The College Question

Choosing the best education for your money



John Towner

The numbers are sobering. Student debt in the United States has doubled over the past decade to more than $1.4 trillion, leaving nearly 45 million Americans in debt for their education. Student loans now exceed credit card debt as the largest consumer debt. Some Americans are carrying this debt into retirement, and headlines question whether student loans are going to be the next economic crisis. Others are questioning whether a college education is even worth the investment.

For some families, a college education is a family tradition. For others, having a child go to college is the most reliable way to break the cycle of poverty, changing everything for that child — and even the family’s future. For decades, families have viewed college as the best way to prepare their children for successful, productive lives. It’s part of the American dream. But is it still the best choice? And what are the alternatives?

 

The Rising Cost of Tuition

As student debt rises, so has tuition. An April 2017 article in Forbes states, “Paying for college is serious business. According to the College Board, average total charges for an in-state public college for 2016-2017 is $35,370. For private colleges, that figure jumps to $45,370 per year. If you are able to get your bachelor’s degree in four years, a degree can cost over $140K.”

What is driving this tuition increase? For colleges and universities, the answer is complex. Public institutions are receiving less and less financial support from their states, and, according to a March 28, 2018, article in U.S. News, “State spending on public and private universities remains at a historic low since the 2007-2008 school year.”

For example, in 2008, state funding supported 21 percent of USC’s budget. Today, it has dropped to 10 percent.

Who is making up this loss? According to University of South Carolina spokesman Wes Hickman, “The money to provide an education to our students has to come from somewhere … as a matter of policy, the burden has shifted from the state to our students and their families.” That means an increase in tuition.

At the same time, colleges have been forced into an “arms race” to compete for students. Nationally, colleges are adding flashy attractions, including lazy rivers, fancy dormitories, and country club amenities — which do not contribute to the quality of education — as ways to capture prospective students’ eyes and desires. This arms race adds to the cost of tuition without adding to the value of education.

 

Viewing a College Education as an Investment

Many methods can be used to evaluate the cost of a college (two-year or four-year) education. One way is to compare the cost of tuition, the opportunity cost for that student not working while in school, and the income-earning potential of the degree earned to how that same money invested in other opportunities, such as the stock market, would fare.

Other ways are to look at the return on investment for specific schools, majors, and job prospects. Some models evaluate the cost of tuition against future earnings. Others look at expected earnings over a 20-year period. The Payscale website (Payscale.com/College-roi) offers parents and students excellent interactive tools to compare the ROI for institutions and majors.

While the cost of higher education is going up, the education landscape is changing. A four-year college degree was once the ticket to the highest paying jobs, but that is no longer true. A June 29, 2018, article in the Wall Street Journal reports, “Because of a growing difference between wages for different kinds of jobs, 30 percent of those with an associate degree now out-earn the average holder of a bachelor’s degree.”

 

Not All Colleges — or Majors — Are Created Equal

Everyone in South Carolina has an opinion about which college is best. Each school has its strengths, and intangibles should be considered, such as a strong alumni network, family legacy, or the fact that grandparents will be overly stressed if a grandchild goes to a rival school. Families must sort through many dynamics.

However, if families can disconnect emotions and prejudices, or “an Ivy League or die” outlook, they might be surprised by what they discover. According to Payscale, the four universities in the United States delivering the highest ROI include three service academies and MIT. Number one on their list is the United States Merchant Marine Academy, with a 20-year ROI of $1,094,000. West Point comes in second with a ROI of $1,041,000. Many high profile institutions, such as Harvard and Yale, do not achieve top rankings because of their high cost of attendance. For example, the cost to attend Yale for 2018-2019 is nearly $70,000 per year.

Payscale’s ROI ranking for the top five in-state South Carolina schools is:

1. Clemson

2. The Citadel

3. Furman

4. USC-Columbia

5. Wofford

A child’s major also factors into the ROI of his or her education. Data on which majors bring the best ROI is harder to determine because it is self-reported. However, it is general knowledge that an engineering degree will lead to higher earnings than a degree in an obscure subject in the humanities. Each school will have some data on what their graduates earn by major, and Payscale also provides this helpful information.

 

Community Colleges Present an Alternative

Community colleges present an alternative to four-year colleges. The reasons to either start at a community college and then transfer to a four-year institution or to seek a degree at a community college instead of a four-year college become more compelling every year.

The Princeton Review reports, “If you have a dream school in mind, enrolling at a local community college might not be part of the plan for your future. But when it comes to paying for college, a two-year school can be a savvy start to your college education.” Spending the first two years at a community college and then transferring to a four-year university saves money in tuition and room and board. And students with a less-than-stellar academic record have a chance to prove themselves at a community college before pursuing a targeted four-year school.

More students are opting to skip the four-year college and instead take advantage of the vast opportunities offered by community colleges, a growing number of which are now partnering with major technology companies to provide skilled employees. A June 29, 2018, article in the Wall Street Journal quotes Edward Alden as saying, “Community colleges are just absolutely key in companies’ search for new tech talent.” Alden, a senior fellow at the Council on Foreign relations, recently authored a report on the future of work. Tech companies like Amazon, Google, and IBM are all using community colleges to establish talent pipelines, he says, and this trend for tech companies large and small is “taking off across the country.”

For students intending to stay in South Carolina, Midlands Technical College notes that 45 percent of jobs in the state require more than a high school diploma but less than a four-year college degree.

 

Online Colleges

Online colleges offer yet another option for students who want to attend traditional college but cannot for various reasons. For example, Baylee and Kelsey Soles, two 2013 Dreher High School graduates, had the opportunity to travel the world as international models, yet they were academically gifted and did not want to pass up college. They found an accredited online college and earned their bachelor’s degrees while modeling on runways and gracing the covers of fashion magazines in New York, Paris, New Zealand, Italy, Spain, and other global locations.

But be careful when considering online colleges. Not all are accredited, and not all accreditations are legitimate. U.S. News and World Report cautions prospective students to beware of “accreditation mills,” which churn out meaningless accreditations.

 

In-State or Out-of-State

An in-state college is most economically feasible because tuition is subsidized by taxes. However, other reasons may lead to following college dreams out-of-state. Certainly, it provides an opportunity to experience another part of the country or world, academic programs may not be obtainable in-state, or an out-of-state institution may be the right fit for a particular student for other reasons.

 

Choose Carefully: Changing Colleges and/or Majors Drives Up Costs

A four-year college education is undeniably expensive. It costs even more if a student takes five years or longer. Such is often the case if a student starts out at one college, finds it is not the right fit, and then transfers somewhere else where their earned credits do not transfer.

Also, changing majors can lead to more time spent at college. Freshmen or sophomores may have difficulty knowing “what they want to be when they grow up,” so students frequently find themselves in a major that sounded good but in reality does not align with aptitudes or passions. Pursuing the advice of a high school career counselor — prior to enrolling in college — is wise, as is experiencing a variety of introductory credit-earning classes the first year or two of college, if possible.

 

Who Pays?

Parents need to consider carefully who pays for college. Pre-planning can make all the difference. Using 529 plans and other savings to pay for college can spare parents and students from taking on debt. But if these resources are not available, who pays? Financial advisors frequently recommend against parents taking on debt to pay for their child’s college education. Students can take out loans for college, but parents cannot take out loans for retirement. They also caution against co-signing student loans, as these debts cannot be discharged. You may have raised a responsible child, but no one knows what the future holds.

 

Understanding the Offer Letter

Adding to the stress of choosing and paying for college is understanding the college offer letter. According to research conducted by the think tank New America working with uAspire and reported in a June 13, 2018, article in the Wall Street Journal, the study “examined 11,000 awards letters sent in 2016 by more than 900 colleges. It found that most of them use obscure terminology, omit vital information, or present financial calculations that appear deliberately deceptive. Many letters are confusing in their own unique ways, making it difficult for students to compare colleges.”

Points of which to be aware in these letters are:

• treating grants and loans as if they are free, reducing the cost to the student and sometimes making it appear to be zero;

• highlighting grants and scholarships without mentioning tuition or how much students will owe; and,

• using confusing language and jargon to obscure the fact that tuition offsets are loans that will need to be repaid; sometimes the word “loan” does not appear anywhere in the letter.

Not Even Crippling Student Loans Can be Discharged in Bankruptcy

With so many people carrying student debt, it now seems to be the norm. Yet this kind of debt is different from all others: not even declaring bankruptcy releases people from it. A March 29, 2018, opinion segment available on NBCnews.com proclaims that the U.S. student debt crisis threatens the American way of life, even for those not under its weight. It states, “According to the Consumer Federal Protection Bureau, older Americans are the fastest growing segment of student loan borrowers, fueling the retirement crisis and burdening the broader economy. Federal Reserve Chairman Jerome Powell recently warned that student debt “absolutely could hold back growth.”

The economy is affected because graduates of both two-year and four-year institutions are reported to be postponing major life milestones, such as marriage, starting a family, and buying a house, because they are crippled by massive student loans. These loans were once assumed to be paid off in 10 years, but graduates are now paying 20 years and longer. Depending on the loan, thousands of dollars in interest can accumulate during this period, which results in a final loan payoff that is even farther out of reach.

The college question is one parents of high schoolers, especially, need ponder as it looks like no dramatic reconstruction of the systems and processes will occur in the very near future.