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By Christine Benz and Adam Zoll | 12-19-2013 11:00 AM

College Savers: Keep Your Foot on the Gas

Tuition and student loan rates are leveling off or even decreasing, but savers must focus on the long term as the overall cost of college will remain high.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com, and welcome to College Radar. 2013 has been an eventful year in the realm of college funding. Joining me to discuss some of the recent changes is Adam Zoll; he is assistant site editor for Morningstar.com.

Adam, thank you so much for being here.

Adam Zoll: Happy to be here, Christine.

Benz: Adam, one piece of happy news that we got in 2013 was that we finally saw some easing on college tuitions. Let’s talk about some of the pullbacks that we've seen in terms of the rate of increase in college costs?

Zoll: The latest figures show that for a four-year, in-state school, the rate of college-tuition inflation was just under 3%. This comes on the heels of 4.5% the year before and 8% the year before that. So there is some optimism that finally this kind of runaway tuition inflation we've seen in recent years may finally be leveling off.

Benz: Are we seeing this mainly at the undergrad level, or does it affect people in graduate programs, as well?

Zoll: This affects both. The undergraduate change is due to a couple of factors. One is demographic. There are fewer high school graduates to fill those incoming freshmen enrollments at lots of schools. So, that's obviously easing some of the demand for enrollment. And then also lots of people who maybe left the workforce to return to school during the recession and the high employment we've seen since then are now finding jobs and maybe finishing up school and going back to work.

Again, there is less demand for enrollment at the undergraduate level, but that's also happening at the graduate level, as well. In fact, just this week a new study found that applications to law schools were the lowest since the 1970s. This upward pressure pushing tuition at a rate much faster than the broader rate of inflation may finally be easing.

Benz: I know in the past that some of those runaway inflation rates were really scaring parents to death, and that maybe persuaded them to get serious about saving. But you say that it's still worthwhile to really focus on saving the money that you need for college?

Zoll: These are such uncertain times for college savers because if you've got a student who is in school right now or maybe in next few years, you probably have some decent idea of how much it's going to cost. But if you're saving for a child who is not going to be in school for 10 years or more, there are so many unknowns. Will the rate of tuition inflation continue roughly at what we've seen to be much faster than the overall inflation rate? Or will things change?

The entire financial model of going to college is undergoing some transitions. People are finding alternative routes to getting their college education. They're maybe going to community college and then transferring to a four-year school or finding different certificate programs to get an accreditation. These massive open online courses, or MOOCs as they're called, are a way that people can take courses over the Internet and get a college credit.

There are lots of different variables, but my advice to people who are saving for a college for a student who is not going to enroll until way down the line is this: Don't let up and don't take your foot off the gas because you don't know what it's going to cost. Odds are college is still going to be very expensive. It's hard to know exactly how much, but you don't want to be caught short when it is time.

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