College Students Grapple With High Costs and Pandemic Impact

Even in normal times, it can be challenging for families to cover college expenses without borrowing money and/or risking their own retirement security. For the 2019-2020 academic year, the cost of in-state tuition, fees, room, and board at a four-year public college averaged $21,950, and the total for a private college approached $50,000. Sadly, the college world is not immune from the health fears and financial pain inflicted by the coronavirus pandemic. More students might start to choose schools that are less expensive and/or closer to home, take a year off, or forgo college altogether. The American Council on Education is predicting a 15% decline in college enrollment nationwide. With the financial futures of students and supportive parents at stake, it is more important than ever for families to make informed college decisions.

A new landscape Students who live on campus or attend classes in person are finding strict rules and restrictions regarding safety practices (physical distancing, face coverings, virus testing) and changes in many facets of campus life, including living situations, food options, class settings, social gatherings, and popular extracurricular programs such as arts and athletics. In anticipation of $23 billion in revenue losses due to the unwelcome changes, colleges nationwide have also had to lay off employees, reduce salaries, eliminate programs, and make other budget cuts. Institutions with large endowments and/or strong cash flows are better positioned to withstand the crisis, but lost tuition poses a much bigger threat to HBCU's and small colleges.

Shopping for schools High school students who are involved in the planning and application process might be lucky to enter college after the worst of the health crisis is over. Still, more economic hardship means that cost could play a greater role in school selection. Financial aid packages differ from school to school. After identifying schools that might be a fit, families can use net price calculators to compare how generous different colleges might be, based on the household's financial situation and the student's academic profile. Before choosing a school, students should understand how much they might have to borrow and what the monthly payment would be after college. It's also important to take a hard look at earning potential when choosing an academic program. Those who plan to enter lower-paying fields may fare better if they keep costs down and borrowing to a minimum.

Seeking financial aid To receive grants and/or loans, students must complete the Department of Education's Free Application for Federal Student Aid (FAFSA) and apply for aid according to the college's instructions as early as possible. Higher-earning families should also fill out the FAFSA because they may qualify for more need-based aid than they might expect, and some schools may require a completed FAFSA for merit-based scholarships. College students with parents who have lost a job or earned less income than normal this year due to COVID-19 may want to appeal for a revised aid package, if not for fall then for spring. The financial aid administrator may be able to reduce the loan component of a student's aid package and/or increase the scholarship, grant, or work-study component.

Will college pay off? Good question. The answer, it depends?

The average college graduate earns $78,000 per year, compared with about $45,000 for the average worker with a high school diploma. The wages of workers without a college degree tend to fall more during recessions, and they are more likely to be unemployed, as seen during the pandemic. A 2019 Federal Reserve analysis of the cost (four years of tuition and lost wages) and the benefits (higher lifetime earnings) concluded that a college degree is a sound investment for most people; the average rate of return for a bachelor's degree is about 14%. When Fed economists adjusted this analysis to account for the 2020 pandemic, the return on a college degree rose to 17% (under the assumption that many workers with a high school diploma would be unemployed for a year). For a student who takes a gap year, the estimated return dropped to 13%. The $90,000 cost of a delay includes one year's worth of post-graduation earnings and slower growth in wages over a lifetime. Remote learning may not be a perfect substitute for in-person interactions and relationships, especially for students enrolled at expensive institutions. Still, motivated students can grow intellectually and work toward a degree that could be valuable in terms of future earnings and social mobility. Hopefully colleges and universities will be able to utilize their investments in technology and online curriculum long after the pandemic passes in order to provide future students with more opportunities to earn an affordable college degree remotely and help ensure a higher rate of return on the college investment.

To learn more and for help developing your education plan, contact MNM Vested, LLC.