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The rising cost of college

Advisers say laws of supply and demand influence tuition trends

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Print this page by Amelia Vogler

As high school students wind up their last month of summer before heading back to school, some already are doing homework.

Rising seniors, such as Ishani Premaratne, a student at Richmond’s Maggie L. Walker Governor’s School, are trying to narrow the list of colleges they plan to apply to this fall.

In Virginia, she is considering the University of Richmond, University of Virginia and the College of William & Mary.

Applications alone cost a pretty penny (fees range from $25 to $80 each), but that is just the beginning of the cost of college. Nationally, the average annual cost of tuition and fees for in-state students at a public, four-year college doubled, from $3,508 to $7,020, in the past 10 years, according to At private colleges, the average tuition cost rose 63 percent, from $16,072 to $26,273, during the same time.

“As the daughter of parents who often worried not about the cost of education, but rather its availability, I was always encouraged to consider opportunities without citing price as a reason for passing on them,” Premaratne says. Nonetheless, “I definitely consider cost in my college decision-making and the prospect of financial aid as a way to make some options more accessible than others.”

The rising cost of a college education has made headlines throughout Virginia in recent months. All of Virginia’s four-year public colleges and universities have raised tuition for the 2010-11 school year. The median cost of tuition and fees for in-state students at the 15 schools this fall will be $8,686, up 8.2 percent from last year. Click here for more information on tuition increases in Virginia.

The affordability of higher education is one of the issues confronting the 45-member Governor’s Commission on Higher Education Reform, Innovation and Investment. Appointed by Gov. Bob McDonnell as part of his economic development initiatives, the group is scheduled to report its recommendations by the end of November.

Many Virginia families are turning to college planning advisers such as Larry Rosenthal, founder and president of Financial Planning Services in Manassas. He sees the rising cost of college as a result of economic forces. Despite the effects of budget cuts in Virginia, “the changing economy has nothing to do with tuition [nationally],” Rosenthal says. “It’s all about supply and demand. In 2008, there was a greater percentage of 18-year-olds going to college, and the colleges, to stay competitive, increased their standards and costs to get in.”

Another adviser, J. Wayne Firebaugh Jr., president of Wayne Firebaugh Inc. in Roanoke, agrees. “Everyone expects their child to go to college, so the demand is definitely a big reason for the hike in tuition costs,” he says.

Nationally, 2.1 million, or 72 percent, of 2.9 million 2009 high school graduates were enrolled in college by October, according to the U.S. Bureau of Labor. In 2003, only 64 percent of 2.7 million high school graduates headed off to college.
But if the struggling economy is not affecting rising tuition, it is hampering the ability of families to pay for college. Many parents are trying to make up for lost time, says Tate Felts of College Planning Experts LLC in Chesapeake. “What I’ve noticed since being in the business is that many parents are financially unprepared when it comes to the ever-increasing expense of college,” he says. “Many of them are numb to it during the early years and wait until the last minute to begin planning.”

Felts, Firebaugh and Rosenthal say many families seek their help because the college payment system is often complicated. “We help people understand how all of the pieces fit together by explaining how financial aid, 529 plans and tax planning all work,” Firebaugh says.

To help families plan to start saving for college, the advisers explain the range of financial aid options they can apply for, such as scholarships, grants and loans. The financial-aid process often begins with parents filling out the Free Application for Federal Student Aid (FAFSA).

But the advisers say families also should have their own college savings plans and start them as early as possible. Firebaugh says one of the biggest aids to college savings has been the advent of the 529 plans. The number 529 refers to the section of the Internal Revenue Code that governs the operation of state-sponsored, tax-advantaged college savings plans. All 50 states and the District of Columbia offer some type of 529 plan. “The 529s have helped put structure around the savings plans for college, and there has been a huge growth in those accounts,” Firebaugh says.

There are two types of 529 plans: prepaid tuition plans and college-savings plans. Prepaid plans allow families to prepay their child’s tuition at current costs.  Money in a 529 college-savings plan grows tax-deferred and is tax-free when withdrawn if used to pay qualified higher education expenses.

Virginia offers four 529 college savings plans:
•  Virginia Prepaid Education Program (VPEP),
•  Virginia Education Savings Trust (VEST),
•  CollegeAmerica (which is available through financial advisers)
•  and CollegeWealth.

Click here for more detail on the Virginia 529 college savings plans.

Mary G. Morris, CEO of the Virginia College Savings Plan, says all of the plans have grown steadily since the program’s inception in 1999, but the pace of new accounts slowed during the recession.  “People were not sure of what to do with their investments, so that slowed the growth of the new amount of accounts,” she says.

Because of tuition increases at state colleges, you might expect a rush to join the prepaid plan. Morris, however, says she can’t tell yet if there will be a big increase in new accounts. The latest enrollment period ended March 31. “The colleges and universities announced their tuition increases after the enrollment period had ended, so maybe when it reopens in December, we’ll be able to tell if more people opt for the VPEP,” she says.

As Ishani Premaratne decides where she will apply to college, her father, Shyamal Premaratne, takes a philosophical view of the increasing cost of higher education. “There are increasingly more applicants, and colleges, too, must work harder to attract students,” he says. “I think that all of these things in combination have led to an increase in college tuition, especially in a world where we must work harder to stay competitive.”

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