Storm Coming…Or Is It Already Here?

Sunday night, as the snow fell and we anticipated school cancelled due to the snow, our neighborhood lost power, well only part of the neighborhood. Across the street the lights and heat were still on but not at my house. We just snuggled under the covers and expected to have light and heat in the morning. We did not have our electricity restored until Tuesday afternoon. We learned a lot about being prepared. Fortunately we had a kerosene heater and kerosene, a camp stove with fuel, canned food, flashlights, lanterns, and lots of board games. Our preparation made the difference between a cold 58 degrees instead of a comfortable 75 degrees, cold sandwiches instead of hot soup, and frozen pipes instead of running water. Over the last nine months, we have seen the steady deterioration of our country’s economy. This has affected our clients through loss of income AND significantly decreased value of savings. But with a little preparation, this storm doesn’t have to freeze your college plans.

Colleges and universities rely on their endowment funds to pay for improvements and financial aid. These endowments have decreased at the same rate as personal savings and investments AND the state funding for public colleges has been cut significantly.

Families that saved for children to attend pricey private colleges have seen their savings plummet by half leading many families to “down-size” their college expectations. These students are now applying to the state (or public) colleges increasing competition for admissions and yes, competition for financial aid.

The increasing unemployment is creating a larger pool of students that qualify for financial aid. Banks are not lending due to under capitalization and the “we got burned badly so you have to meet stringent requirements to get any of our money” mentality. Credit worthiness will no longer just be based on a credit score but on verifiable and secure income as well. We predict that credit worthy based loans will be difficult to find, this includes the PLUS loan, home equity lines, and home refinances with cash out (if you are not underwater in your mortgage).

This combination of downward financial pressures is leading us into a “deadly storm” for financing college. Families will need more help, but the colleges and universities will need to reduce help and increase costs to meet their changing financial positions. In this new era of booming college applications and dwindling financial aid what can you do for your student?

First, families need to take stock of their resources and consider not allowing their student to attend a college they can’t afford and not take on college debt they can’t pay back. Despite the marketing campaigns of the colleges and universities to the contrary, employers don’t place much emphasis on where you graduated, just that you graduated with a degree. (Note: the business leaders that put us in this mess overwhelmingly graduated from Harvard; draw your own conclusions.)

An education beyond high school is necessary to get a well-paying job. But, when you choose that institution of higher learning you need to determine how you will pay for all four years. A combination of free money, savings, and loans is acceptable as long as the loans can be paid back with the expected salary.

One student, a sophomore at Brandeis, has had to change her plans. She must graduate in three years instead of four because she cannot afford the last year. This eliminates her study abroad plans and increases her credits per semester. She must also apply to the military to get through grad school because her loans from Brandeis are overwhelming already. She hopes the military will take her despite her heart ailment otherwise she isn’t sure what she will do. She only considered the first year costs and she didn’t consider the final loan totals either.

Second, consider alternate plans to get the same degree. Consider commuting to a local college or university for a savings of about $7000-$8500 per year. In addition, investigate spending your first two years at a community college. Virginia’s Community College system has negotiated guaranteed transfer programs with the four year schools like Virginia Tech, UVA, JMU, VCU, George Mason, CNU, and others. This allows you to finish the first two years and have all your credits transfer. It also means if you meet the GPA and other requirements, you are accepted by these schools as long as they have space. And the tuition and fees costs are half or less of the four year universities.

But remember with the booming applications at the four year public schools the applications to community colleges are expected to increase. This means that your local community college may not be able to accept all applicants due to space restrictions. If you are considering a community college, get your application in now!

Third, students will have to work more through school. Paying for their own pizza and laundry money gives the student a greater stake in their education. Research has also shown that students who work during college organize themselves better leading to better grades.

Fourth, really examine your spending habits. Where can you cut to help pay for college? Can you reduce your insurance costs? Can you eliminate Starbucks, eat out less, or reduce shopping trips? What can you buy used and apply the difference to college costs?

The preparation families put in now will make the difference between freezing in the upcoming storm instead of graduating from college.