Evaluating education’s ROI
As tuition soars, students are taking more responsibility for college costs
- July 29, 2011
Trevor Nagel considers college an investment, so when the 2011 graduate of Stonebridge High School in Ashburn went shopping for a college, he kept his eye on the bottom line.
“Is this school worth that much?” he’d ask himself. “Will it help me get a job?”
Nagel applied to 17 schools both inside and outside the commonwealth and eventually chose Texas Christian University in Fort Worth as the best school for him. But he knew his choice was going to cost him.
Nagel’s parents were willing to pay the equivalent of what it would cost for their son to go to a Virginia state school — in-state tuition, room and board, books, and fees add up to about $24,000 at the University of Virginia — but TCU will run closer to $41,000 a year, leaving Nagel to make up the difference.
“I’ve exercised all my options,” the 18-year-old says about financing his education. He applied and received a grant of $3,000. He will participate in a work-study program to help with expenses, and the school will allow tuition to be broken into monthly payments, instead of a lump sum. All that leaves Nagel still borrowing money to cover the rest of his costs.
By the time he graduates in 2015, Nagel anticipates he’ll be $30,000 in debt. “But I plan to keep on applying for scholarships,” he says. “If I can get [my debt] down below $20,000, I’ll be happy.”
Nagel will have plenty of company among his fellow grads.
“More students are borrowing, and they are borrowing more,” says David Hawkins, director of public policy and research for the National Association for College Admissions Counseling. FinAid.org reports that two-thirds of college grads have educational debt, which averages $23,186, while law and med school grads find themselves buried under a $91,700 tsunami of debt. Not surprisingly, the prospect of taking on such massive financial obligations has made even high school students more cognizant of the financial ramifications of their college decisions.
Tim Lucas, director of guidance at Stonebridge High School, says he has seen a “dramatic change” in student attitudes about financing their educations. “Lots of kids have taken more ownership of the [application] process,” he says. “They are looking outside the box.”
As an example of “outside-the-box” thinking, Lucas cites the case of a recent Stonebridge senior. The young woman was a top student who was accepted at both U.Va. and William and Mary, but opted instead to go to Lynchburg College, a small, liberal-arts college. It not only fit her academic needs, it offered her something the state schools did not — a full scholarship.
Lucas says that an increasing number of private colleges are willing to negotiate financial aid packages to get the high-quality students they want. Lynchburg, for example, invites potential students to compete for merit-based scholarships, says Michele Davis, director of financial aid for the college. These can vary from $3,000 to $14,000. When combined with other available monies, such as the $2,650 the commonwealth gives to Virginia residents who attend in-state private colleges, costs can come down substantially.
“More students are calling financial aid offices to get the best offer on the table,” Lucas says. “You don’t have to pay the sticker price anymore.”
Parents, of course, continue to be a mainstay for their children’s higher education. Virginia 529 CEO Mary G. Morris says contributions to Virginia’s college-saving plans — in which funds accrue tax-free and are exempt from federal income taxes as long as they are withdrawn to pay for higher education — have remained steady in recent years.
“Even during a volatile market and weak economy, our customers … did not pull money out or stop savings, and, in fact, opened and funded new accounts,” she says. The commonwealth offers four investment plans, all of which have continued to grow modestly. The Virginia Education Savings Trust, in particular, has posted impressive figures for a down economy, averaging a 12 percent increase in the past couple of years.
Still, 529s rarely are sufficient to cover all college bills because educational costs have become so exorbitant. Michael McKinnon, a member of the National Institute of Certified College Planners, says that out of the more than 1,000 families he has advised, only one had managed to put aside enough money in a 529 to put his children through college. Many families thus have to augment their savings with loans, with the result that educational debt now outstrips credit card debt in this country, McKinnon says.
That is understandable, given the numbers. Since 1986, the cost of a four-year college degree has gone up a staggering 466.8 percent, according to InflationData.com — or more than quadruple the 107.05 percent leap in the general cost of living. Depleted endowments and cuts in state funding are partly to blame, but the advent of Stafford loans in 1992 is seen as a culprit for the spiraling costs, too. Unlike Pell grants, Stafford loans are not tied to financial need, and experts say that pushing many millions in new aid money into the post-secondary system has led colleges to spike tuition rates accordingly.
For example, in the decade between the 1998-1999 and 2008-2009 academic years, the National Center for Education Statistics reports that the inflation-adjusted sticker price for tuition, room and board increased 24 percent at private institutions and 32 percent at public ones. Economists now predict that by 2015, four years at a state college will cost an average of $120,000.
“You want to be able to pay for college without being a Wal-Mart greeter at age 85,” McKinnon says, and that can mean giving up on a dream school, such as Yale University, which now costs $52,700 a year. Or it may mean going to a community college for two years and then transferring to a four-year institution. Tuition and fees at Northern Virginia Community College, for example, are about one-quarter of the cost at U.Va. More reasonably priced out-of-state public schools, such as the University of Alabama, also are meriting a harder look from some Virginians.
Whatever the compromises or choices Virginians make on college, the U.S. Census Bureau recently reported that over an adult’s working life, a college graduate can expect to earn $2.1 million while those without will earn $1.2 million. Even for a student like Nagel, who may come out of school with a $30,000 debt, those numbers still add up.