I don't think this online college degree stuff is going away

If you think online degrees will remain just a niche, consider the time when Borders and E.F. Hutton were touting their superior in-person experiences.

I noticed this writer first began to think about the higher education bubble when he started looking at colleges with his high school junior son.  Yup, I know the feeling.

There's a market-disrupting force at play in higher education that isn't so prevalent in housing: information technology. Specifically, readily available, much-lower-cost, Web-based alternatives to the standard fare. The Web's potential to let customers bypass the bricks-and-mortar status quo applies just as much to higher education as it does to book selling or stock trading.

Yes, a big part of the college value proposition is the on-campus experience -- the social as well as academic engagement, frat parties as well as chemistry labs. But for those who just want the knowledge, skills, and diploma, it's only a matter of time before online and other unconventional learning tracks become the norm rather than the exception. If you think online degrees and courses will remain just a niche or are a passing fancy, consider the time when Borders and E.F. Hutton were touting their superior in-person experiences. College courses and degree programs delivered mostly online are cheaper, more convenient, and often more specialized than traditional programs, even if they don't (yet) bestow the same prestige.
 
Established universities are starting to step up. For example, a colleague of mine is now earning a master's degree in media management through the prestigious University of Missouri-Columbia school of journalism. The coursework, which spans about 36 semester hours, includes a discussion component analogous to class participation. Students do have to take a professional seminar on campus for three days, and they must defend their thesis in person, typically requiring a half-day on campus. Otherwise, it's all online. And she's doing it while holding down a full-time job.

Paying for college is top priority for parents

Is College Worth It? Pew Survey:

In the eyes of parents, being able to pay for their children’s college education is just as important as being able to own a home or live comfortably in retirement. And it’s more important than being able to leave an inheritance to their children....

A parent’s own educational background does not have a significant impact on the importance they place on being able to provide for their children’s educational needs. Parents who never attended college are just as likely as those who earned a four-year college degree to say being able to pay for their children’s college education is extremely important.

The vast majority of parents expect that their children will pursue a college education. Among those with one or more children under age 18, 94% expect at least one of their children will go to college. There are no significant differences across racial or ethnic groups—white, black and Hispanic parents are equally likely to think their children will go to college. In addition, there is very little variance across income groups. While 99% of parents with annual household incomes of $75,000 or higher think their children will go to college, 93% of those with incomes between $30,000 and $74,999 say the same, as do 91% of those making less than $30,000 a year. Again, parents’ own educational experience does not seem to influence the aspirations they have for their children. Parents who did not graduate from college (93%) are just as likely as college graduates (97%) to say their children will go to college.

The most surprising part of these results was that parents across the board have high expectations that their children will attend college.  However, these expectations are unrealistic according to the ACT study that found only 24% of high school graduates are prepared to do college-level work.  Colleges are adjusting, with 36% of first-year students taking at least one remedial class.  Meanwhile, high student loan default rates and graduation rates of under 50% suggest going to college is not the right path for everyone.

In a future post I'll address the issue of how many parents have actually started saving for college. 

(Cross posted at Kitchen Table Math )

Should taxpayers only fund college loans to academically proficient students?

This idea is attractive, although I can see where many would consider it heartless and unfair.  It's clear that many universities will not impose standards requiring their students to be college-ready, so perhaps the federal government could help by placing restrictions on the money it lends.  It could potentially raise academic standards and save some people from themselves.  The student loan rate is up to 40% among some two-year colleges, and student loans cannot be discharged in bankruptcy.

What the Department of Education does now is to give loans to every college student who demonstrates financial need without examining evidence of academic ability and other criteria of credit-worthiness.

Our current situation reminds me of the problems associated with the federal loan home loan programs that contributed to the housing crisis, where credit standards were lowered so that loans could be given to people who otherwise could not afford home ownership.

In Minding the Campus, Jackson Toby asks us to consider this proposal. 

Insert a risk-assessment component into all future student loans that includes past academic performance in order to maximize the likelihood of loan repayment and minimize defaults that add to the national debt.

'Public anxiety over college costs is at an all-time high.'

The Chronicle of Higher Education:  Public anxiety over college costs is at an all-time high. And low-income college graduates or those burdened by student-loan debt are questioning the value of their degrees, or saying the cost of college has delayed other life decisions....

Indeed, the general public is fairly shouting its concern about college costs in a companion survey of 2,142 Americans, ages 18 and older, by the Pew Research Center. Three-quarters of those polled said college was out of reach for most people. Twenty-five years ago, six in 10 Americans felt that way, according to a survey by the Council for Advancement and Support of Education.
The squeeze is real. College costs have been on the rise, increasing 50 percent over the last decade, Mr. Shi said. By contrast, family incomes actually fell between 2000 and 2009. Ask young adults why they're not enrolled in college or don't have a bachelor's degree, and the overwhelming response in the Pew survey: money....
The belief that college has become prohibitively expensive is shared across class and race lines, among Americans of all income levels, by those who went to college and those who didn't—by everyone, it seems, except college presidents.
Forty-two percent of university leaders, in fact, say most Americans are able to pay for a college degree, according to the Pew Research Center/Chronicle survey.
Why is there such a divergence of opinion between presidents and the public? For one, there's a certain amount of variance among college leaders, with those who typically serve low-income students more concerned about sticker shock. Nearly two-thirds of community-college presidents, for instance, called tuition unmanageable.
Some educators blame the gap on the failure of college officials to make the case about the whys of higher-education pricing. Students and parents, they argue, have a poor understanding of such practices as tuition discounting and don't fully appreciate the costs that go into a college degree, expenses that include faculty salaries and health insurance, remedial-writing labs, even climbing walls. "If they want to buy a Mercedes-Benz," said Stephen J. Trachtenberg, a former president of George Washington University, "we need to say why it costs more than a cheaper vehicle."

Are scholarships subject to income tax?

Generally speaking, grants and scholarships that exceed the costs of tuition, fees, books and supplies are taxable income.  Money received to pay for room and board, as well as travel, is considered taxable.

http://www.irs.gov/pub/irs-pdf/p970.pdf

Some college admissions-related apps

The New York Times reports that The Fiske Guide to Colleges is now available for iPads.  Although my son was lukewarm on it, I found the Fiske guide quite helpful.  Some other college admissions related apps were featured in their story.

FutureU SAT — Kaplan’s new test prep video game is a free application that challenges players on the math, reading and writing sections of the SAT. Users can track their progress as they review geometric equations or subject-verb agreement. The free game works on both iPhones and iPads, with additional levels available for $1.99 each.
SAT Vocab Challenge — If you’re stumbling over obfuscate, obsequious and obstreperous, The Princeton Review offers an easy-to-use app that might just help. SAT Vocab Challenge focuses on definitions, synonyms and antonyms, but also includes timed quizzes to help prepare you for test day. Each volume of 250 words costs $4.99.
Peterson’s College Guide — Planning your college search list just got a little bit easier. Peterson’s Guide (free) has reviews and information on more than 4,000 colleges across the country. Can’t decide where to head next? Just shake your iPhone, iPod Touch or iPad and it will find one for you.
College Search App — Though it may not match the breadth of Peterson’s, the College Search App (99 cents) has some unique options that let users find institutions they may want to visit. Browse by region, type or athletic conference to find a school that may be a good fit.
College Savings — Worried how much your four years at Sarah Lawrence will cost? The College Savings application is an easy way for parents and students to compare just how much they’ll need to save to pay for college. The free iPad app compares how a user’s investments are likely to grow versus tuition forecasts to estimate how much you should be putting away before freshman year.

College applications email account

Some good advice from NYT's The Choice for students applying for college financial aid.

Provide an e-mail address you actually check. The financial aid process is detailed, and we often need to contact applicants or their parents to fact check or request more information. If we can’t reach you, we can’t complete your award.

From the comments, some more advice:

Several parents on a related College Confidential discussion forum thread have suggested creating a college-only email address that parents can access so that Mom or Dad will be able to alert their applicant children to important notices. It may sound very helicopterish, but when thousands of dollars are at stake, it might be wise to start whirring those blades.

— Sally Rubenstone, Senior Advisor, College Confidential

I confess I did this when my son applied to college:  Yup, I wanted to make sure my son didn't miss any important news that might hit us in the pocketbook.  There were times when he changed the email password so that he would be sure to be the first to learn decisions about acceptances, and that was certainly appropriate.

NYT's The Choice series on college financial aid questions

NYT's The Choice blog recently ran a series of posts answering readers' questions about college financial aid.  Here are the links.

http://thechoice.blogs.nytimes.com/2011/01/11/fafsaq-and-a/
http://thechoice.blogs.nytimes.com/2011/01/12/fafsaq-and-a-part-2/
http://thechoice.blogs.nytimes.com/2011/01/13/fafsaq-and-a-part-3-2/
http://thechoice.blogs.nytimes.com/2011/01/14/fafsaq-and-a-part-4/
http://thechoice.blogs.nytimes.com/2011/01/15/fafsaq-and-a-part-5-2/
http://thechoice.blogs.nytimes.com/2011/01/16/fafsaq-and-a-part-6/
http://thechoice.blogs.nytimes.com/2011/01/17/fafsaq-and-a-part-7-2/?ref=education

College savings options as outlined in the WSJ

Where to Save

Wary of market volatility and in search of more flexibility, more families and advisers are expanding their college-savings repertoire. Here are some options to consider:

529 Savings Plans 

Qualified distributions are taxfree, and many states offer tax deductions or credits for contributions.

• Pros: Can result in big tax savings for families able to sock away substantial sums.
• Cons: Some plans may have limited investment choices and charge high fees, and savers can face taxes and penalties if the funds are pulled out for other purposes.
• Financial-Aid Impact: Minimal, if treated as parental asset.

529 Prepaid Plans

Families make an upfront payment in exchange for future tuition contracts or credits.

• Pros: Prepaid plans aim to cover tuition no matter how much it increases.
• Cons: Some states, facing budget woes and rising tuition, have had to close their plans to new participants, raise prices or impose fees.
• Financial-Aid Impact: Minimal, if treated as parental asset.

Coverdell Education Savings Accounts 

Offer tax-free growth for education expenses.

• Pros: Cover a broad range of expenses, including college and K-12 expenses, while offering more investment choices.
• Cons: Impose income restrictions and a low $2,000 contribution limit. Current tax benefits extended only for two years.
• Financial-Aid Impact: Minimal, if treated as parental asset.

UGMA and UTMA Custodial Accounts

Accounts in which the parent acts as trustee. Offer some tax benefits where the first $950 of investment income is tax-free. Any income between $950 and $1,900 is taxed at the child's rate, and income above $1,900 is taxed at the parents' rate.

• Pros: Can be used for most anything as long as the proceeds benefit the child.
• Cons: Students gain control of the accounts when they come of age.
• Financial-Aid Impact: Since the accounts are in the child's name, they are counted more heavily in financial-aid formulas.

Taxable Brokerage Accounts

Families can save for college in a standard taxable portfolio.

• Pros: Investors have complete control over their investment decisions; accounts can be used for any purpose.
• Cons: Investors are likely to face a tax bill on growth and withdrawals.
• Financial-Aid Impact: Federal aid formulas count the value of the assets in the account (minus any margin loans) at the time the federal financial aid application is filled out.

Roth IRAs

Investors can generally withdraw their original contributions without taxes or penalties not only for college, but any reason.

• Pros: Offers more flexibility and investment options.
• Cons: If the parent is relying on the account for retirement, any withdrawals will chip away at the nest egg.
• Financial-Aid Impact: Assets aren't counted in aid formulas, although withdrawals of a contribution are treated as income under aid formulas.

Savings Bonds

Interest earned on the Series EE or I bonds is free from taxes if used for qualified higher-education expenses.

• Pros: Among the safest investments.
• Cons: Currently, bonds pay a relatively low rate of return while the tax break is limited.
• Financial-Aid Impact: Income from the bonds is considered income under aid formulas.

Sources: WSJ Research; FinAid.org

 College Saving Gets Trickier - WSJ 1/22/11

529 plan basics and updates

A recent WSJ article highlighted limitations of 529 college-savings plans and recent changes offered by some plan providers.  As with all their financial planning, investors should make sure their strategies aer suitable for their own individual situations..

A couple of basic 529 tips:

• Invest more conservatively as the college years approach.  In 2008 the average 529 lost 28%, reflecting the stock market's plunge that year (compared to -37% for the S&P 500).  A strong argument can be made to shift 529 assets to cash completely in the two to four years before college.
• Shop carefully for low fees and competitive performance.  Average 529 fees and performance tend to be less attractive than their retail mutual fund counterparts.

A quiz about college scholarships

What percentage of college students receive private (non-institutional) scholarships totaling $10,000 or more?
   a) 1%
   b) 3%
   c) 7%
   d) 11%

Clue:  The average scholarship is $2,523 per recipient.

Is it really necessary to complete the FAFSA?

When you're applying to college, do you need to submit the FAFSA* even if you are quite certain you will not qualify for need-based aid?  After all, you are disclosing all sorts of information to colleges when you submit the FAFSA.  Plus, it's a time-consuming task.

In the NYT's The Choice, Mark Kantrowitz gives us a few reasons to submit the FAFSA:

• It is difficult to predict if you will qualify for need-based aid, and surveys have found that it is common for families underestimate their own eligibility.  Sometimes you just need to complete and submit the form to learn if you qualify.
• The FAFSA is required for federal Stafford and PLUS loans, which are not need-based.
• Some schools require students applying for merit-based aid to complete the FAFSA.
• Congress changes the rules quite frequently, so you may be caught off guard if you don't have a FAFSA on file.

Every family has to judge for themselves, but it's important to consider all the facts before deciding.

*  The Free Application for Federal Student Aid (known as the FAFSA) is a form that can be prepared annually by current and prospective college students (undergraduate and graduate) in the United States to determine their eligibility for student financial aid (including the Pell grants, and work-study programs)
http://en.wikipedia.org/wiki/FAFSA

Having more than one child in college usually lowers EFC and can increase financial aid

From the NYT's The Choice Blog, Mark Kantrowitz explains how a family may qualify for more financial aid if they have more than one child in college.

The expected family contribution (EFC) is the sum of a student contribution and a parent contribution. When there are two or more children in college at the same time, the parent contribution is split among them.
The student contribution may differ depending on the income and assets of each child. In most cases having more children in college at the same time leads to a decrease in the EFC for both and an increase in the amount of financial aid.
For example, let’s consider the financial aid eligibility of two hypothetical families, one with just one child in college and the other with twins. Assume that the college costs $30,000 a year. With one child in college, the EFC is $16,000, consisting of a $2,000 student contribution and an $14,000 parent contribution.
The financial need for this child is the difference between $30,000 and $16,000, or $14,000. With two children in college, the EFC for each child is $9,000, since each child gets half of the $14,000 parent contribution.
The financial need for each child is the difference between $30,000 and $9,000, or $21,000. So by having two children in college at the same time, each child gets significantly more financial aid.