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A Mixed Bag of Tricks & Treats in the College Board’s 2016 “Trends” Reports

College data nerds love late October.  Why?  The College Board releases its annual Trends in College Pricing and Trends in Student Aid   These reports, much like Sallie Mae’s How America Pays for College, are chock full of  data and analysis to understand important trends in how American families plan and pay for college.   At the very least, be sure to read the Highlights and Introductions in each report.

As in years past, it’s a mixed bag of results with sprinklings of good news, bad news and news that can be used to support seemingly contradictory arguments.

Good news from the reports:

  • College loan borrowing declined for the fifth consecutive year.
    • Undergraduates and their families borrowed 18% less than 5 years ago.
    • For undergraduates, federal and non-federal loans constituted 36% of funds used to supplement student and family resources – the lowest amount in 20 years
    • Only 10% of undergraduates leave college with more than $40,000 of debt
  • Total grant aid now exceeds $125 billion having increased almost 90% from 1995-2005 and then another 79% in the next decade.
  • Institutional grant aid has almost doubled over the past 10 years from $29.1 billion in 2005 -06 to $54.7 billion in 2015-16.
    • Grant aid accounts for the highest level of funds used by undergraduates to supplement their own resources over the past 20 years.

Bad news from the reports:

  • Pell Grant expenditures for the nation’s neediest student continued to decline from $39.1 billion at the peak in 2010 to $28.2 billion in 2015 (but is still more than 80% greater than pre-financial crisis spending).
    • The number of Pell Grant recipients declined for the fourth consecutive year (but the percentage of undergrad recipients is up to 33% from 25% a decade earlier.
  • Public funding (state and local appropriations) peaked in 2007-08 at $85.2 billion and declined 9% to $77.6 billion for 2014-15.
    • We’re spending less on public education than 30 years ago: funding per FTE student is 11% lower than it was 30 years ago
    • Declining state revenues per student are resulting in the rising prices at state schools.

Mixed news from the reports: could be better or could be worse

  • Tuition and fees continue to outpace inflation — rising from 2.2% to 3.6%, but the rate of increase is less than previous years
  • The favorable trend of net price declines from 2008-2010 reversed. Net prices paid are now increasing again, but – and it’s a big but – the net price paid at 4 year private and 2 year public schools in 2016-17 is still less than what was paid in 2006-07.
  • Total federal grants to undergraduates nearly doubled from 2005-2015 to $41.7 billion in 2015-16, but $10 billion less than the peak in 2010-11.

Facts from the reports that we’ll all be using in the coming year:

  • Total federal aid to undergraduate and graduate students: $240.9 billion
  • Total non-federal borrowing: $11 billion
  • More than 70% of full-time students receive some grant aid.
  • In-state college costs vary widely (from $5,060 to $15,650) depending on the state of residence
  • Undergraduates received an average of $14,460 per FTE student in financial aid
  • Default rates are highest for borrowers with balances less than $5,000 and decline as balances increase
  • 14 million students took $18 billion in tax credits and tax deductions. Nearly 25% of these recipients had incomes between $100,000 and $180,000.
  • The federal work-study program is relatively small: 632k students earned $982 million

Here’s what struck me when considering the reports and their context.

  1. The College Board does a painstaking job of presenting apples-apples analysis for consistency, but be careful when comparing these data to data in other reports – particularly data related to cost of colleges (i.e. know if it’s 2 or 4 year, in-state or out, all-costs or just tuition and fees, etc).
  2. With a glass half-full approach, the data on loans is most encouraging to me: total amount borrowed is down considerably and most students are not over borrowing. The obvious conclusion: future college graduates will feel less strain than their predecessors.  A less obvious question:  is borrowing down because students are choosing less expensive schools, are they receiving more aid or is it a combination?
  3. The financial crisis is now nearing its 10th Anniversary.  We’ve seen how the market (students, parents, governmental entities and colleges/universities) reacted and now how it is normalizing.  In the teeth of the crisis and the subsequent recession, tuition and fees increased significantly when compared to inflation but families actually paid less because the federal government stepped up and provide more grant aid and tax credits.  That trend has reversed as increases in aid no longer exceed increases in college costs — hopefully families will not fall into the trap of therefore increasing the amounts they borrow to reach for a school they cannot truly afford.

With data showing both advancements and set-backs in the college financing market, I continue to strongly believe that:

What do you think?

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John Hupalo is the Founder of Invite Education and co-author of the recently released book: Plan and Finance Your Family’s College Dreams: A Parent’s Step-by-Step Guide from Pre-K to Senior Year

Paying for college with early admissions

Have you looked into getting admitted to a preferred school much earlier than standard admissions deadlines?  Then you’re probably considering an “early decision” or “early action” where the student chooses to attend a specific college much earlier than standard admissions deadlines.

early-bird
Early Bird admissions and financial aid

Know the difference: Early decision (ED) refers to a binding decision to attend a specific school.  Students taking early decision commit to one specific school as early as the fall semester of senior year, foregoing admission to any other institution.  Early Action (EA) is a non-binding admissions process where students are notified very early of their acceptance but may choose to attend a different school.

Early decision: How’s it paid for? Going forward with an early decision requires organization and a clear path to covering the balance.  Traditionally, the biggest challenge associated with early decision was affordability, since the choice was made without comparing actual financial aid offers from other schools.  Gaining early admission with the means to pay the bill outright regardless of financial aid and scholarships works for some, but not all families. If the financial aid offered with an early decision application is too low, families have the option to appeal the decision and ultimately reject if proven unaffordable.  Going through early decision only to end up not attending is an avoidable stress through realistic college planning, so unless the school is an absolute “must attend” situation, it may not be worth applying this way.  It’s expected that students only submit one early decision application to one school, but may also submit standard applications to other schools by agreeing to withdraw those applications if accepted for the early decision school.  There is a wide gap from early admissions beginning in November to when standard admissions deposits are due in May, so be aware of deadlines to know when a final decision is required.

Early action: What are my options? Early action admissions allow students the benefit of immediately applying to several schools instead of just one.  This allows for families to compare financial aid offers without being bound to just one institution. Early action has become much more common to help students zero in on their final college choice after recognizing all their best options. Early action does require a pro-active approach to make sure each school has all admissions and financial aid information available allowing for clear comparisons between offers.

Financial aid applications are early too: The FAFSA (and CSS Profile) has been available since October 1, 2016 for college students beginning their freshman year in Fall 2017.  This is 3 months earlier than the traditional January 1st FAFSA date, allowing more time for schools to begin sorting through many financial aid requests and early admission applications.  Since this is the first time FAFSA is being made available so early, most schools are still following  regular deadlines like in March, April and May.  But for families handling early admissions, this earlier date hopefully provides more breathing room to compare options.

Merit based vs need based funding: Remember the differences between college funding. Grants are need based financial aid awards provided by federal, state and school programs considering  income and asset information on the FAFSA and/or CSS Profile.  Merit based scholarships are awarded to students considering high test scores, grades, sports, community service and other student qualities and achievements.  When making a final choice about early admissions, make sure the financial aid award letter accounts for both need based and merit based funding eligibility.  You want a complete financial picture when comparing school options, which is why all your financial aid documentation needs to be filed as early as possible.

 

What to look for on a college visit

Visiting colleges is fun, but with all the excitement, it’s easy to miss some important lasting details that can make (or break) a campus experience.

Know the costs before you go: Make comparing campuses easy by knowing the tuition, room, board and expenses before the visit. This way you can enjoy the experience while being practical about the value provided and how it can be paid for.

Try the food: Meal plans have a variety of options to match student needs and schedule.  Stop by the cafeteria or other food vendors on campus to look for….

  • Quality: Is the food worth the cost of the meal plan?  Is there enough fresh food available to keep students healthy and energized?
  • Access: Where is the cafeteria and what’s the time schedule?  Are there multiple food locations open at different hours serving different food?

Talk to the students:  Ask about their experience and why they chose the school.  What do they like best, or are there some things they want to see improved?  Hearing it directly from current students can provide great insight to make a decision.

What’s the campus like? A campus can change rapidly depending on the day of the week. Big events and sports will take over space, especially during football season.  Other schools may be very busy during the week and very quiet on weekends.  Compare schools considering their percentage of resident and commuter students to recognize differences in campus life.

Class drop-ins: If possible, stop into a class room to listen and learn.  Be on the look out for teachers in majors you are interested in.  Ask questions about their respective programs and gauge your own interest in pursuing more knowledge.  How would you handle class in this environment?

Facilities: A campus is made up of many buildings and locations. Gyms, class rooms, labs and parking are just some of the things in plain view, but while on tour look for details like how spacious or crowded it was and the ability to navigate between buildings.  Ideally, you are looking for very safe, clean and well managed locations.  Most importantly, how’s the internet connection?

John Hupalo on college planning solutions with “The Opening Bell” WGN Chicago

Families putting together college plans are looking at different avenues to find success.  John joined The Opening Bell to share some insight from the book “Plan and Finance Your Family’s College Dreams“, helping families get through the planning process.

  • Starting early on savings will reduce the need to borrow in the future.  There’s 529 programs in place with creative ways to hit savings goals over time. Consistent long term savings combined with any gifts can really grow.
  • College value is different for every family. Be realistic, rather than pessimistic or optimistic.  The planning process has many little steps involved to determine the right fit school considering everything going on in a young person’s life.
  • During election season, we hear ideas about “free” college and student loan debt forgiveness being made more widely available.  At the end of the day, college choices come down to individual decisions based on personal goals and needs. Real solutions are not easily found through claims made during elections.

Check out the full recording beginning @ 19:43 on WGNRadio.com

 

How financial literacy helps with college affordability

There’s no doubt that college is expensive.  Just ask any parent helping their son or daughter enroll this fall, or even file the FAFSA in preparation for next year.  College affordability is at the heart of the issue, but real potential solutions to the problem can be swept away under the daily sound bytes generated during this aggressive political season.  But politics aside, there is no easy fix for college affordability regardless of voter preference, leaving families to decide on their own how to navigate.  Let’s consider how financial literacy helps manage decisions about college affordability.

“It’s cheaper to save than to borrow”: Parents that recently started a family, and even more recently paid off their student loans are very debt conscious, perhaps spurring the trend of greater college savings.  The “How America Saves for College 2016” report from Sallie Mae shows that a full 57% of families are now saving for college, a 9% swing in just the past year.  screen-shot-2016-10-05-at-9-54-01-amIn particular, it’s millennial parents taking the lead on goal setting and developing a plan to pay for college, all hallmarks of financial literacy teachings.  It’s inferred from these findings that new parents recognize the importance of education, but are wary of student loans.  While Washington needs to work out the student loan mess, families are taking control of their savings plans to make a smarter and more affordable investment in higher education.

Using college financial calculators: It’s easier now than ever to make and compare estimates on college costs, student loan repayment and savings, helping families look at the big picture first.  Before zeroing in on a college choice, it’s wise to take a look at a wide variety of options for perspective.  Consider questions like potential financial aid eligibility versus the sticker price of select schools, or if the lowest priced option is really the best fit.  These questions are simplified with use of financial calculators as reasonable comparisons are grounded in logic, ensuring informed decisions on college choice.

Power of compound interest: Long term savers know one big secret. Over time their money can grow with the power of compound interest.  Financial literacy helps families harness the power of compound interest through simple knowledge, like demonstrated with the “Rule of 70”, to show how money can double over time.  While financial calculators help with the details, the impetus behind saving begins with the motivation to start early, rather than later, to make college more affordable.

Identify college value: Know thyself! If financial literacy can teach us one thing, it’s that everyone needs to make their own choices based on their own needs.  Financial literacy helps with perspective on this issue, recognizing that college value really depends on individual factors managed on the personal level.  When weighing the many variables, from majors, school reputation, and internships and compare them to facts like costs, student loan debt and out-of-pocket expenses a pattern is revealed.  Some colleges will be too expensive while others may be a bargain relative to the needs of the student.  Using practical teachings from financial literacy promotes sound decisioning through the process to make the college experience an affordable one.

Invite Education co-founder Peter Mazareas talking college affordability on Plan Stronger Radio

Peter Mazareas joined Plan Stronger Radio with host David Holland to cover the topic of college affordability, a major issue faced by many families, especially this time of year.

Peter covers some critical topics by sharing his wisdom and expertise, especially important for families approaching this challenge:

  • College planning is recognized equally with retirement planning given the size and scope of the process.
  • How can families simplify college planning given all the financial variables?
  • What can be done to increase college options and reduce debt dependency?
  • What are some smart strategies that can help with college savings?
  • How the new book “Plan and Finance Your Family’s College Dreams” helps families every step of the way from early planning to graduation.

Three Simple Ideas to Start Fixing the Student Loan Mess

I’m back from a few days in Washington, DC.   Despite working on Capitol Hill for two years, I’m still struck by the disconnect that seems to exist between our real world and their political world.   These ecosystems need to collide if we’re going to seriously begin addressing the real world student loan debt crisis.  Here are three simple ideas that would help borrowers immediately and could be the basis for a long-term solution to the spiraling college debt problem:

  • Stop categorizing federal loans as “aid” on Financial Aid Award Letters
  • Stop charging students and parents origination fees to obtain federal loans
  • Start requiring the Direct Loan Program to report Annual Percentage Rate (APR) calculations

We know the statistics: there is $1.3 trillion of student loan debt outstanding. We’ve heard the sound bites: college loans hamstring graduates who have taken on piles of debt and are underemployed.  So what’s the answer? Previously I’ve offered my thoughts about college affordability and ways for students to avoid excessive debt. However, there are some factors that are simply out of their control and need to be fixed in Washington. And soon.

In the political world, current efforts are largely focused on relieving over-leveraged borrowers of repayment stress with loan forgiveness programs and income-based repayment plans. Great, but these programs address the problem after it has occurred and leave the root causes untouched.   We need to fix the problem at the source. In this case, before a loan is made.

Transparency and disclosure are all the rage – and rightfully so. But, the federal government comes up woefully short in providing adequate disclosure in two critical areas for the Direct Loan Program:

  • Marketing loans via colleges
  • The total cost to borrowers

Did you know that the federal government:

  1. Permits colleges to categorize federal student loans as “aid” on Financial Aid Award Letters.
  2. Charges borrowers fees but does not disclose an Annual Percentage Rate (APR) for their loan?

In effect, the largest student loan lender — with over a 90% market share — permits itself to market student loans as financial aid through colleges and universities without disclosing the APR. I bet the Consumer Financial Protection Bureau would have a field day with a private lender engaged in these business practices.

Loans as “Aid”

Remember the old story of the wolf in sheep’s clothing? I do whenever I think about a high school senior first encountering a student loan “awarded” via the financial aid process.   Or worse, a parent relieved that their child’s dream college is within reach because they’ve been “awarded” a PLUS loan. A PLUS loan is packaged as “aid” but it comes with big up-front fees and encourages parents to borrow up to the full cost of attendance as long as they don’t have adverse credit — a very low level of scrutiny. Intentional or not, the disingenuous miscategorization of loans as aid no doubt confuses borrowers and leads to some very bad decisions regarding college affordability.

APR not required for a lender with a 91% market share 

According to the College Board, for Academic Year 2013-14, approximately $113 billion of student loans were made. Approximately $9.7 billion of these loans were made by non-federal lenders, mostly banks, credit unions, finance companies and some state based entities.   Few, if any, charge fees to originate the loans, and all are carefully watched to ensure consumers are treated fairly and receive proper disclosures including APR calculations.

Then we have the other lender, the federal government, which made more than $103 billion in student loans.   This monopolistic market share resulted from a long political struggle to replace private lenders participating in the government’s guaranteed student loan program with a nationalized student loan program under the auspices of the Department of Education.

No matter your opinion of the Direct Loan Program, can anyone make an argument to justify:

  1. Why government charges fees to obtain loans when private lenders do not?
  2. Why the Department of Education is not required to disclose an APR?

The Good News – Thanks to the DoE

Kudos to the Department of Education for recognizing the first problem addressed here – student loans nicely wrapped in the sheep’s clothing of a Financial Aid Award Letter.   Beginning in Academic Year 2013-14, the DoE introduced its Federal Aid Shopping Sheet, which asks colleges to CLEARLY show the:

  • Cost of attending the college
  • Amount of grants and scholarships awarded to the student
  • Net Price that the family will pay.

The standardized form then delineates what options the family has to pay those net costs:

  • Work options
  • Federal loan options
  • Other options including non-federal loans

Thousands of colleges have agreed to use the Federal Aid Shopping Sheet but thousands do not. Some likely add to the confusion by providing students with both the institution’s Financial Aid Award Letter and the Federal Aid Shopping Sheet.

Here’s a federal regulation I would support: require all Title IV eligible colleges to use the same form of a Financial Aid Award Letter with simple and clear disclosures so families can easily compare the cost, aid packages and options for filling the gap.   Don’t re-invent the wheel: the Shopping Sheet seems to fit the bill very nicely.

A Final Thought

To end where I started: our political leaders, no matter how well intentioned, seem stuck on a very unproductive treadmill of churning out sound bites about the student loan mess.   They’re spending too much political capital addressing the symptoms of the problem rather than actually fixing it at the root.  It’s time to replace political sound bites with real world actions to help families avoid excessive student debt.  My suggestions:

  1. Require all Title IV eligible schools to use the Federal Student Aid Shopping Sheet
  2. Stop charging students and parents fees to obtain federal loans – the private student lenders do not charge fees
  3. Provide APRs to federal borrowers

What do you think?

 

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John Hupalo is the Founder of Invite Education and co-author of the recently released book: Plan and Finance Your Family’s College Dreams: A Parent’s Step-by-Step Guide from Pre-K to Senior Year

October 1 FAFSA: Getting ahead on college funding

For the first time, the FAFSA will be available beginning October 1.  This is a big move from the traditional January 1st date for FAFSA availability, and will change the timeline for financial aid processing with implications for admissions.  If you’re planning college admissions in Fall 2017, it’s already time to get started!

Prior-Prior Year Taxes (PPY): A move that will help streamline the process is the use of Prior-Prior Year Taxes to complete family financial information on the FAFSA. The 2017-2018 FAFSA will require info from the 2015 year tax returns.  Those returns have long since been completed by most families, and may be available for digital transfer from the IRS via their Data Retrieval Tool.  This means the financial details of your tax return can automatically populate the FAFSA, saving you time from data entry.  Also, using Prior-Prior Year taxes negates the need to make estimations on the FAFSA when tax returns were incomplete.  In the past, when FAFSA filers were required to use only the Prior year tax returns, they were encouraged to file the FAFSA on January 1st, before their actual tax returns were completed.  Now that tax returns from the Prior-Prior year are used, there’s no need to estimate.

Expect similar admissions deadlines: Most colleges are maintaining their same admissions deadlines. May 1 will still be the major deadline for enrollment decisions.  Early Decisions will be the exception from school to school.  The big impact early FAFSA makes is that there will be more time for schools to process new incoming financial information, and families can get a better idea of their financial aid eligibility earlier in the process.

Pay attention to institutional funding deadlines:  Institutional funding is money reserved by the college and awarded based on their own internal criteria and methodology.  Eligibility requirements and deadlines can vary from school to school.  Make sure to identify any deadlines for institutional funding to stay ahead of the curve. The simplest way to achieve this is by making sure all financial aid forms are completed and submitted in advance of any deadlines.

Remember the CSS profile:  The FAFSA obviously gets a lot of attention, but the CSS / Financial Aid Profile is also required for about 400 select colleges when applying for financial aid.  It goes more in depth than the FAFSA and is also available beginning October 1.

Dealing with uncertainty on the state level: Many states provide need based grant programs to students with low income based on data provided on the FAFSA.  While the federal FAFSA is available beginning October 1, not every state will have their grant budgets for the 2017-2018 years ready yet.  Be aware of any financial aid awards relying on estimates for state based funding as they may be subject to change based on final state budget legislature.

Invite Education Featured on “Money Matters” @KPFTHouston

It’s “Back-to-school” season and parents are looking for answers when dealing with the high cost of college.  Join Chris Insley of the “Money Matters” show on @KPFTHouston interviewing Invite Education CEO John Hupalo to discuss the new book Plan and Finance Your Family’s College Dreams.  Early savings strategies, student lending, choosing a major, considering career opportunities and other key topics are up for discussion and solutions.

Families focus on key criteria for college choice; Here’s how

With the new FAFSA arriving October 1, families are getting ready to make earlier decisions about college. This is positive, as it gives schools more lead time to manage incoming admissions and financial aid requests, providing more space for families to make a final choice.  But how are families deciding? College selection can be very emotional, but it’s rooted in logical factors that lead to a final decision.  Here are some criteria points.

Cost: We all know college costs are high but may be offset by merit based scholarships and/or need based financial aid.  But even with some “free” money, a college can remain financially out of reach for middle class families making just enough to pay their bills, but not enough to cover an entire semester balance.  Student lending has often filled this funding gap, but families are getting much more pragmatic about debt, using loan calculators early and often so they will know what they owe in advance.  College savings also plays a key factor to broaden school choice and affordability.

It’s a basket of several funding resources that help cover the bill, but this is where confusion can set in.  It’s easy to miss steps with so many variables, like starting early with college savings, applying for enough scholarships to qualify for at least one and maintaining strong credit to qualify for low rates on student loans (Parent Plus is an option for families with limited credit, but locks in at 6.31% with 4.276% origination fees)  To help manage all of these variables, Invite Education’s Family Financial Center accounts for financial aid estimations and savings goals on each potential college choice.  Using cost calculators and savings estimators simplifies the process, making it easier to compare choices.

Major / Career Goals: The economy is always changing, and while college degrees are valuable, some end up working in a different field than they may have figured just a few short years ago. But there are simple ways to forecast your career trajectory based on skills and aptitude that should reflect in choice of major.  Psychology, for example, is a very common major but also one of the lowest paying after graduation.  Science, technology, engineering and mathematics, or STEM, are often cited as creating graduates with high salaries, but global competition keeps the market constantly shifting.  Majoring in pre-med but failing to carry on to medical school is a large investment without a big return.  It’s recognized that there is no perfect hand-off from college success to career success. Instead, look at the big picture. Consider how certain majors or classes can accentuate talents, and how the knowledge can be adapted to new opportunities.  Even Steve Jobs commented that during his brief time in college, he was able to learn the importance of calligraphy and directly applied it to the font-types in personal computers. He learned how to adapt his knowledge to create something new after learning some fundamentals in the classroom.  This maybe the greatest gift an education can give you, but it’s not so obvious when first getting started.

School reputation / Network: An important reason why students want to attend schools like Harvard and Stanford is the reputation for producing students from particular areas of study.  Additionally, alumni networks can open up further opportunities after graduation.  For many, this is enough justification for a high price tag associated with some institutions.  Take a look at the track record for alumni to get an idea of potential opportunities.

  • Biggest majors: Look at the production of specific majors at certain colleges to learn more about their programs.  Compare this to data from the Bureau of Labor statistics to see how certain majors mesh with career opportunities that are expanding today.
  • Industries where alumni are most common: Prospective schools may provide info on careers of graduates demonstrating concentrations in fields like education, finance, technology or any number of areas.

Location: Choice of environment plays a crucial role for potential internships and concentrations of industry.  There are many different school locations to consider ranging from urban to suburban to rural.  Each offers their own unique advantages that may (or may not) match up to your overall goals for an educational experience. For some, a bustling city is the perfect place.  For others, a campus nestled near nature and low population density is all they need.  This choice comes down to student personality, but college does provide an opportunity for some students to break from their comfort zones to experience an environment unlike their home or high school.  Just remember, a long distance from home means more time spent traveling to get back and forth when necessary.