever I approach writing a book, I consider a particular audience for that book. Because of this, I must make some assumptions about who the readers are and what those readers are looking for. Here are a few assumptions I’ve made about you:

You want the best for your kids and would like to understand the pros and cons of different options before making an informed choice. (Note: While the vast majority of readers of this book are parents, I expect that some inquisitive teens are readers too — that’s great! For simplicity, please accept my apologies for choosing to write as if parents are the readers so that sentences like the one before this aside aren’t more complicated.) Because money doesn’t grow on trees and you’re not super-wealthy, you want value for your money and need to contain costs.

You have some understanding about the reputation of particular colleges but don’t know how that translates into post-graduation job and career prospects.

You’ve heard some rumblings from young adults and perhaps even your own teenagers about alternatives to college, and you’d like to know more about those options and whether they may make sense for your offspring. It’s not unusual these days for parents and teenagers to have different aspirations and expectations. I hope and expect my book to get both sides to see the other’s point of view and bring you closer to a happy agreement or compromise!

You’d like a more detailed understanding of how college financial aid, scholarships, student loans, and such works.

If any of these descriptions hit home for you, you’ve come to the right place.

Icons Used in This Book

Throughout this book, you can find friendly and useful icons to enhance your reading pleasure and to note specific types of information. Here’s what each icon means:

Tip This icon points out something that can save you time, headaches, money, or all of the above!

Warning Here we’re trying to direct you away from blunders and boo-boos that others have made when making college and other post–high school decisions.

Technical Stuff Here we point out potentially interesting but nonessential stuff.

Truestory Look for this icon to find real-life examples of college decisions to help exemplify a point.

Investigate We use this icon to highlight when you should look into something on your own or with the assistance of a local professional.

Remember This icon flags concepts and facts that we want to ensure you remember as you make your college and other post–high school decisions.

Beyond This Book

In addition to the content of this book, you can access some related material online. Head to www.dummies.com and type in Paying For College For Dummies Cheat Sheet in the search box to find additional tips.

Where to Go from Here

If you have the time and desire, we encourage you to read this book in its entirety. It provides you with a detailed picture of how to best make post–high school decisions to maximize your returns while minimizing your costs. But you may also choose to read selected portions. That’s one of the great things (among many) about For Dummies books. You can readily pick and choose the information you read based on your individual needs. Just scan the table of contents or index for the topics that interest you the most.

Part 1

Understanding Paying for College

IN THIS PART …

Check out college prices, the job market, and the value of higher education.

Find out how to save and invest for college and other goals while your kids are young.

Get your kids on board with making a connection between working and earning money.

Chapter 1

Confronting High College Prices and the Modern Job Market

IN THIS CHAPTER

Bullet Scrutinizing the steep sticker price of many traditional colleges

Bullet Understanding the employment reality upon graduation

Bullet Getting the best pricing by understanding how colleges see your situation

Bullet Seeing the disconnect between college academics and what some employers are seeking in graduates

Bullet Comprehending how the college landscape is changing and evolving

Planning ahead. When you have kids, even if you’ve been a live-in-the-moment, what’s-up-today kind of person, it’s hard and could be costly not to do some thinking about your children’s future.

Think ahead to an important and often bittersweet milestone - high school graduation. Many parents look back at the prior 18 or so years and wonder where all that time went and how fast it flew by. When your child graduates from high school, you may breathe a sigh of relief and feel a sense of accomplishment. But, what will Johnny do next and how will he (along with you) make that difficult decision?

Most parents envision their kids heading off post-high school graduation to a hopefully good college for four years. If that’s what you did and had a mostly positive experience, of course it’s natural to want the same for your own kids. Maybe you didn’t attend college and have felt that you missed out on particular career options or some needed time to grow up and explore what’s out there.

You may have concerns about the path you did or didn’t choose or have spoken with others who do. A recent Wall Street Journal poll found that 47 percent of Americans no longer believe that having a college degree will lead to a good job and higher lifetime earnings. Among Millennials, only 39 percent continue to believe in college. And for some good reasons — high and rapidly escalating costs, increasingly specialized jobs which most college educations don’t prepare you for and the political climate on many college campuses that may not match what you want for your children’s formative young adult years.

Remember My goal throughout this book is to present you with the facts and the pros and cons of alternatives. While I understand that many people reading this book will end up at a traditional four-year college, I know from the statistics that increasing numbers of families are choosing alternatives to that route. Despite the fact that I attended a four-year college, I truly want what is best for your kids. Your children are unique and the post-high school options best suited to them should reflect what fits them. Choosing a particular college because it’s on someone else’s best list won’t be a good idea if it’s not what’s best for your child’s situation.

In this chapter, we confront the high prices at many colleges and universities, look ahead to the employment reality students face upon graduation and discuss how the college and post high school landscape is evolving to address these important trends.

Confronting the High Prices of Higher Education

Okay, let’s get the bad news out of the way. Yes, college is expensive. Consider the supposedly best private colleges which on most lists includes colleges and universities like Brown University, Carnegie Mellon University, Colgate University, Columbia University, Cornell University, Dartmouth College, Duke University, Georgetown University, Harvard University, Johns Hopkins University, Lehigh University, MIT, Northwestern University, Princeton University, Rice University, Stanford University, Tufts University, University of Chicago, University of Notre Dame, University of Pennsylvania, University of Southern California, Vanderbilt University, Washington & Lee University, Washington University, and Yale University.

Tuition, room, board, books, and other fees will run you $250K to $300K or more over four years! Stop and think about that high cost for a moment.

If that’s not daunting enough, getting into these schools is ridiculously difficult and competitive to do. High school students are packing their schedules with Advanced Placement and honors courses, burning the midnight oil to get that elevated grade point average, playing sports, running for student government, playing in the band, volunteering regularly and jumping through other hoops.

In the hopes of making their future college applications tempt admissions officers, students must also often seek other ways to stand out and be different. Being from a small state, rural or non-wealthy area certainly helps. Living in a non-wealthy area and attending a not so great public school may help your case also.

While quite a bit less expensive if you qualify for in state tuition rates, public colleges are getting more and more expensive and can easily set you back for well over $100K for a four-year education. If you attend a top public college as an out of state resident, expect to pay upwards of $200K for the four years — about the same freight as those going to a typical private college.

Looking back over the past 50 years, after adjusting for increases in the general cost of living, tuition and fees at four-year colleges have jumped in real terms (that is, above and beyond the general rise in the cost of living) by more than 240 percent at private colleges and 340 percent at public colleges according to data from the National Center for Education Statistics. This trend obviously can’t continue because few families can afford to pay the already big dollar amounts today.

A brief historical overview of colleges and who completes it

High-priced four-year college degrees are a relatively recent and not entirely attractive phenomenon. After World War II, with the GI bill (designed to help servicemen returning to society) and massive investments at the state public university systems and federal levels with the availability and promotion of Pell Grants and student loans, adults with college degrees mushroomed from just 5 percent of the adult population to more than 30 percent.

The most recent figures show that about 35 percent of U.S. adults age 25 and older have completed a four-year college degree. 48 percent of 25 to 34-year olds have a college degree. About 13 percent of all adults have completed an advanced degree — that is a master’s degree, professional degree, or a doctorate degree.

That said, here’s another and truly shocking and important to know statistic: only about 55 percent of those who enroll in a four-year college degree program actually complete it. Think about that for a moment — this means that a whopping 45 percent of those who head down that costly road end up with no credential and therefore have probably wasted their time and money. In case you’re wondering, community college is no better in that regard (although it’s a lot cheaper) as 81 percent of students who start at community college believe they will eventually earn a bachelor’s degree but in fact only 12 percent do.

Investigate These college graduation percentages highlight an important topic. Whenever you’re examining specific colleges, you should always evaluate the school’s graduation rate. Higher percentages are better, of course. If a college you’re considering has a relatively lower graduation percentage, inquire and investigate why. Is it because of a lack of on-campus housing and nearby affordable rentals? Is it because the college accepts students who are having trouble staying on track? Is it because students are uninspired by the overall education and experience they are having once on campus for a period of time?

According to a Chronicle of Higher Education analysis of U.S. Department of Education graduation rate data, overall private nonprofit colleges have a six-year graduation rate of 66 percent, public colleges graduated about 59 percent while for-profit colleges lagged far behind, graduating just 21 percent of their first-time, full-time students within six years. As another point of reference, Table 1-1 gives a short list of the ten private (non-profit), public, and for-profit colleges with the highest six-year graduation rates.

TABLE 1-1 Colleges with best six-year graduation rates

Now, I must point out here something that may seem obvious. These high graduation rates, especially at the traditional non-profit colleges, shouldn’t be viewed in isolation and don’t, in and of themselves, necessarily tell you much about the educational quality of the school. Or stated another way, the schools on these lists don’t deserve all the credit for these high graduation rates! After all, these schools (at least the non-profit ones) are some of the most selective in the country so there’s a so-called selection bias going on here. These colleges only take well-prepared, high achieving students and the vast majority of these students come from families that highly value this type of educational experience. And, because these more selective colleges have so many applicants, they generally have plenty of more affluent families that can afford the high-ticket price and can afford to keep their kids in college for the duration of the four years. So, of course these students are more likely to succeed at completing college and graduating in a timely fashion.

By contrast, colleges that have more open enrollment, that take more risks on less prepared students are naturally going to have a lower graduation rate. But that doesn’t mean that some of those schools with less impressive graduation rates necessarily provide an inferior quality of education or an inability to graduate your child on time.

Don’t college grads make more money?

There are plenty of studies and analyses that show that those who have more education generally enjoy lower rates of unemployment and higher employment income. The graphic in Figure 1-1 clearly shows that those with higher levels of education reap considerably higher wages from work and lower unemployment rates.

Source: U.S. Bureau of Labor Statistics

FIGURE 1-1: What higher education means for earning higher wages and having lower unemployment.

There’s no question that education is a good thing and can develop your brain, critical thinking skills, interpersonal skills, etc. What jumps out at me from the graphic is that it looks like there’s value in completing high school, completing college if you’re going to attend and possibly considering an advanced degree. But that doesn’t mean that all education, or formal education, is worthwhile regardless of the cost. You should always consider the expected cost versus benefit or the return on the investment since attaining a college degree takes a good deal of time and money.

Another important point about Figure 1-1 — the income premium associated with college (compared with a high school degree) peaked in the year 2000 and declined about 10 percent over the next 15 years. College costs of course continued rising rapidly over this period further undermining the potential value of a college degree.

Parents and families should also be aware of the research report entitled, Is College Still Worth It? The New Calculus of Falling Returns by William R. Emmons, Ana H. Kent, and Lowell R. Ricketts, published by the Federal Reserve Bank of St. Louis Review, Fourth Quarter 2019. That report found:

The college income premium is the extra income earned by a family whose head has a college degree over the income earned by an otherwise similar family whose head does not have a college degree. This premium remains positive but has declined for recent graduates. The college wealth premium (extra net worth) has declined more noticeably among all cohorts born after 1940. Among families whose head is White and born in the 1980s, the college wealth premium of a terminal four-year bachelor’s degree is at a historic low; among families whose head is any other race and ethnicity born in that decade, the premium is statistically indistinguishable from zero. Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is also indistinguishable from zero. Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.

You can read this study at: https://files.stlouisfed.org/files/htdocs/publications/review/2019/10/15/is-college-still-worth-it-the-new-calculus-of-falling-returns.pdf.

SUCCESSFUL PEOPLE WHO NEVER GOT A COLLEGE DEGREE

You’ve surely heard of a number of successful people who accomplished significantly without a college degree. This would include folks like Michael Dell founder of Dell Computers, Steve Jobs founder of Apple, Bill Gates founder of Microsoft, John Mackey founder of Whole Foods Markets, Travis Kalanick founder of Uber, Larry Ellison founder of Oracle, performers Russell Simmons and Ellen DeGeneres, fashion designer Anna Wintour, and food guru Rachel Ray to name a few. These folks obviously are outliers in terms of their high level of professional success and associated financial earnings.

And there are plenty of lower profile people who have done quite well for themselves without a college degree including some plumbers, landscapers, dental hygienists, MRI technologists, commercial pilots, physical therapist assistants, respiratory therapists, air traffic controllers, transportation inspectors, diagnostic medical sonographers, electricians, construction managers, licensed practical nurses, web developers, elevator installers, radiation therapists, massage therapists, medical assistants, firemen and police officers. I chose to highlight some of these occupations because they are populated with relatively high numbers of people without a college degree.

Now, this is not in any way to suggest that the majority of people or your kids should bypass college! Each person’s situation is unique and different. But the point is that there are many paths to career success and some of those paths include going to college whereas others do not.

Clearly, there’s likely to be value in completing a college degree and getting a degree from a program with a good reputation and track record for graduates with that type of degree. Conversely, those who don’t complete their degree or who get a degree from a program with a subpar or mediocre track record will probably get a poor return on their invested education dollars.

Tip In Part 3 and especially in Chapter 8, I discuss the increasing numbers of shorter term and lower cost alternatives to traditional four-year colleges such as bootcamps, apprenticeships, trade schools, last mile programs, etc. The best of