The Pandemic Effect on Higher Education Expenses
Inflation can cause significant erosion in a person’s spending power and high inflation is especially harmful. Inflation of 7% a year can essentially cause most items to almost double in price every 10 years. Thankfully inflation in most countries is well below that level but tuition inflation is another ball game. A few years ago, tuition inflation was running at an 8% annual rate and it was not unusual to pay four times what it cost to go to college just a couple of decades ago. Thankfully the rate of college tuition inflation has dropped into the low single digits now but it still runs above the general rate of inflation.
According to U.S News data, the average cost for tuition and fees among both private and public universities has significantly risen since the late 1990s. The cost of education at other four-year universities and community colleges has also grown. In the 2017-2018 academic year, families spent an average of $26,000 on college and tuition expenses. Some of these expenses were paid through savings and some through scholarships and grants. If you haven’t saved up for college and do not have a scholarship, there are other forms of financial aid that may be available to you.
Higher education has been significantly impacted by the COVID-19 pandemic. Online education was seen as an exception for education for over 20 years. The pandemic has resulted in most universities and colleges migrating to online lessons in a matter of weeks after the entire world went into lockdown mode. The shortcomings related to higher education’s value proposition and the means through which it is delivered has now been laid bare due to this rapid transition. Hopefully, this shift to online education will keep a lid on tuition inflation in the years to come.
Here are a few ways you can save and plan for your college expenses:
A 529 plan is a tax-advantaged savings plan that has been designed to encourage saving for future education costs. The 529 plans are authorized by Section 529 of the Internal Revenue Code and are legally also known as “qualified tuition plans”. These plans are sponsored by states, state agencies, or educational institutions.
There are two basic types of 529 plans: ‘Prepaid Tuition Plans’ and ‘Educations Savings Plans’. At least one type of 529 plan is sponsored by all fifty states and the District of Columbia. Prepaid tuition plans are also sponsored by a group of private colleges and universities.
Fees and expenses vary based on the type of 529 plan you invest in, whether it is through a broker or a direct-sold plan, the plan itself, and the underlying investments.
Prepaid Tuition Plans: Prepaid tuition plans allow an account holder to prepay all or part of future tuition and mandatory fee at current prices for the beneficiary. Most prepaid tuition plans are sponsored by state governments.
Education Savings Plans: The Education Savings Plans allow an account holder to open an investment account in order to save for the beneficiary’s future qualified higher education. These plans are similar to the Roth 401(k) or Roth IRA where you invest your after-tax contributions in mutual funds or similar investments.
Complete and Submit the FAFSA Form
The Free Application for Federal Student Aid (FAFSA) will open the door to different types of financial aid that you could apply for. Submitting this form makes you eligible to receive financial aid including student loans, federal grants, work-study opportunities, and school-based aid. If you had already filled out your FAFSA application, you can consider redoing it with updated income information.
Many schools have first-come-first-serve programs for FAFSA, so the earlier you apply the better it is for you.
Apply for Grants and Scholarships
There are a number of scholarships available for students applying for college. Some of these are merit-based so you will need good grades or service requirements to qualify. There are scholarships available for sports and music as well. If you are an early planner, you can look at the kind of scholarships available in these categories and enroll your children early so they benefit from these scholarships. There are other scholarships available based on your location or the school that you are attending.
Take Advanced Placement Courses
You can save on college tuition if you score high on Advanced Placement or AP Exams. Many schools, though not all of them, award course credits based on AP scores. Depending on the college and your AP score, you could get some waiver on your education course or it could count as elective credit.
Work While You Study
There are multiple approaches to working while attending college at the same time. You could work full-time and attended school part-time through a qualified tuition reimbursement plan that some employers offer. The other, more common option, would be to study full-time and taken a part-time job to cover your expenses.
With millions of people losing their jobs due to the pandemic, the cost of higher education is seemingly out of reach for many.
With the lockdown easing up in most places, you can also consider working during the summer and saving money for your expenses during your school year. The Federal Work-Study (FWS) program provides a way for students with financial needs to get a paycheck to help with their expenses, and gain valuable work experience. Check with the financial aid office to find out whether your university or career school participates. If they do, the FWS program will pay some or all of your wages if you’re hired for a work-study job.
Use Dual Enrollment Courses
The Dual Enrollment programs allow students to enroll in college courses and earn college credit while still in high school. Courses taught under the dual enrollment programs are separate from students’ high school curriculum and they could count toward dual credit – which allows students to earn both high school and college credit from the same course.
Make Use of the Tuition Tax Deduction
Families who qualify can use the Tuition and Fees Deduction on their federal taxes. This deduction, renewed by Congress in February 2018, allows taxpayers to deduct qualified education expenses, such as tuition and fees. Under the deduction, taxpayers can reduce their taxable income by up to $4,000.
Considering how expensive tuition is these days, the $4,000 credit may not seem like much but every little bit helps.
Apply for Federal Student Loans
If you are planning to take a loan to pay for your college, you could consider limiting your borrowing to Stafford Loans. Besides certain borrower protections, the Stafford Loan provides a low, fixed interest rate. Undergraduates who took out a federal student loan for the 2018-2019 school year will borrow at 5.05% interest rate. According to experts, private higher education loans tend to have higher interest rates because these loans are considered risky to the lender.
Colleges With Lower Tuition Fees and Online Schools
Other ways you can help save towards college education include applying to a college with lower tuition rates. You could also consider applying to an online school. The tuition at these online colleges could be significantly lower. A lot of Universities are now offering certificate courses online.
Reduce Your Living Expenses
Pre-pandemic, you could have compared the costs of living on campus versus living off-campus. Since most courses are now being taught online, you are probably saving on living expenses and could put away some of the money that you save for a rainy day. If you follow a strict budget and plan well, you can reduce your expenses even further.
According to a survey by OneClass, 56% of college students say that they cannot afford tuition.
Whether you are a student saving up for your college expenses or a parent planning for your child’s college expenses, it is always helpful to start early. Start putting away money for college early and consider options that will qualify you for scholarships. This will reduce the burden of college expenses when you start applying for admissions.
Regardless of what decisions you make, the COVID-19 pandemic has brought to light the importance of planning well for higher education costs. As Universities and colleges around the nation face unimaginable challenges for Fall semester, it is still worthwhile to consider the value a good education provides.