Christine Benz: Hi, I'm Christine Benz for Morningstar.com and welcome to College Radar.
A new proposal would tie federal financial aid to college performance. Joining me to discuss this and other news in the realm of college funding is Adam Zoll. He's assistant side editor for Morningstar.com.
Adam, thank you so much for being here.
Adam Zoll: Thanks for having me.
Benz: So what's in this proposal? What criteria would they look at to rate schools and how would that tie into financial aid?
Zoll: So this would, for the first time, tie financial aid allocations from the federal government to the schools that are seen as performing best. And the criteria that would be used are things like student earnings once they graduate, graduation rates themselves, debt loads that students leave school with. You can look at it as the federal government trying to get more bang for its buck in terms of its allocation of financial aid dollars.
Benz: If you as a student were going to one of these schools that performed better on these metrics, in fact you may qualify for more financial aid--is that the idea?
Zoll: That's right. The school itself will have more financial aid to award. … Right now the way the system works is that financial aid is allocated based on the amount of need-based aid that schools have. So if you have a certain number of lower-income students, you are going to get a proportionate amount of financial aid. This is designed to sort of turn that on its head and really make the schools earn the financial aid that they have available at their disposal.
Benz: Some of this information about college performance is already out there, right?
Zoll: That's right. Some of this information that's going to be used for this criteria is already available on this College Scorecard that the White House rolled out on whitehouse.gov a few months ago. And you can already find some of these numbers for specific schools. But there's not a rating score associated with them, so that's yet to come.
Benz: There have been critics of this proposal. What's the main objection at this point?
Zoll: I think the main objection by people who don't like this plan is that schools are going to try to game the system just like many schools have been accused of gaming the U.S. News and World Report college rankings--a lot of people are critical of that.
Also, schools may not, for example, want to admit students that may hurt their rating, their profile, with regard to this criteria. They may not be as interested in students who are not going to have higher earnings, so they may shy away from students who have plans to go into the arts or teaching or other professions that are not highly salaried professions. That's what people who are pushing back against this proposal are concerned about.
Benz: There was another Fidelity study regarding college planning that recently came out, looking at the fact that college savings is at an all-time high. That's good news right?
Zoll: That in itself is good news. The percentage of families with children who they expect go to college is at an all-time high: 69% have begun saving for college, and on average they saved $5,000 last year, which sounds like it's a pretty healthy start.
Unfortunately, the percentage they're expecting to pay for college is not so [accurate]. Families expect to pay for about two-thirds of college costs, but they've only saved enough, or are only saving enough, that they're on pace to save about one-third of the costs. So, there's still a gap between what people understand that they need to do and what they're actually doing.
Benz: The Fidelity study also found that more families were going to be asking the kids to share in the heavy lifting. What kinds of things will kids be asked to do to help make up that shortfall?
Zoll: This is kind of interesting. It plays into this evolving nature of attending college. The day of the traditional four-year, go-to-school full time, don't work, go away for school--there are still people who are doing that. There always will be people who are doing that. But we are seeing more people who have to work their way through school. In fact, in this survey, 54% of families said they intend to ask their students to work part-time, while they are enrolled; another 50% said they will ask their students to live at home and commute to school.
Families are getting creative in terms of ways to cut costs. They obviously recognize the importance of getting a college degree in today's workplace. But they are also looking for ways to, again, cut some of their out-of-pocket expenditures.
Benz: A recent Census report also found that the number of families who need to save for college may in fact to be going down?
Zoll: That's right. Well, the Census reported that the number of enrolled college students declined by about half a million in 2012, and what is notable about that number is that the vast majority are actually students age is 25 and older. Some people are attributing that change to the fact that the job market has improved. Many people who couldn't find work during and just after the recession went to school in the meantime, and many of them are now returning to the workforce. That's a big part of the decline.
However, even the number of students aged 21 and under has also gone down, and that is an interesting trend to keep an eye on because the number of high school graduates nationwide peaked in about 2010. And declining graduate numbers could translate into declining enrollment numbers at a lot of schools, and that could tip the scales more in terms of the college savers' favor in terms of finding more affordable tuition.
Benz: You think that this could actually be a silver lining. We've seen the number of people in schools decline, but if you're in the market for school, maybe shopping for financial aid or just trying to make school more affordable, that could actually work in your favor.
Zoll: It's not a silver lining for the schools themselves, but for people who maybe have a student who is planning to enroll in the next five years or so, this could begin to tip the scales. We've already seen the scales tipping slightly away from it being a sellers' market in terms of college education to a bit more of a buyers' market, especially at the non-top-tier schools. The Princetons, the Harvards, the Yales--those are always going to be very difficult to get into. They are always going to be able to demand top dollar in terms of their overall costs.
But to schools outside of that tier, there may be bargains to be had, and I would encourage people also not to be afraid. If they know that a school is having some problem filling its enrollment, don't be afraid to negotiate in terms of tuition, and you might be able to get a better financial aid package as a result.
Benz: Maybe, finally, a little bit of relief for these long-suffering college savers.
Zoll: Let's hope so. The college tuition inflation that we've seen is not likely to go away, but it seems like it's starting to settle down a bit, and this may be a part of that picture.
Benz: Adam, thank you for being here and sharing your insights.
Zoll: My pleasure.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.