Attention Arizona: Tuition continues its climb upward

We recently completed a study projecting estimated in-state tuition costs for four groups of students: Those graduating high school in 2015, 2019, 2023 and 2027. 

A fair way to project tuition expenses into the future is to average the annual increases over the past five year period, and look forward.  The numbers are stifling.  The average annual tuition increase in Arizona was 13.52%.  From the school year 2009-2010 to 2010-2011 the tuition increased 20.7% alone.  The low was the increase of 5.1% from 2006-2007 to 2007-2008.  So the smallest increase occurred during great economic growth, and under a recession the tuition increases were the most extreme.

As we worked the average in-state tuition increase of 13.52% forward, here is what we estimated.  The high school graduating class of 2015, only four years away from college, will pay an estimated $14,507 in tuition alone their first year and over $70,894 for four years of college.  That's just for one student; one child in one family.  On the extreme end, if the average annual 13.52% tuition increase were to continue, a student graduating high school in 2027 will pay over $320,000 in tuition alone over four years.  That is not affordable.

So, we then took the lowest in-state annual increase in tuition over the past five years (5.1%) and estimated it out over the four future high school graduating classes in our research.  The four-year tuition expense for the high school class of 2015 is nearly $43,000, for the class of 2019 it is about $52,000, for the class of 2023 it is over $63,000, and for the class of 2027 it exceeds $77,000.  Once you combine estimated tuition, room/board, books and living expenses, at this low rate, the class of 2027 will still be required to pay nearly a quarter million dollars to attend college for four years.  Again, this is just for one child.

What stands out?

13.52% - the average annual tuition increase as shown over the previous five academic years.

$222,970 - the four-year cost of attendance estimate for a student graduating in 2027 @ 5.1% annual tuition increases.

20.7% - the tuition jump from the 2009-2010 school year to 2010-2011.  The average home price in the western United States fell 4% in the past 12 months.

$42,597 vs. $70,891 - the difference between an annual 5.1% increase vs. 13.52% for the graduating class of 2015 for four years of in-state tuition.

$50,000/$28,315 - average U.S. household income in 2009 vs. estimated 1st year expenses for the graduating class of 2015.

$280/month – the estimated monthly payment for a graduating college senior this year who took out student loans to cover tuition for four years.

$815/month – the estimated monthly payment for a student graduating high school four years from now who takes out student loans to cover tuition for four years.  

Tuition per/year	2010-2011	2009-2010	2008-2009	2007-2008	2006-2007
ASU	$7,793.00	$6,159.00	$5,409.00	$4,822.00	$4,686.00
UofA	$8,238.00	$6,842.00	$5,531.00	$5,037.00	$4,754.00
NAU	$7,053.00	$6,122.00	$5,217.00	$4,841.00	$4,546.00

HOW MUCH WILL COLLEGE COST?

I recently asked my ten-year-old niece, “How much does college cost?”  Her answer was, "I don't know.  Like...$5 million?"

I have asked friends who have two-year olds, “How much do you think college will cost when these kids finish high school?”  Their reply, “I don’t want to think about it.” 

Parents of high school students can think back to a time when a semester’s tuition set them back about $700. 

 

So then, how much will college cost?

We recently completed a study projecting estimated tuition costs for four groups of students: Those graduating high school in 2015, 2019, 2023 and 2027.  We included five different college options: In-state, west coast public, east coast public, private and Ivy League.  We focused our research on the tuition expense alone because room and board and other extra expenses are more variable. 

If current tuition rates continue to climb at their recent averages, all five options will demand $300,000+ in just tuition over four years for the high school class of 2027.  Many families start saving for college late; too late.  Some don’t save at all.  With current tuition trends a family with a two-year-old who wishes to start saving for college will have to part with and invest $1,000 a month for the next sixteen years to meet the cost of attendance for a moderately priced in-state university.  A family with 10-year-old twins would need to invest nearly $6,000 a month to pay for private college tuitions in eight years. 

For years staying close to home to study at an in-state university was relatively affordable, but now with a slow-to-recover local economy, hiking in-state tuition numbers put higher education out of reach for many bright students.  

What happens next?  Many colleges, when asked, will say that many of their students do not pay full tuition, and are supplemented with scholarships, grants and other financial aid.  But there are no such promises in the world of financial aid.  Ask someone who graduated college in 2005 if their college campus "looks the same." Most will proudly boast, "No, you should see it now!"  Many colleges, to entice more students to apply, built fancy workout centers, high rise dorms with suites, giant lab complexes and professional grade athletic facilities.  The ability for these institutions to continue to raise money to support these recent additions has faded.  So, the remaining revenue source that schools can control is tuition and student fees.  My belief is that the education and experience the colleges provide is very valuable.  Certain on-campus expenses, such as athletic budgets and construction costs, must be reigned in to manage costs so that the tuition number doesn't scare prospective students and their parents away from the onset of their college search.  Kind of like the airline industry, the colleges tend to move their pricing alongside their competitors.  Now the competition may no longer be the college down the road, but the eyes of a father and son, or mother and daughter, nervously calculating forward that five-figure number listed under tuition in the guidebooks.

Today I wrote my 10-year-old niece a check for $12 for Girl Scout Cookies.  When she heads off to college in eight years that should cover four minutes of her economics class. 

4-year Tuition Projected	HS Class 2015	HS Class 2019	HS Class 2023	HS Class 2027
In-State Public	$70,891.00	$117,729.00	$195,512.00	$324,685.00
Out of State Public East	$157,783.00	$200,705.00	$255,303.00	$324,753.00
Out of State Public West	$154,571.00	$202,422.00	$265,086.00	$347,150.00
Ivy League	$207,645.00	$244,318.00	$287,470.00	$338,244.00
Private	$208,298.00	$248,399.00	$296,221.00	$353,249.00

  

Recent Hidden Gems

People sometimes ask, "How many four-year colleges are there in the U.S.?"  Well, there are about 2,500 four-year schools in the U.S., but if you ask most educated graduates, they may be able to name 20-50 of these.  Not all 2,500 of these institutions are valuable though, but I will state that there are a number of colleges and universities that are relatively unknown that are very valuable, and worth a look.  I have listed a few below, one small and one large from each region for you to consider...

WEST: Check out the University of British Columbia.  This is a large Canadian University right on the water with strong science and music departments.  The University has a good academic reputation and the city of Vancouver has lots to offer students from all backgrounds.  Also take a look at Whitworth in Spokane, Washington.  Whitworth is a small Presbyterian school with a gorgeous campus and a caring faculty and student population.  The school is located down the street from Gonzaga and the city of Spokane offers a mall, a river and four seasons.

MIDWEST: For a large school take a look at Miami of Ohio.  This is a nice size school that has a beautiful campus, lots of activities and majors to choose from, and is a short drive from Cincinnati.  A smaller school to look at in this region is St. Olaf.  This school offers a very caring environment with strong academic rigor, only a short drive south of Minneapolis.

SOUTH: The University of Mississippi is looked over by many.  Ole Miss has a very traditional atmosphere with great campus life and a cool town surrounding it.  The school has a few academic divisions that are well known too.  For a smaller choice in the south consider the University of the South (Sewanee).  This is a small school on a very large, picturesque campus.  Again, lots to get involved in at Sewanee and good classes and choice in majors for a small school.

EAST: Syracuse is often times known for its athletics, but check it out for its academics too.  Offerings in most areas and notable majors in its Newhouse School of Communications makes Syracuse a creative choice for a big school up east.  A small option in the east could include Muhlenberg.  Muhlenberg is located in Pennsylvania and offers a few majors outside of the liberal arts including Business and the Performing Arts.  Located north of Philadelphia in Allentown, Muhlenberg offers its students a great learning environment with weekend options in the city.

These hidden gems are just some of the many good college options out there to consider.  When you travel to visit a college out of state, be sure to leave enough time to visit others in that same area to form a better comparison and get more for your travel dollars.

Recent College Grads Default on Loans

We saw this coming.  Recent college grads, unable to gain employment, now with student debt coming due this fall, DEFAULT.  This week the U.S. Department of Education posted information on student loan defaults from 2008.  As this was simply the beginning of our current economic recession, we will most likely see the numbers worsen in the coming years.  Nearly 240,000 students who had loans come due from 2007-2008 defaulted on their first payments (this number does not include borrowers who have defaulted well into their repayment schedule).  Think about this.  Many of the student loans that are not being paid back are federally funded; that means we as taxpayers are being owed money that is not being paid back.  The default rate from 2008 was 7%.  Students who graduated from a public four year university had a default rate of 6%, and those who graduated from a private four year university had a default rate of 4%.  But, those students who graduated from for-profit schools had a default rate of 11.6%.  43% of total money in default came from students of for-profit colleges.

Recently I have advised students who are considering student loans to look at $40,000 total student debt after four years as a manageable number, in general.  Those monthly payments (for 10 years) are tough, but manageable if they graduate on time and get a good job.

College is like a monopoly; everyone still wants to go, but prices continue to rise, even in a recession.  A college degree is still very valuable, but students (and parents) need to be smart.  Borrowers need to investigate the reputation of the college or university they are considering.  They need to ask around, inquiring where recent grads took jobs.  And students who have just exited college and fret over loan repayment should contact their lender to ask about loan consolidation, or deferrals, in the case of financial hardship.  It's tough, but it's worth asking.

So, what do we see coming in another six months?  Probably rising default rates of recent grads, more financial aid applications for incoming freshman, even more students delaying repayment by entering grad school, and a flood of current college students wrestling for on campus jobs.

News Video Link: http://www.azcentral.com/video/#/News/Student+loans/40280768001/35150280001/610107252001

How to Pay for College

College has been, and will always be valuable.  The experience has value not only in its academics, but also in its ability to socially develop young individuals who are away from home for the first time.  The excitement of independence sometimes draws a curtain over the ever increasing, and enormous cost to attend college.  Many times young minds cannot differentiate $30,000 from $40,000, or a $10,000 a year student loan from a $15,000 a year student loan, and what that debt looks like over time.

Parents have recently wondered if saving for college has actually hurt their chances at financial aid.  While savings certainly factors into the Expected Family Contribution, there is no replacement for money readily available when it is time to pay for a college education.  Many families are struggling and searching for this funding when time is not on their side.  When financial markets tumble, and investments, like college savings, languish, families need other sources to draw from.  Have you sat down as a family to brainstorm others?  Consider these points below as a beginning to your conversation...

-What groups do mom and dad belong to that may offer scholarships to students?
-Have I spent time on each financial aid website for my college choices, looking for scholarships that require additional paperwork?
-Can my student get a job to offset some of the extra expenses like travel, food and entertainment?
-Have I considered residency requirements for out of state colleges?

Let's put college expenses into real terms.  The cost to attend a private college can be 4.5 times higher than attending a well known private high school.  Remember when you sent your child to preschool and paid tuition for the first time?  College can cost 44 times that of preschool.

Students this year will struggle to find outside sources of money to pay for college, and so too will parents who want the best for their children.  In witnessing students take out six figure undergraduate loans, and watching parents draw down their retirement savings early, we can certainly see that college is still valuable to many.  But, starting with a simple family conversation at dinner can aid parents now, and students in the future.