Three things: (1) you’re not alone, (2) it’s going to work out (somehow), and (3) there might be a silver lining in terms of college costs.
We recently did a survey with our friends at TuitionFit and the results were pretty frightening: 26% of the students and families surveyed indicated that they were rethinking their #1 college choice, and another 12% were thinking of deferring a year to make sure they could go to #1. The top reasons: distance from home, fear of losing tuition money and fear of the virus itself.
What’s that mean? It means 74% still plan to be going to the place where they bought their favorite hoodie or sweatshirt!
Obviously, things can change. I do expect that number to increase if the pandemic becomes protracted and financial matters really get out of hand, but in general, the calendar is still on your side. If this had happened in June or July, there would be no way that the class of 2024 would make it to campus. It’s the end of March. Colleges have time to react to the situation and make plans for fall and beyond with any future disruption in mind. What does that mean? If we can flatten the curve by June, I’m hopeful that we’ll see on-campus education return to some state of “normal”. No doubt a new “normal” with social distancing applied to large events and classes and perhaps even dormitories, but some semblance of what we were used to just a short time ago. I think the biggest change will be deliberate implementation of “virtual” learning backup plans in case we face this again in the future.
Will colleges survive? Most will. Some won’t. We’d be remiss if we did not say that there are going to be some small private colleges that do not recover from this jolt to the system. If you are heading to your dream school or an alternative, choose carefully and keep one factor in mind: the endowment of the college. Tuition dependent colleges that have low endowments beneath $30 million dollars are the ones that may have the highest challenge ahead. It is worth noting that in previous recessions, such as 2008, college enrollment rates actually increased 10-12%, although they were not facing the distancing and management concerns brought by a virus.
The silver lining? Financing costs are lower, colleges are hungrier, and sometimes a bump in the road can send you somewhere wonderful!
Interest rates have dropped to record lows for those that will borrow. We’re estimating that the Federal Direct Student Loan will come down almost 1.5% to just above 3% for 2020 student borrowers, possibly even lower. The Federal Parent PLUS Loan used by many families could come down almost 2%, to 5.16%. Private Student Loans will likely start as low as 3%. Saving 30% in borrowing costs is not insignificant when you factor them over a 10-year period of repayment. No matter what choice you make, this is a good thing. You can see for yourself at the Quatromoney planning center.
Colleges may get aggressive with follow-on merit awards. Some colleges that you were not your first choice might start to be really interested in wooing you to their campus in these tough times and offer up a better deal with more scholarship and grant money, even after you make a deposit on a school. This used to be a no-no, but NACAC, the national admissions counseling association, recently changed its policy under pressure from the federal government. Don’t be surprised if a college sends another note in June offering even more $$$. (Note: I would not expect highly selective colleges like Amherst, Pomona, Reed or MIT to come back with more aid. They are need-based instiutions and if you don’t show, they have a long line waiting behind you to take your place). What’s that mean for you? It means lowering your college costs, lowering your debt burden and keeping more $$$ in your pocket to take advantage of in a future summer or after you graduate. Hopefully, by then, we'll be past the COVID scares.
Lastly, Perhaps a Better Fit
Adding in some forced practicality to the college decision process might benefit everyone in the long run. Emotion often drives the decision on where a student heads off to college. At first it seems great, but for many families, this can become a real challenge financially over time as college costs rise. Add in the fact that many students actually take 5+ years to graduate, and it becomes even more challenging. Taking some time to think rationally about the investment in a particular college, weighed against its potential value and return in the future is a good practice. Measuring it all against the college costs, especially the ability to manage a student loan monthly payment in the future = priceless. That's how were going to start producing students with less debt and higher ROI. Using the government’s College Scorecard in combination with Quatromoney’s planning tools can help you see this for yourselves.
Patrick Kandianis has been innovating in the higher education space for over thirty-five years and has spent the last fifteen focused on student finance. He oversees the strategic direction and operations of Quatromoney on a day-to-day basis and welcomes the opportunity to help more families with Quatromoney’s unique approach to paying for college.