College Loan Costs Drop, Tuition Doesn’t
With campuses staying closed this fall, families need to run a new cost-benefit analysis
The long-term payoff of a college degree is running into a short-term speed bump. A slow drip of schools have begun to announce they will keep their campuses closed for part or all of the coming school year. More will make their coronavirus decision for the 2020-2021 academic year in the next few weeks.
Yet, so far, schools have not budged on tuition, banking on the notion that the “credential” of obtaining a degree has not wavered, even though the experience in the near term will certainly be different. Is a virtual lab really as immersive as real lab time? Can we expect the quality of online meetups with professors and TAs to measure up to in-person office hours, or the occasional impromptu after-class chat?
While schools have fixed costs to pay for — salaries, the maintenance of buildings and grounds — students clearly are expecting some give on tuition. An April survey of nearly 1,200 incoming freshmen reports that four in five say they are unwilling to pay the same tuition and fees for attending online rather than the in-person experience.
Yet wringing the most value out of a changed college experience has never been more important. Many families are grappling with strained budgets. In the same survey, more than half of high school students heading to college said either a parent or guardian has been laid off, furloughed or had a drop in hours/wages.
Some strategies for navigating the college-financing maze:
Take advantage of record-low rates on student loans. Federal student loan rates are set once a year—the switch happens on July 1—and are a fixed rate that applies solely to borrowing for the current academic year. Rates are tied to the yield of the 10-year Treasury note in mid-May. And this year, the 10-year Treasury is at a record low.
Undergrad student loans will have a fixed rate of 2.75% for the coming academic year, compared to 4.53% for the school year that just ended. Graduate student loans will have a 4.3% interest rate, down from 6.8%. And PLUS loans for parents and grad students (who need to borrow more than the limits for basic federal graduate loans) will have a 5.3% fixed rate, compared to 7.08% this year.
The sane student loan borrowing strategy has always been for undergrad students to borrow first given the lower interest rate. (PLUS loans also have a very high 4%+ origination fee.) For families grappling with a layoff, furlough and bruised retirement savings, parents likely shouldn’t be borrowing at all.
Incoming freshman? Consider waiting a year. It’s one thing for students who have already had on-campus time — and thus established friendships with classmates and possibly found mentors with staff — to adjust to online learning. For incoming freshmen, the lack of that creates a very different experience. Moreover, if schools are honest, they will tell you that not all their staff have mastered the art of online teaching. And it’s worth considering that teachers are just as frustrated as students with the sudden move to online.
A gap year may make a whole lot of sense, assuming you find something more productive than binge watching TV and polishing your gaming skills.
Think through your learning skills. Whether you were a high school senior or already in college, you likely finished the spring semester in an online classroom. If that worked well for you, then spending the 2020-2021 academic year online might make plenty of sense. But if you struggled to focus and learn, can you see a way to have a better experience if you are online for all of next year? Are there classes you can take that lend themselves more to online learning, say history, over a lab-dependent class where the lab is now a virtual experience.
Push for a lower bill. Just because schools aren’t officially reducing tuition, doesn’t mean you can’t cut a better deal. An across-the-board tuition cut is a scary precedent-setting move for a school. It’s far more palatable for schools to consider case-by-case relief. But don’t expect them to offer it up. You need to push. Private nonprofit universities already on average give a 45% discount off official tuition. In this environment, you may get a better deal than you’d previously been offered.
If you already have been approved for financial aid (and thus have completed the FAFSA), and your household’s finances have recently taken a hit, let the financial aid office know of the changed circumstances. Chances are there is a formal process for reassessing aid as family finances shift.