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One positive outcome of the current financial downturn is that families are taking a hard look at the economics of attending college. Students report lowering their sights from pricey private schools to less-expensive public colleges and universities, many of which are reporting big increases in applications.
Why do I think that's a good thing? Because despite steady increases in tuition over the past decade, families have apparently downplayed costs in the college equation. For instance, a startling 70% of parents and students surveyed by Sallie Mae said that a student's potential postgraduate income wasn't considered or didn't make a difference when deciding to borrow.
That's a recipe for financial disaster -- as in the case of one of my young co-workers, whose father informed her when she graduated that she was on the hook for $84,000 in student loans. "If I had known that," she says, "I would have gone to the University of Massachusetts instead of Boston University."
That makes sense financially, considering that the total average cost of attending a four-year public school is $18,326 for the 2008-09 academic year, according to the College Board -- about half the cost of a private school, which comes in at $37,390. In Kiplinger's 2008-09 rankings of the top 100 values in public colleges and universities, fewer than two dozen schools cost more than $20,000 a year for in-state students.
It's too early to tell how the current situation will play out, based on the severity of the economic downturn and the amount of financial aid awarded by schools next spring. But it's important under any circumstances to talk with your teens before they apply to college to let them know what fits into the family budget and how much they'll be expected to contribute.
To help families decide how much debt is sensible based on a student's future earning power, parents and students can use the Student Loan Advisor calculator at Finaid.org or Sallie Mae's Education Investment Planner.
For example, let's say your son plans to major in accounting, with a projected starting salary of $49,100, as estimated by the Student Loan Advisor. And let's assume a student-loan interest rate of 6.8% (the going rate on unsubsidized federal Stafford loans). If he wants to hold his monthly loan payment to 10% of his income and repay the debt over 10 years, his payment would be $409, and his maximum manageable debt load would be about $35,600.
On the other hand, if your son wants to be an elementary-school teacher, with a projected starting salary of $35,900, his monthly loan payment would be $299 (assuming the same criteria) and his manageable debt load would be about $26,000. (For more guidance on paying for college, see Does it Pay to Go to a Big-Name School? and Keeping College Debt Under Control. For a look at the best deals on student loans, watch Borrow Smart, our free online video.)
It's no wonder that more families are considering creative alternatives, such as attending a community college -- where the average annual tuition is $2,402 -- for a year or two.
One California mother, who wants her daughter to attend an elite school in the Northeast, worries that it would be "crushing" if her daughter had to spend her first two years at a community college. But if money is an issue, that's far better than saddling herself or her daughter with a crushing weight of debt.
POSTED BY: Stacey (November 15, 2008 10:47 AM)
I believe the bigger issue isn't even being mentioned in this article, the unexplainable rise of college tuitions in the last 15 years. When I was in undergraduate schoole 12 years ago - I could afford to pay my tuition with my waitressing tips. How have we accepted the rise of an average annual tuition from $8,000 to $20,000 -- if this type of increase took place in our food, gas, or anything else we would go crazy. The media put intense focus on our gas prices when they doubled - it affected our election. Why has no one cared as much for our Universities and Colleges. To add to this issue - Tenure in universities has created an environment with no accountability, so the quality of education has continuestly declined.
POSTED BY: Stephanie (December 31, 2008 07:14 PM)
I worked full time to pay for my college. I also went to school full time. I didn't have much time to party but I learned a lot about priorities and managing my time. I am a hard worker as a result of not having mommy and daddy pay for my school. I didn't get any grants,etc (being caucasian and middle class).
POSTED BY: kris_dan (March 29, 2009 11:23 AM)
I believe the cost of $20,000/year for a public university is horrible. The cost of an education eclipsed inflation rates for decades now. It cannot continue. Unfortunately, the problem is not that students can't borrow the money. They can borrow, but they can't afford to pay it back.
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