Fri, 15 Nov 2013
Tuition inflation may be waning, but debt still weighs on many recent graduates, reports Morningstar's Adam Zoll.
Jason Stipp: I'm Jason Stipp for Morningstar and welcome to The Friday Five: This week, five college stats worth studying.
Sitting in for Jeremy Glaser is Morningstar's Adam Zoll, who covers college savings for Morningstar.com.
Thanks for being here, Adam.
Adam Zoll: Thank you, Jason.
Stipp: You have five interesting stats for us today regarding college savings. The first one is interesting, especially because it's lower than we've seen in the past, and that's 2.9%. What is that measuring?
Zoll: That 2.9% figure is the College Board's latest estimate in terms of tuition inflation at colleges around the country.
The College Board every year publishes their annual statistics of what the average cost of college is. This 2.9% increase from the last academic year to the current academic year is actually the lowest rate of tuition inflation since the mid-'70s. That's some welcome news for people who have been looking at this fast-escalating cost of college. In fact, the year before last, the increase was 4.5%. The year before that, it was 8.5%. So 2.9% sounds pretty attractive relative to that. It's still higher than the rate of overall inflation in our economy, but there is some hope that maybe this runaway tuition inflation we've seen in recent years may finally be curbing.
Stipp: Despite definite moderation we're seeing in the college rate of inflation, the next figure that you have, $26,500, is still a pretty high one. What is that $26,500 measuring?
Zoll: The $26,500, also from the College Board, is the average debt load that students who graduated in the 2011-2012 academic year, who took out loans, that's how much they left school owing. That's obviously a substantial amount.
A lot of that increase came from students who attended public schools. In fact, among students who went to four-year public colleges, the average debt load that they graduated school with climbed from about $21,000 to $25,000 in about a three-year time period. A lot of increase there. Again, that is somewhat attributable to this tuition inflation that we just talked about.
The average starting salary for a 2012 graduate is about $44,000-$45,000. So when you're leaving school with $26,000 worth of debt, you're only going to be making in the mid-$40,000s, you can get a real sense of the kind of financial headwinds a lot of students are leaving with.
Stipp: Students graduating with that kind of debt load probably limits the choices that they have after they graduate, which leads to our next statistic, which is 23.3%, which is an interesting one and pretty low, lower than we've seen for a while. What is that measuring?
Zoll: This 23.3% statistic comes from the census bureau. It's what they call the mobility rate, and in this case, it refers to young Americans aged 25 to 29 who have moved in the 12-month period ending March 2013. That's a measure of whether people are moving for jobs, whether they're moving for whatever reason, but that 23.3% represents a 50-year low in that statistic. That's really indicative of the fact that a lot of recent college graduates are hamstrung by these debt loads, maybe hamstrung by their career options. We've all heard stories about--and maybe experienced firsthand--students having to move back home with mom and dad after they graduated, [because they are] simply unable to afford a place of their own.
This really reinforces why it's so important to save for college and to start early. The better position you can put your child or yourself in financially heading into college, the better chance you'll have of not having to graduate with these kinds of debt loads.
Stipp: We're certainly seeing ripple effects from the debt, but as you say, investing can give you a leg up on not having so much debt when you graduate. And your next statistic shows that there are actually several options for you to invest well for college savings. The number is 32, and what is that measuring?
Zoll: This is an encouraging development. This comes from our latest round of Morningstar 529 Plan ratings that were just released a few weeks ago. 32 is the number of plans nationwide that earned a Bronze, Silver, or Gold Medalist rating, which means that they, according to our 529 analyst team, are really well-suited for people saving for college. They have low fees, they have good funds run by good management teams. In many cases, these states themselves offer attractive tax breaks.
The landscape of 529 plans, in general, has been improving. Some of the problems that some state plans had in the past have been ironed out, where the fees have come down or the offerings themselves have improved. So, there are lots of good 529 options for people who want to use that vehicle to save for college.
Stipp: Morningstar's College-Savings Boot Camp, which we published a few weeks ago, can help you locate those great plans.
Your last statistic, Adam, is actually two statistics. I think you're trying to sneak one in on me here. It's 29% and 31%, and this has to do not with saving for college, but getting into college.
Zoll: This is a very eye-opening statistic. This comes from the Kaplan test prep people. They surveyed college admissions officers and found that 29% use Google and 31% use Facebook to check up on applicants.
We've all been warned in terms of when applying for a job, you really need to be aware of your online presence, your profile, what may be lurking on your Facebook page, maybe searchable in Google, that could potentially be a red flag for an employer. Well, the same thing applies when you're applying for college. It's very easy, obviously, to search an applicant's name into Google or into Facebook, find out what they've been up to, things that maybe they've done in their less-inhibited moments that could potentially keep them from getting admitted to a school that they really had their sights set on.
Stipp: Adam, very high marks for bringing these eye-opening college saving stats to us today. Thanks for joining me.
Zoll: Thank you.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.