How to Pay for College
During the first 18 years, parents try to shield their kids from many of the ugly realities of life and encourage them to dream big dreams. But the mail carrier brings all that to a shuddering halt for many families this month. It's not just the slim college rejection letters. Increasingly, those fat acceptance packages also contain heartbreak, because they offer such low financial aid awards that students simply can't afford to attend the schools of their dreams.
The average financial aid award accompanying this month's admission letters leaves a record dollar gap between the total cost of attendance and families' savings. To make matters worse, the interest rates on educational loans will soon jump by at least 1.5 percentage points. Yet growing competition in a global economy is making a college degree an increasingly necessary ticket to the middle class.
That necessity is forcing just about everybody to become more inventive. Parents and students, for example, are pushing colleges harder to award more financial aid. They are scouring charities and alternative lenders for cheaper loans. And students are working longer and smarter at part-time jobs.
Typical is University of Delaware senior Allyson Goldscher, who covers her living expenses by working part time as a case manager for troubled kids, a job she expects will help in her quest to become an attorney specializing in family law. She has cobbled together tuition by writing essays to win thousands of dollars of private scholarships and $15,000 in interest-free education loans. She has also negotiated a bigger award from her school's financial aid office. "There's money out there," she says. "I just have to fight for it."
Freebies. The good news is that there is a little more money out there to fight for. Harvard, Stanford, the University of Pennsylvania, and other elite schools recently announced plans to offer free tuition to low- and middle-income families. Some economically troubled communities, such as Kalamazoo, Mich., have unveiled free-tuition scholarships for local kids. Earlier this year, Congress created new scholarships for low-income math and science students this fall.
But those expansions in aid are dwarfed by tuition price hikes and the booming demand of one of the biggest high school graduating classes in history. Early indications are that sticker prices will jump at least 5 per-cent again next year, more than 1 point faster than inflation.
A typical entering freshman at an in-state public university this fall should budget at least $90,000 for all the costs of getting a degree. (That assumes five years of study, since fewer than a third of all public-college students finish in four years.) Only half of public-college students get any grants or scholarships to defray that cost, and those average just $4,000 a year or so.
The 26 percent of students who plan to attend private colleges will face a total sticker price averaging $140,000 before they toss their mortarboards in the air. (That's for four years of study, since about half of private-college students finish on time.) Nonprofit private schools are much more generous with aid, giving about three fourths of their students scholarships, typically ranging from $7,000 to $9,000. But the average family of a private-college student will probably still have to come up with $23,000 next year, the College Board estimates.
True, that's expensive. But, says Harvard economist Susan Dynarski, it will most likely be more expensive not to go to college. College grads earn about $1 million more, on average, over their lifetimes than those who have never gone to college. Their jobs typically offer better perks, fewer layoffs, and even more fun, says Dynarski. "It's an investment," she explains. "People who go to college have better lives."
SIZING UP THE OFFER
This hypothetical aid offer is based on real examples. Senior Writer Kim Clark has annotated it, noting common traps that snare parents and students when comparing offers.
NAIL DOWN YOUR COSTS
If your offer letter doesn't provide cost information, call the financial aid office and ask for a full cost-of-attendance budget, so that you can compare offers apples to apples.
THOSE PRICEY DIGS
This is the average cost of a bare-bones dorm room and meal plan. But students spend $266 more a year, on average, buying furnishings, and 1 in 5 freshmen shells out more than $1,000 on things like mini-fridges and beanbag chairs.
BEWARE THE LOWBALL
Many schools trim their cost of attendance by giving unrealistically low budgets for books and other extras. Count on spending about $900 a year on textbooks. And the cellphone, Saturday- night pizzas, game tickets, and road trips can easily add up to over $150 a month in personal expenses.
CARS BURN CASH
Transportation costs vary, naturally. But a big budgetbuster is keeping a car on campus. That can add thousands of dollars to your annual costs.
SOPHOMORE SLUMP
Find out what strings are attached to any merit scholarship, and be wary if it requires the student to maintain a high grade-point average. One dirty little secret: The average college freshman's grades drop compared with high school. Ask the school what percentage of sophomores retain their merit awards.
IT'S A LOAN, NOT A FAVOR
If a school includes a PLUS loan in its award package, it raises a red flag. PLUS loans are available to any parent with average credit, and next year's interest rate may top 8 percent. Parents can sometimes do better with a home equity loan.
THE BOTTOM LINE
The only way to fairly compare offers from schools is to subtract only each school's grant offers (in this case, $4,000 in scholarship and grant money) from its total cost of attendance. Then you can calculate your true out-of-pocket costs. In this case, the real bottom line would be $11,884.
DON'T WORK TOO HARD
The discipline of part-time jobs improves students' academic performance. But working over 15 hours a week starts to hurt grades, so challenge any work-study offer higher than $3,000.
This story appears in the April 17, 2006 print edition of U.S. News & World Report.