Tuition Caps, Cost Cutting...Working with Less

Preliminary steps taken by two prestigious New England colleges in the past week may signal new trends in higher education. One week ago Middlebury College announced a plan, pending board approval, that would limit annual cost of attendance increases to one percentage point over the Consumer Price Index. This week Brandeis University released its proposed cuts to academic programs as part of ongoing efforts to address its financial issues. The timing of these announcements has interestingly coincided with the publication of a joint study by two non-profit policy organizations, Public Agenda and the National Center for Public Policy and Higher Education, regarding public disatisfaction with colleges. Roughly two-thirds of the survey participants said that federal stimulus money should be used by colleges to hold down tuition, even at the cost of program cutbacks. Middlebury and Brandeis are apparently ahead of the curve and taking that message to heart.

Middlebury’s announcement may not seem like much, especially with inflation at an historic low. But in fact, it is a big deal for a college to commit to a cap for an "indefinite" period when average annual cost increases at four-year colleges have exceeded 4 percent. Other schools have imposed one year tuition freezes, only to raise price more than the rate of inflation the following year. Middlebury’s move obviously won’t improve its bottom line, though if one believes that demand for a college education is not inelastic (in other words, an increase in price will negatively affect demand), then this action should certainly raise the school’s desirability. But that’s what makes this move so noteworthy: as one of the most selective colleges in the country, Middlebury has only seen applications increase in recent years, even while its tuition has risen.

Brandeis’ move is gutsy, though born out of necessity. Imagine the premier Jewish-sponsored university in the U.S. abandoning Hebrew as a major. However, if the proposed reorganization is adopted, there is probably truth to the school’s claim that the impact on undergraduate studies will be minimal. For example, many departments will be merged rather than completely eliminated and changes will be phased in so as not to disrupt the education of current students or impact those applying for the coming fall. The biggest losers will be graduate students, as university-sponsored PhD programs are cutback or terminated (a topic for another day: the fate of university funded doctoral programs). Hebrew may no longer be a major; however, students will still be able to study the language while majoring instead in Near Eastern and Judaic Studies. What Brandeis has done is likely to become more prevalent at colleges across the nation. Programs with few degree candidates will be cut if determined that they may no longer be justifiable.

What does this imply for trends in higher education going forward? Middlebury’s move may likely put pressure on its peer institutions to do the same. Yet many well-endowed colleges are feeling the pinch even without slowing tuition increases. The lost dollars will have to come from somewhere. Expect financial aid to take a hit. Williams’ move to end its no-loan policy opened the door for Dartmouth…others will no doubt follow. Middlebury, by the way, was not among the 40 or so universities that did away with loans in need-based aid back in 2007-2008.

Colleges have for the past two years examined all possible ways to cut costs, so Brandeis’ announcement is not that surprising. Staff layoffs, salary freezes, and varsity team eliminations have become more commonplace news. What makes Brandeis’ step so notable is where it has chosen to reduce expenses. I offer up advice I have shared in the past. Students should do their homework when researching colleges. If they have an interest in a highly specialized major that may have few degree candidates, inquire about the ‘safety’ of that program. If academic programs are eliminated, hopefully others will follow Brandeis’ example and phase them out over time so that current students are not impacted.

Are colleges finally getting the message that controlling costs and making education affordable, even at the expense of some programs, is among the top concerns of families with college age students? In the case of tuition caps, one school does not make a trend, but I will remain optimistic.

Making College Accessible - How You Can Help

I am going to totally change gears with this posting and pose a question (actually two): 1) Do you ever shop online, and 2) if I told you that your online purchases could benefit underserved high school students at no additional cost to you, would you be willing to help? I bet most of you would answer yes to both.

The New York Association for College Admission Counseling (NYSACAC) is a not-for-profit organization with a mission that includes promoting access and equity in post-secondary education, and developing and supporting the college counseling profession. As co-chair of the Development Committee of the NYSACAC Executive Board, I am involved in fundraising initiatives in support of this mission. NYSACAC has established an affiliation with Amazon.com that will allow members and non-members to support the association’s initiatives while shopping on-line. The link to Amazon is posted on the NYSACAC website (http://www.nysacac.org) and can be easily accessed on the “Donate” page. You can alternatively go directly to the “Donate” site by clicking on http://tinyurl.com/yk2nhdd. Every purchase made through NYSACAC will benefit underserved students by funding important programs that improve college accessibility. So please consider shopping through the NYSACAC website the next time you want to buy a book or make other purchases through Amazon. It involves one easy extra step that could lead to a disadvantaged child taking leaps and bounds.
Another way to support NYSACAC and its mission is to donate directly. One of the special programs that NYSACAC offers is Camp College, a three-day college experience for students who might otherwise not have adequate opportunities to learn about the college admission process. By accommodating 150-200 students each summer, this program gives disadvantaged youths a chance to experience life on a college campus while also meeting with high school counselors and college admission officers who educate them about the college process. Many people volunteer time and resources to this much needed program. However, the cost to send one student for a three-day session still runs about $160.
If your own son or daughter has access to good college planning resources, you understand the value of such guidance. Imagine how critical it becomes for a first generation, underserved student for whom going to college is never discussed at home, nor presented as an option. Would you consider helping a less fortunate student realize his or her college dream by making a donation to NYSACAC for the benefit of Camp College? For $160 you can sponsor a student, though contributions of any amount will truly make a difference. A donation at the sponsor level will pair you with a particular student, who will know that he or she is able to participate in Camp College thanks to your generosity. Donations for the benefit of Camp College can be made by going to the NYSACAC website, clicking on the “Donate” link and following the directions from there. Thank you for any support you can give.

Are "No Loan" Aid Policies a Thing of the Past?

First it was Williams earlier this month; now Dartmouth has announced that it is pulling back from its “no loan” policy for students who qualify for financial aid. Anyone who has been reading about college investment losses should not be surprised by this development. A couple of weeks ago a study on college endowments reported that these investment portfolios in the aggregate lost about $95 billion in value in the 2009 fiscal year (June 2008 to June 2009), contracting 23% on average. Since colleges such as Williams and Dartmouth rely on endowment earnings to fund a major portion of their operating budgets, these investment losses have significant ramifications.

Back in late 2007 and early 2008 about 40 highly selective and well endowed colleges instituted no loan or limited loan policies for their student aid programs. This trend took hold after Senator Charles Grassley, Republican from Iowa, suggested that colleges and universities be held to the same standards as foundations that must spend 5% of the value of their investments annually in order to maintain tax exempt status. Yet as colleges grapple with structural deficits, even after a series of budget cuts, the practicality of these policies is now being revisited.

With Williams and Dartmouth taking the first steps, it is just a matter of time before others follow suit, as none of these colleges has been spared the economic pain. Both schools have stated that the reinstitution of loans in financial aid packages is a necessary move in order to preserve educational programs. Each has emphasized, however, that the return to loans will not affect students who demonstrate the most significant need. Dartmouth, for example, has stated that it expects this to impact those students whose families earn above $75,000, for whom loans will comprise $2,500 to $5,500 of the financial aid package per academic year. With income under $100,000, loans will not exceed $2,500.

So what does this mean for financial aid, in general, at colleges across the country? Without a crystal ball, I can only make some educated guesses. Neither Williams nor Dartmouth has backed away from fully meeting demonstrated need, and I expect that maintaining this policy will be a priority. We will just begin to see a higher percentage of loans in the packaging. The selective schools that currently have no loan policies generally offer need-based aid only (no merit). That of course, will not change. But what about other colleges that use merit aid to attract students and shape a class? Many of these colleges do not have the hefty endowments that prompted the no loan policies in the first place. They rely heavily on tuition to meet their budgets and fund aid.

Given the importance of filling seats, I predict that merit aid as an enrollment management tool will continue for many colleges. In fact, schools that survive by maintaining enrollment numbers may find merit aid even more important. Offering some tuition discount, past experience has shown, attracts students who still bring in tuition dollars. These are the ones that also raise GPA and standardized test score averages.

But back to need-based aid...will we continue to see less generous financial aid packages? Pure economics would suggest so. Don't be surprised to see other highly selective colleges dial back their no loan policies, especially now that two of their prestigious peers have already taken the plunge.

Obama's Plan for Financing Higher Education

Last summer the Obama administration introduced the Student Aid and Fiscal Responsibility Act, or SAFRA, which would end bank origination of federally guaranteed student loans. If passed by the Senate (it has already been approved by the House of Representatives), all federally guaranteed student loans will be funded directly through the federal government. The administration claims that eliminating the bank based program will save the government $87 billion over ten years, primarily by ending the subsidies that banks receive through the Federal Family Education Loan Program (FFEL). President Obama has pledged to use the expected savings towards other education initiatives.

So who will benefit from this savings windfall? The primary beneficiaries are likely to be borrowers repaying their federal guaranteed student loans and Pell Grant recipients. At the State of the Union address a little more than a week ago, Obama announced his commitment to expand the recently created Income-Based Repayment Program which I discussed in a blog posting last June. The existing repayment program went into effect July 1, 2009 and currently caps monthly loan payments for federal student loan borrowers at 15% of discretionary income (the difference between adjusted gross income and 150% of the federal poverty level). After 25 years, any outstanding loan balance would be fully extinguished. Those employed in public service would be relieved of their debt obligations after 10 years.

Now President Obama proposes to reduce the maximum federal loan payment amount to 10% of income, with a 20 year debt forgiveness term. Roughly 36% of student loan borrowers have loan payments that exceed 10% of their income, versus 16% at the current 15% of discretionary income cap. There is a real benefit here to our sons and daughters who borrow under the federal Stafford student loan program. For recent graduates starting out with modest incomes, a cap on debt service can provide some tangible cash outflow relief and may mean the difference between affordability and potential default.

The other major beneficiary of education finance reform is likely to be the Pell Grant program, which comes as no surprise. The Obama Administration has been upfront about its desire to improve funding to this higher education aid program which benefits those students with the greatest financial need. Key features of Obama’s budget plan for Pell Grants are an increase in the maximum annual amount to $5,710 from the current $5,350 maximum with increases pegged to the CPI, and a proposal to convert this to an entitlement program. Such a move would guarantee available funding for Pell Grants and would remove the program from the uncertainties of the Congressional budget annual appropriation process.

The last, but not necessarily least of the Obama administration proposals is the extension of the American Opportunity Tax Credit which, as a modification to the Hope Tax Credit, was initially approved for 2009 and 2010 only. The maximum $2,500 per tax year can be used during the first four years of post secondary education (100% of the first $2,000 and 25% of the next $2,000 for qualified tuition and expenses, including textbooks). The tax credit is available to middle income families, though begins to phase out between $80,000 to $90,000 for single taxpayers and $160,000 to $180,000 for married couples.

All in all, it appears that higher education fared better in the president’s 2011 fiscal budget than many other programs that have experienced cutbacks in funding. In fact, the proposals, if approved, will provide some relief to a wider range of income groups. By increasing Pell Grants, extending the American Opportunity Tax Credit and lowering the income caps for federal loan repayments, the Obama education plan casts a fairly wide net. It should help, even if modestly, not only those most in need, but will also begin to address the economic challenges faced by middle income families and recent college graduates who must make student loan payments at the same time that they try to get established in the workforce.

Changing the Way Public Universities in New York Set Tuition

Did you know that the New York State Legislature controls tuition policy, setting rates and increases for the entire State University of New York system? This means that every four-year SUNY school charges the same tuition, whether it is a highly competitive and selective research institution or a small local college with more limited programs. However, that may all change if Governor Paterson has his way.

The Governor's budget proposal to the legislators last week included a measure that would allow SUNY colleges as well as the City University of New York, or CUNY, to finally determine their own tuition increases. Those advocating for maintaining the close oversight now held by Albany believe that centralization of decision making authority ensures consistent quality across the system. Critics, however, assert that lack of control over something as basic as tuition policy is detrimental to an institution’s ability to respond effectively to the changing needs of students and the community, and to efficiency deliver academic excellence.

My last blog posting discussed the Kiplinger report on the top 100 best values in colleges. Many of you will recall that two of the SUNYs, namely Binghamton and Geneseo, ranked in the top ten for both in-state and out-of-state residents. Would freedom to manage their own tuition rates move them out of the top tier for value? Proponents of Paterson’s plan would argue to the contrary. Competitive and highly sought programs in areas such as business, engineering and information technology are currently not priced according to their caliber or to the demand. Flexibility to increase tuition, while still remaining competitively priced, should only lead to an improvement in quality and value.

Currently the tuition at nearly all of SUNY’s 64 institutions is $5,070, a 14% increase over the prior year. Unfortunately, the SUNY colleges saw very little of that increase. The legislature has traditionally used such hikes as a tool to plug the State’s budget gap which was the case in 2009. Only 20% of the increase actually found its way to the SUNY system. Paterson’s proposed change would discontinue that practice, preventing the use of public college tuition as a state budget management tool. Rate hikes would also be capped as a function of the Higher Education Price Index, keeping tuition rise in check.

That said, it isn’t clear exactly how the proposed changes will impact New York State colleges, from a quality or cost standpoint. Some fear that the larger research institutions will price themselves in a way that makes them no longer accessible to middle income students, similar to what we have seen with many private institutions. The cap on tuition increases should moderate that somewhat. Furthermore, the trend toward diversification of financial resources (i.e., seeking funding beyond just the state) is likely to gain momentum, especially with the severity of the budget deficit issues facing Albany and in fact, all state governments. Greater freedom to manage tuition and raise private capital may be just what the SUNY colleges need to maintain and even possibly improve quality and value.

Best Values in Public Colleges

In my November 23, 2009 blog posting I wrote about finding value in public colleges and universities. As a follow up, I wanted to share the link to Kiplinger’s Personal Finance magazine which recently published its 100 Best Values in Public Colleges 2009-2010. You can find the full list at http://www.kiplinger.com/magazine/archives/best-values-in-public-colleges-200910.html.

The Kiplinger report also includes a one page guide to the methodology used in the rankings, explaining that both academic quality and affordability come into play. The first cut to make the list was academic quality, which for purposes of the listing includes SAT or ACT scores, admission and retention rates, student-faculty ratios, and four and six-year graduation rates. Academics, in fact, are weighted almost two-thirds more than affordability. The schools were then ranked based on cost and financial aid. The cost assessment takes into consideration total expenses for in-state students, and then looks at the average cost for both need and merit aid recipients after subtracting grants. A similar exercise was done to determine out-of-state rankings.

Why is the primary emphasis on academic quality rather than cost? Following the old adage, “you get what you pay for,” Kiplinger is rightfully concerned that state schools are following prudent strategies to maintain or even improve quality while keeping costs down. Are colleges successfully eliminating the fat in their budgets or rather, cutting into their core mission initiatives (reducing or eliminating academic programs that benefit students, for example)? That is an important factor in the quality assessment.

In my prior posting about state universities, I mentioned that many of these institutions, in an effort to increase revenues, are trying to grow their out-of-state enrollment for obvious reasons: non-resident students pay more. As a result, several public “Ivies” and other flagship state universities, unlike some of their private, highly selective counterparts, offer merit aid to entice top non-resident students (A topic, perhaps, for another posting is the criticism public universities have recently received as a result of these policies: see the January 14, 2010 Washington Post http://www.washingtonpost.com/wp-dyn/content/article/2010/01/13/AR2010011302643.html). Schools such as the University of Maryland and UNC-Chapel Hill seek to increase non-resident enrollment and are using merit aid to bring in out-of-state tuition and to shape a class (though North Carolina has an 18% cap on the percentage of students from outside the state).

If you are exploring public colleges for value, then certainly take a look at the Kiplinger list. However, I will offer my usual caveat about rankings. Determining “value” based on a selection of criteria that include such measures as standardized test scores will probably yield results that should be viewed with a critical, if not skeptical eye. The conclusions drawn are not scientific. As I have stated in the past, “value” will largely be influenced by how good a fit the school is for the students attending. Student engagement is often what contributes most to value.

Planning for College - Understand the Cost First

College is expensive! That comes as a shock to all of you, right? Of course not. Then why do so many families appear to first experience the college cost sticker shock after their child has been accepted? I’ve given some thought to this in recent days, having received calls from parents wondering if I can find them money for college after their children have been accepted.

Why are so many of us surprised to learn just how much college will cost us? Call me a cynic, but I have always been bothered by the websites, articles and other media forms that continually tell students and families that college is more affordable than we think. After all, schools give grants, the government provides grants and loans, so in the final analysis your net cost should be far less than the sticker price. There is definitely some truth to these assertions, but the problem is that the gap between the cost of attendance and what a family thinks it can reasonably afford to pay is often far greater that the financial assistance available to most middle income families. Expanded tax credits, additional federal grant money approved by the Obama administration…these are a start in helping to make college affordable. However, many families do not qualify to take advantage of these, and even for those that do, the actual benefits will likely make a small dent in the cost of a private four-year college education.

Here are the facts:
- The federal government is the single largest source of financial aid. However, to qualify for federal government grant money, your income must be less than $50,000 a year.
- Loans are available through the federal Stafford loan program even for those who don’t qualify for need-based aid. Yet the maximum amount for a college freshman is $5,500 ($6,500 for a sophomore, and $7,500 for juniors and seniors). If the school isn’t giving you merit aid, you may still need to close a $45,000 gap after borrowing up to the maximum limit. And loans, of course, must be paid back. Unsubsidized Stafford loans (non-need based) require that you pay interest while in school or capitalize it, which means that your child will graduate with a larger amount than initially borrowed.
- Education tax credits will reduce your taxes due, but not by much in the grand scheme of financing a college education. The American Opportunity Tax Credit, which the federal government recently approved to replace the Hope Tax Credit for 2009 and 2010, allows families to deduct up to $2,500 from their taxes due if they have education expenses during the tax year. Filers will receive a credit of 100% for the first $2,000 they pay in eligible college costs (tuition, fees and books paid during the tax year), and 25% of the next $1,000. The income cap, to fully take advantage of these credits, was also raised to $90,000 for single filers and $180,000 for couples that file jointly.
- Yes, the net cost at each college is less than the actual price quoted, but don’t assume that this means you won’t be paying the full amount. Net cost takes into consideration those who get need-based aid and the few who qualify for merit scholarships. At many schools, especially the highly selective ones, most students pay the full freight if they are not eligible for financial aid.
- There are numerous scholarships available to students willing to take the time to research them and to apply, which often means additional essays. However, hitting the jackpot and winning a five figure scholarship requires as much luck as work. I would never discourage students from seeking scholarships. I just want families to be aware of the effort and time involved, as well as the odds of winning one and the timing. Don’t wait until January of senior year when most of the more coveted ones have already been awarded.

My intention is not to dampen your post holiday spirit, but rather to re-visit a point I have made in the past. Do your homework and know how much you can afford to pay. Have the family conversation about affordability before the college search begins. That means looking at income, savings, possible aid, and reasonable borrowing, which of course must be repaid with interest.

This does not mean that students shouldn’t apply to expensive private colleges which may offer more robust financial aid packages. However, getting merit money generally means that the student has something special that the college wants, whether it is academic, artistic, athletic talent or diversity. If affordability is an issue, make sure your son or daughter includes a few financial safeties on the college list. Take the time to find out the types of students a college seeks and what special talents your child would add to a class. That is still the best way to find money for college.