The College Funding Dance-Advice from a Leading Expert

imageIt goes without saying that a college education has become an expensive proposition. As many families and their kids wrestle with ultra competitive admission requirements as well as soaring tuition costs, advisors like California-based Ron Adams are highly sought after for their advice and wisdom.

As an ambitious journalist in Sacramento, I had the pleasure of meeting Ron over 10 years ago, and I found him to be a fountain of knowledge on the college admissions process. As one of the nations leading experts in college funding, he has assisted hundred of parents and students in significantly lowering their out-of-pocket expenses for four year college terms. His book, “How To Give Your Kid A 4-Year College Education Without Going Broke,” provides to those engaged in the admissions process practical strategies and tips on how to maximize financial aid. Ron also reveals little-known tools that college financial aid offices often don’t and won’t share with you.

Below is an excerpt from my recent interview with Ron, regarding recent developments in the college funding arena:

Ron, what sort of trends are you seeing in terms of tuition costs?

On a national basis, the cost of attendance for a public university is rising at about a 6.5% clip per year; for a private school, it’s in the neighborhood of about 7.4%. So if you do the math, that means that the University of Nebraska – my alma mater, which is currently right around $22,000 per year – will soar to around $44,000 in ten years. And if you look at a private university like Stanford, which last year was just slightly above $60,000 per year, it will rise to $120,000 over that same time period.

Why are we continuing to see such massive increases?

Frankly, it stems from a willingness on the part of banks to loan students pretty much any amount of money they need up to $20,000 per year. Colleges and universities know this, so they feel they can raise rates whenever they desire.

It sounds like lenders and the higher education institutions are colluding together

That’s true. Sallie Mae is an example of a college lender that willingly engages in this practice because they know that students can never declare bankruptcy on those loans. So 30 years from now, at whatever interest rate they are charging, they know that they will eventually be able to recover that money.

What a frustrating scenario for those seeking to go to college!

Michael, what I continue to see – which is the fault of the parents and, in some cases, the student also – is that they wait too long to get serious about the college funding process. Tragically, many become concerned about planning for this around the second semester of their junior year or even the summer of their senior year. That’s way too late. This process should ideally occur during their freshman year, in order to ensure the best possible access to these monies.

How does standardized testing play into all of this?

Students take the PSAT test during October of their sophomore year. A prep course for this is vital because when you get a good score, a couple of things happen. First, you become eligible for a National Merit Scholarship, which is a highly regarded source of money. Secondly, once schools are alerted to these scores, they send out letters inviting students to apply. They’ll often waive the application fee, extend an invitation to visit their campus for a tour and arrange for the student to meet with a professor in the desired field of study. So my message here is that those who wait until second semester of junior year or (heaven forbid) the fall of the senior year to begin their planning, are going to miss out on a ton of funding opportunities. Starting this process late makes it hard to recover. “

There seems to be so much buzz in the media these days about student debt levels and loan defaults. What’s the real story here?

In my opinion, it’s not the critical mass you may be reading about in the newspapers. Last year, the average loan for graduating seniors was about $28,400. That’s not the $120,000-plus figure that the media would have you believe. But it is still an issue.

What sort of options exist for students who get into hot water with their loans, once they graduate?

The nice thing here is that there are a lot of repayment options. Interest rates on these loans are typically quite low, and are currently deductible up to $2,500 per year.

But what about all of the loan default numbers that are constantly reported in the news?

In truth, there really isn’t any one default number because banks can at any point take legal action to recover the money they have loaned out, plus the interest. Default is when you don’t repay or are never going to repay. That generally doesn’t exist out there. So this issue is a bit over-hyped.

Given the high cost of college, why does a degree continue to hold such high value?

It has been widely reported that the average college graduate earns about $1.2 million more over a lifetime than those who only have a high school diploma. So I do think that college – even if it comes down to borrowing $20,000 to $30,000 in the student’s name to help pay for it – is still a pretty good investment.

So what sort of advice are you sharing these days with parents and students, in terms of funding?

One fact that many are surprised to hear is that private schools are going to be cheaper than state schools. This is because they have larger endowments and thus more money to give. So in actuality, it is cheaper to go to a Stanford, Yale or a Harvard than it is to go to many state schools, for this very reason.

That’s interesting. Are there other myths or misconceptions in terms of the college admission process?

The average student takes 5.8 years to graduate from college. Parents hear this statistic and believe that this is due to either a lack of availability of required classes or the fact that a student may have to work to help pay their way through college. While those certainly are valid reasons, the number one reason by far is that students frequently change their major. So I really encourage the use of inventories to help students determine their likes and dislikes and what careers they might want to pursue. At the end of the day, the goal is to get the student in and out in four years, because an extra year or two is an additional expense that can significantly add to the overall educational cost.

What about visits to colleges? How does that factor in?

Michael, it’s big! In fact, many families make the mistake of not visiting colleges until late in the process. And even then, they’ll often swing by a school if they are passing through a city and just walk the campus. In my opinion, scheduling an official campus tour, including a visit to an academic program of interest, is a much richer way of getting a feel for whether or not a particular school is a good fit.

And  the availability of scholarships and grants?

They definitely exist, particularly for disadvantaged groups like women, minorities, the disabled and veterans. It’s important to keep in mind though that some of these come with strict requirements. For example, Pell Grants are available, but the adjusted gross income of the student’s family can’t exceed $30,000, which is a pretty low threshold. There are also ROTC and Army and Navy scholarships, but these come with a 4 year service obligation after you graduate.

I’ve heard that there is also funding available from service clubs and other charitable groups?

That’s true. Here in the Sacramento area where I’m located, the Elks Club of Carmichael gives out five $1,000 scholarships every year. Last year, 400 students submitted application essays which means that it is often a competitive process for these awards. There are also alumni groups, corporations and educational foundations that offer similar types of scholarships which are often tied to a particular school. One very important thing to keep in mind is that schools often require that these monies be reported to them so that they can subtract those dollars from any financial aid scholarship awards that the student has already been offerred.

How about graduate school education? What sort of funding trends are you seeing there?

These are a little unique in that graduate students who file for financial aid are considered independent of their parent’s income and assets. So these factors aren’t considered anymore. For most students, this tends to be an advantage because it allows them to keep their expected personal contribution pretty low.

One final question. What are you seeing in the college funding landscape as we move forward into 2016, another election year?

As usual, I think we’ll see various stakeholders in this college funding puzzle jockeying for their piece of the pie, whatever that may be. Personally, one of the things I’d like to see is our legislators raise the income ceiling for many of the grants available so that more students can qualify. Unfortunately, I think that tuition costs will continue to climb each year, although I do believe that reforming the bankruptcy laws would be a good way to mitigate against that. All in all though, I still think that a college degree is a worthwhile objective, if for no other reason than the massive gain in lifetime earnings that degree holders experience, when compared to those with only a high school education or no education at all.

As a freelance journalist Michael Scott focuses on the intersection between free markets and economic freedom. He can be reached on Twitter @biz_michael