College Costs: How to Maximize Your Return on Investment

College is a major investment. But, if campuses remain shuttered in the fall due to the novel coronavirus (COVID-19) pandemic, will your student get his or her money’s worth from virtual classes? Though universities may provide rebates for unused room and board costs, they’re unlikely to offer discounts on tuition costs if classes remain online.

This unprecedented situation comes at a time when many families are struggling to make ends meet due to job losses and salary cuts. Likewise, many institutions of higher learning are struggling with declining enrollment, including fewer out-of-state and foreign students, more students in need of financial aid and endowment funds that have decreased in value.

Here’s what families with kids in college — or nearing college age — should consider, along with tips to lower the cost of going to college.

Rising Tuition Costs

For the 2019-2020 school year, the College Board estimates that the average annual cost of tuition and fees was $10,440 for in-state students at public four-year universities — and $36,880 for students at private not-for-profit four-year institutions. These estimates don’t include room and board, books, supplies, transportation and other expenses a student may incur.

Some students pay more than the average cost. But most end up paying less than the sticker price. How? Tuition sticker prices don’t factor in grants, scholarships and tax benefits, such as:

• The American Opportunity credit,
• The Lifetime Learning credit, and
• The deduction for qualified tuition and related expenses, which was extended through 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2019.

After adjusting for these cost-savers, the average cost of tuition and fees for the 2019-2020 school year dropped to only $3,870 for in-state students at four-year public universities and $14,380 for students at private nonprofit four-year schools. Proactive students may be able to take additional measures to lower their bills below these averages.

Stay on Track

The most important thing your student can do to lower his or her college cost is to graduate on time. Unfortunately, many students get sidetracked.

The College Board reports that only 41% of 2015-16 bachelor’s degree recipients completed their degrees within four years of first enrolling in college, and 59% finished within five years. For 16% of 2015-2016 graduates, their college experience lasted more than a decade.

One way to help increase your student’s chances of on-time graduation is to encourage him or her to earn college credits during high school. Many secondary schools offer advanced placement (AP) classes or dual enrollment opportunities at local colleges. These are cost-effective opportunities for driven, college-bound juniors and seniors to get ahead while still at home.

Ask for Outside Help

Another important step is completing the college’s financial aid forms, including the Free Application for Federal Student Aid (FAFSA) form. Regardless of your family’s income level or net worth, it never hurts to apply. You might be surprised by what you receive, especially from a smaller private university.

A common pitfall when applying for financial aid involves retirement income. You don’t include it as an asset on the FAFSA or any supplemental financial aid forms. For the purposes of financial aid, your retirement savings generally aren’t considered when aid is calculated.

Depending on the school, a different methodology or combination of formulas may be used to calculate financial aid awards. At some schools, parents must fill out the FAFSA and generally fill out another form that asks for additional information.

Some private colleges and universities use the Institutional Methodology, which penalizes families with a great deal of home equity but permits more generous treatment of items such as medical expenses, elementary and secondary school tuition, and child support. It also assumes the student will spend some time each year working to earn money.

Another methodology, called the Consensus Approach, is used by certain private colleges and universities. Among its principles: Students’ assets and parents’ assets are treated the same to discourage families from moving assets between generations.

To make matters more confusing, even if a college uses one of the formulas described above, it can still be flexible when awarding its own money. In other words, when awarding federal grants, loans and most state aid, the federal formula is used, but when awarding a school’s own money, each school a student applies to may make calculations differently.

Important: Before the 2020-2021 school year starts, consider asking about last-minute financial aid. Have your child check in with his or her preferred college’s admissions office this summer, especially if your financial situation has changed. School officials may have offered scholarships or grants to students who declined the awards and chose another school. That leftover aid money may now be available to other students.

Pursue Loans and Scholarship Opportunities

There are several types of federal and private loan programs that your student may qualify for. Be sure to review the terms and conditions of each loan option carefully with your student.

Parents who fill out the FAFSA also may qualify for federal parent PLUS loans. Or they may be eligible to take out private parent loans through a bank, or to co-sign with their children on private student loans. But beware: You shouldn’t compromise your own financial security — or your plans to save for retirement — to pay for your child’s college costs.

Above all, never borrow more money than what’s needed for legitimate college expenses. Some programs make it too easy to borrow extra spending money that a student can use for, say, travel or entertainment expenses, causing a hefty loan balance to accrue by graduation.

In addition, there are billions of dollars of scholarships available to students but to be considered, your student must put forth the effort to apply. In fact, many schools have upped the ante on scholarship offerings to attract students from a diminishing pool of high school graduates. And these scholarships are generally available no matter how high your income is. So even if you don’t qualify for need-based aid, you may qualify for merit-based or other scholarships.

Every dollar your child receives in scholarships is a dollar you won’t have to pay out of pocket. Finding scholarship opportunities requires research, however. Your student’s high school guidance counselor may be able to provide valuable assistance.

In addition to private merit-based scholarships, there are state-funded scholarships to explore. These are designed to keep the top students at in-state colleges and universities. It might convince you to reconsider a state university, instead of the pricier out-of-state option.

The Internet is also chock full of information about access to college scholarships. But beware: Some information published online is inaccurate, misleading or even fraudulent. For example, scam websites might charge a fee for the “inside scoop” on scholarships, or they might ask for personal information or credit card numbers that can be used to steal the identity of you or your student.

Most scholarships have hard-and-fast deadlines, with an application process that requires recommendation letters, transcripts, essays and other supporting documentation. Make sure to keep fastidious records of the process and read the fine print on each application, so you don’t miss anything.

To improve your chances of qualifying for scholarships, you may need to complete the FAFSA as soon as possible. Many merit-based scholarships are offered through the colleges and universities your child applies to, and they may require the FAFSA and additional supporting items. In some cases, funding is limited to a fixed number of qualified applicants — so, it’s first come, first served.

Important: It may not be too late for recent high school graduates to apply for late-deadline scholarships for the 2020-2021 school year. Some organizations accept scholarship applications throughout the summer and even into the fall.

Budget Living Expenses

Living at home during college or going to the local community college for the first two years can save a lot of money. Due to financial necessity and safety concerns, these options are getting more attention during the COVID-19 crisis. (See “COVID-19-Related Effects on the College Experience,” below.)

Staying home isn’t right for everyone, however. If your student prefers to go away to college, room and board will likely be the next biggest expense category.

The College Board estimates that the average cost of room and board for the 2019-2020 school year was $11,510 for students at four-year in-state public universities and $12,990 for students at private nonprofit four-year schools. However, living expenses can vary substantially depending on where the school is located, whether the student lives on or off campus, and whether the student is fiscally responsible.

Many students have never lived on their own — and they often underestimate living expenses when they go to college. Some struggle with basic needs such as food and housing. Teach your student about the importance of following a budget before he or she leaves the nest.

A little frugality can go a long way. For example, your student can lower his or her annual room and board expenses by picking a more cost-effective meal plan while living in the residence halls, drinking home-brewed coffee rather than buying coffee out, or finding a few friends to share an off-campus apartment. In addition, a part-time job can be a great way for students to earn spending money, contribute to education costs and build their resumes.

Need Help?

These are just a few ideas for ways to lower the cost of college. Your financial advisors can provide additional guidance related to these ideas and help you brainstorm other creative alternatives based on your situation.