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Make College Affordable Despite the Downturn

Some thoughts on how to get the most bang for your education bucks.

Susan T. Bart, 04/24/2009

College-savings expert Susan Bart answers advisors' questions on 529 plans and other education-planning matters. E-mail your questions to advisorquest@morningstar.com.

Here are some thoughts you might consider if your child is quickly approaching college matriculation and your 529 savings account and other investments have been devastated by the current financial crisis.

A College Degree Is Essential. One thing that has not changed is that it is still important to have at least a college degree in order to attain financial security. Median family income for different levels of education is as follows:

Not a high school graduate  $29,760
High school graduate           $49,739
Some college                        $60,955
Associate Degree                 $69,600
Bachelor's Degree, more     $100,000
Source: College Board, 2008 Trends in College Pricing

Select a College for Value. Your child needs to understand that college is an investment, not just a rite of passage. In these financially difficult times, one should focus on selecting a college that provides the best value. Value is determined by the quality of the education provided, the opportunities created by that education and the net price of that education. As will be discussed below, net price is the published cost of attending the college less the financial aid and tax credits available to the student for attending such college. In many cases, the only way to determine what the net price of attending a particular college is will be to apply and see what financial aid package the college will award. The sticker price of any college may not be a good indicator of its net price. Some colleges with high sticker prices provide generous financial aid to many students. In addition, many colleges without high profile names provide high quality education.

Pricing by Type of Institution. The type of institution selected will greatly impact the price of attendance. Community colleges are very inexpensive. Public in-state universities may be considerably more affordable than private universities. The published charges for 2008-2009 break out as follows:

Sector                         Tuition/Fees    Room/Board  Total Charges
Public 2-Year                $2,402                --                     --
Public 4-Year In-State  $6,585                 $7,748            $14,333
Out-of-State                 $17,452             $7,748              $25,200
Private Nonprofit 4-Year $25,143            $8,989             $34,132
For Profit                     $13,046              --          --
Source: College Board, 2008 Trends in College Pricing

However, after the average grant and education tax benefits per full-time undergraduate student, net tuition and fees can be considerably less.

Sector              Net Tuition/Fees
Public 2-Year  $100
Public 4-Year  $2,850
Private 4-Year $14,930
Source: College Board, 2008 Trends in College Pricing

Advance Placement Credits. If advance placement courses are available at your child's high school, encourage your child to take the advance placement classes and the advance placement exams. If your child does well enough on the advance placement exam, they may receive college credits, potentially enabling your child to finish college more quickly. If summer jobs are scarce while your child is still in high school or the summer after graduation, see if your child can pick up some transferable college credit at a community college.

Community College. Average net tuition and fees at a community college is $100! This educational blue light special is a very affordable way to obtain college credits. After a year or two at community college, your child could then transfer to a four-year university. However, this plan works best when your child is fairly certain of which four-year college he or she will attend. Carefully explore the four-year college's requirements for accepting credits from the community college. Select courses at the community college that will provide transferable credits and that may also satisfy degree requirements at the four-year institution. Further, some four-year institutions will accept community college credit only if a high enough grade was attained in the course. A year at a community college may be an inexpensive way to test your child's readiness for college. Often the child can live at home, further reducing costs, and even work part-time.

Select the Four-Year Institution Carefully. Try to get the college selection right the first time. Transferring to a different four-year institution will often add a year or two onto your child's college experience with the corresponding additional cost. Work with your child (and possibly a college counselor) to select the four-year institution very carefully with attention to the area in which your child may wish to major and the general fit between your child and the institution. In addition, check the average time that it takes a student at the particular college to obtain a degree in the areas in which your child might major. At some colleges, certain majors may often take more than four years on average because of the availability of certain classes. This could prove costly.PAGEBREAK

Consider In-State Public Institutions. In-state public institutions can be considerably less costly than private institutions. Consider the in-state institutions available to your child and whether they would provide a quality education in the particular area of study your child wishes to pursue.

Degrees Granted by Institution May Affect the Cost. Institutions that grant doctorate degrees tend to be significantly more expensive than institutions that do not. If it is not important that your child attend an institution that grants doctorate degrees, consider other institutions that do not in order to help control costs.

The 2008-2009 published charges for undergraduates by Carnegie classification of type of institution are as follows:


Sector                                Tuition/Fees    Room/Board    Total Charges
Pub. Doctorate-Granting In-State $7,307        $8,170               $15,477
Public Master's In-State               $5,707        $7,041               $12,748
Public Baccalaureate In-State      $5,604        $7,403               $13,007
Private Doctorate-Granting          $31,066       $10,494             $41,560
Private Master's                          $22,717       $8,713              $31,430
Private Baccalaureate                 $23,054       $8,175               $31,229
Source: College Board, 2008 Trends in College Pricing

Encourage Living at Home. Although the pleasures of having an empty nest may be enticing, if at all possible consider whether any suitable college would permit your child to live at home. Saving room and board charges could significantly reduce the cost of attending college.

Select a Major Carefully. Changing a major (or selecting a major late) could significantly extend the time to obtain the degree. Encourage your child to select his or her major carefully and preferably early. Once a major is selected, your child should work carefully with his or her advisor to map out the classes that can be taken each semester in order to graduate on time. If necessary, consider whether taking some classes during the summer will enable your child to graduate on time or perhaps even early.

Tax Credits. Make certain that you are taking full advantage of the education tax credits offered.

Have a Contract with Your Child. Make certain your child understands how expensive college is and how expensive any delays in graduation can be. Some of my clients have "contracts" with their children under which they agree to pay college expenses only so long as the child takes a certain number of credits per semester, does not drop classes, provides the parent with a transcript each semester and maintains a particular grade point average.

Military. Joining the military can also be a way for a child to finance college education.

Invest Wisely. College is a major investment. You and your child should put at least as much research, thought and effort into selecting a college as you would put into purchasing a new home.

To comply with certain Treasury regulations, we state that (i) this article is written to support the promotion and marketing of the transactions or matters addressed herein, (ii) this article is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (iii) each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

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