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VIDEOCollege Costs Didn't Get Cheaper, Just More Manageable
Here are the biggest bargains that weren't advertised in student loan legislation.
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Recent student-loan legislation, which was slipped into the health-reform reconciliation bill, will shift government-guaranteed college lending away from private companies to the Department of Education, but it won't lower the sticker price of higher education for most students.
Earmarked for lower-income families, the Pell Grant award is raised to $5,975 by 2017 from $5,550 this year and indexed to inflation.
By shifting the savings from subsidies formerly paid to companies such as Sallie Mae (SLM) and Nelnet (NNI), and banks like Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC), the government hopes to provide more than $40 billion in additional aid to disadvantaged students. This change is also expected to save taxpayers some $68 billion.
That's little or no consolation for middle-class students, who average $23,000 in college debt when they leave school. The only meaningful break in the new law is a provision to cap loan repayments at 10% of discretionary income. Yet that's only for new borrowers starting July 1, 2014.
If you choose to enter a public-service profession -- teaching, nursing, military -- then your college debt will be forgiven after 10 years (20 years in a non-public service job).
The best college deals don't involve loans, aren’t advertised, and are rarely mentioned in national magazines.
The best, hands-down deal is a four-year university that offers generous grants, which don't have to be paid back. For those who qualify, that means no tuition and sometimes no other fees.
Should you be accepted into Stanford University, for example, there are no fees for students from families with household income under $100,000. At New York’s Columbia University, the same offer applies to families earning $60,000 or less.
Several other elite schools have similar “graduate debt free” programs.
Another guaranteed way to save money on colleges is to complete as many basic courses as possible at a community college before entering a pricey school. Most large high schools also offer advanced placement courses for college credit.
An even better and lesser-known option -- called dual enrollment -- is taking courses or earning a community college associate’s degree while still in high school.
This is a growing trend and a reason why two-year college enrollment rose by 300,000 students between 2007 to 2008, while four-year university admissions were flat.
Since the total annual cost of a two-year college averages $6,750 -- versus more than $40,000 annually for a four-year private university -- the savings are enormous. Although Congress could've made a much larger commitment to community colleges, it only ponied up $2 billion over four years for these institutions.
So what if you pay less at a community college? Doesn't a name-brand college degree pay for itself in terms of higher earnings?
Perception isn't always reality when picking a college. Disconnect a school’s price tag and average student body test scores from eventual success and earnings.
A big price tag may be detrimental to one’s financial future. Graduates consumed by financial burdens may not be able get a degree in four years.
Let's say you can't finish college in four years or have to drop out because you can't keep up with the bills. Two extra years in school could cost an average $60,000 in lost income, according to the National Association of Independent Colleges and Universities, a group that represents private schools.
In fact, the more money you pay for a school in fees and loans -- and the longer you stay there -- the lower what investment advisers call an internal rate of return.
It would take you years to pay off those big bills, so your net earnings are lower. That’s assuming you don’t land the six-figure job with huge bonuses after graduation.
In hard economic times, it’s tougher than ever to justify large college bills.
It makes much more sense to take basic courses and achieve a high grade point average at a community college than pay top dollar for the same prerequisites at a four-year school. With wage growth generally lagging inflation over the past decade and several industries shrinking, that puts even more pressure on debt-burdened graduates. A College Board report stated that “after adjusting for inflation, the earnings of male college graduates are no higher than they were in the early 1970s and the earnings of female graduates have increased only modestly.”
A recession makes it even more difficult to justify a high-priced degree. It may not enable you to move up the financial food chain.
While there’s little debate that college graduates can earn more than those with a high school diploma over time, the gap is shrinking.
Just remember that name brand is no guarantee of stellar future salaries. You can still pay too much for a high-profile college and not come close to financial success. The best deals give you the freedom to soar unencumbered by debt when you enter the workforce.
John F. Wasik is author of "The Audacity of Help: Obama’s Economic Plan and the Remaking of America."
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