Do You Know What a College Degree Really Costs?
When you decide to invest in the cost of a college education, you are making a significant financial decision and one that should be carefully thought out. Due to the rising costs of obtaining a college degree, along with the record level of student loan debt, a new requirement called the net price calculator has been put into place by the U.S. Department of Education to help you obtain a better estimate of the total expenses involved. In addition to financial aid, you should also consider additional sources to help offset these costs, which means a proactive approach is needed to make a smart investment in your future.
The Reality about College Costs
A recent government report, Enrollment in Postsecondary Institutions, Fall 2010; Financial Statistics, Fiscal Year 2010; and Graduation Rates, Selected Cohorts, 2002-7, collected information from 7,165 institutions receiving Title IV federal student aid. The report found that for the 3.3 million first-time, full-time undergraduates (during the 2009 -2010 academic year), 82 percent received financial aid and 53 percent of that same group incurred debt. While this is certainly a significant figure, and an increase from the previous academic year, what is of greater concern is the number of students who incur this debt but don’t complete their degrees.
In a Reuters article, Why College Students Stop Short of a Degree, findings from the Organization for Economic Co-operation and Development (OECD) report “Education at a Glance 2010″ were discussed. It was found that “the United States finished last (46 percent) for the percentage of students who completed college once they started it.” A comparison was made to the next country on the list (Japan) with an 89 percent completion rate. What is the low completion rate attributed to – “a simple cost-benefit analysis.” Students are dropping out of college when they question their ability to get ahead financially in a challenging job market, especially after they’ve incurred substantial student loan debt. Consider this before you decide to quit your program: if you start a degree and don’t complete it, will it end up being of any real value to you or a potential employer? Will your skills be transferrable?
Education Secretary Arne Duncan has been quoted as saying: “Three in four Americans now say that college is too expensive for most people to afford. That belief is even stronger among young adults “” three-fourths of whom believe that graduates today have more debt that they can manage.” The following video highlights national conversations that Vice President Joe Biden and Arne Duncan have initiated about making college more affordable.
Duncan noted that there is a prevalent college-going culture in our nation and that jobs of the future will be available for knowledge workers. He emphasizes the need to “educate our way to a better economy.” Duncan has also been noted for promoting a sense of urgency among higher education officials “about how to contain the spiraling costs of college and reduce the burden of student debt on our nation’s students.” This does not mean you should wait for a day when college may become more affordable or the economy has made a significant improvement. You should, however, make an informed career choice and support that decision with a strategic financial plan.
Calculating the Costs
The U.S. Department of Education implemented a Net Price Calculator that was supposed to be utilized by schools and published on their websites by October 2011. The “net price is the published price minus the grant aid “” and sometimes the tax credits and deductions “” that students receive. Net prices are frequently much lower than published prices and represent the amount students actually pay.” It is believed that the net price calculator will help students “more accurately estimate how much they must spend – or borrow – to attend a particular school” because it will include tuition, books, and housing costs within the cost estimations.
The U.S. Department of Education provides a net price calculator template on their website and the College Board website also has a net price calculator, along with additional resources for college students. It’s important to note that “there’s not really a standard model schools are made to adopt – merely a list of five key points each calculator must include (like sticker price, median aid received by students at the institution and questions regarding students’ tax status).” After reviewing the net price calculator available on many school websites I encourage you to use the results only as a rough estimate and talk to the school’s financial advisor about costs and expenses that may be related to your chosen degree.
A College Investment
What are you likely to spend on a college education? A 2012 report issued by the National Center for Education Statistics presented the following results for an average school year, during the same time period:
“¢ ”Students at public four-year colleges paid $16,900 before any grants and $10,200 afterward.
“¢ At four-year private nonprofit colleges, the average sticker (advertised) price was $32,700, and the net (amount paid) price was $16,700.
“¢ And at four-year private for-profit colleges, the average price was $27,900 before grants and $23,800 after.”
As a point of comparison, The Brookings Institution developed a report titled Where is the Best Place to Invest $102,000 — In Stocks, Bonds, or a College Degree?, and noted that “on average, the benefits of a four-year college degree are equivalent to an investment that returns 15.2 percent per year. This is more than double the average return to stock market investments since 1950, and more than five times the returns to corporate bonds, gold, long-term government bonds, or home ownership. From any investment perspective, college is a great deal.” The $102,000 estimate is a total possible investment for a four-year college degree. It is also assumed that the college student who makes this investment will be able to obtain a job in their chosen field upon graduation.
Potential Alternative Solutions
If you want to go to college and yet you are concerned about the potential costs, there are alternatives you can consider to reduce the amount you may need to borrow. In a Reuters Money article, Is College Worth It?, there are suggestions made for students to reduce the costs of going to college, including: “Forgo pricey Ivy League universities in favor of state colleges, which charge a relatively manageable $7,605 per year for in-state students.” The article further recommends starting at a community college and then transferring your credits to a four year college. If you consider this option, determine if your credits will be transferrable. You don’t want to waste your time or investment if you plan to transfer colleges.
What other solutions are available to help you manage the cost of going to college? Fastweb, one of the most popular websites for college students, has the ability to search for scholarships, which are presently estimated at “1.5 million scholarships worth a combined $3.4 billion dollars.” You can also look into the four major grants that are available for students: federal Pell grants, federal Supplemental Education Opportunity grants, state grants, and institutional grants (granted by colleges). Check with the financial aid office of your school for more information.
A college degree can be a wise investment, even with a challenging economy, if you have made a careful determination of the potential costs and considered how you can minimize those expenses. Many jobs and career fields require a college degree as part of the minimum qualifications and you should not be discouraged by reports about the cost of education or the amount of student loans. Instead, use that information to instill a sense of financial responsibility before you commit to a degree program.
Are you fully prepared for the costs and financial obligation associated with a college degree? Share your thoughts via Twitter @DrBruceJ.
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