The September issue of Money (a Time, Inc. publication) featured an article titled “Busting the 5 Myths of College Costs” by Penelope Wang. It claimed that many of the assumptions that parents hold on how to reduce the cost of college are outdated or wrong. Wang promised to give the “straight facts you need to make smart college choices.”
But a closer look at the five myths reveals that each one has more than a grain of truth. So here goes:
“Myth” #1: Saving for college will hurt your chances of getting financial aid.
Money points out that saving for college will have little effect on a student’s chances of getting federal financial aid because the federal-aid formula doesn’t count all of a family’s savings.
That much is true, but federal aid is only part of the financial-aid picture. Your savings will have an effect on institutional aid—the discounts or scholarships that colleges give to students they want to attend. Those can often play an important role in reducing college costs. And because your family’s savings are listed on the FAFSA (Free Application for Federal Student Aid) form, colleges have information that may work against you.
In a study on price discrimination in college tuition at one private university, Robert A. Lawson and Ann Zerkle identified student characteristics that make universities likely to offer aid. While they found that demonstrated need, high ACT scores, and high school GPA are good predictors of whether schools will offer students institutional aid, they also cautioned that the ability to pay tuition can counter those attractions.
If candidates with high ACT scores and high GPAs are in the middle class and can, even with a stretch, pay the tuition, the likelihood of getting an aid offer isn’t very good.
So, it is sad but true that even though discounts on tuition are sometimes called merit scholarships, merit may be less important than the ability of the family to pay the tuition.
Saving is still the best course, but there is a trade-off.
“Myth” #2: You can’t afford a private college.
The average price of attending a private university is $42,224. Tuition and fees alone are $28,500. While it’s true that many students get discounts on tuition, the majority of students who are accepted do not. And fees, room and board, books, transportation, and supplies are only covered by very generous (but also very rare) full-ride scholarships.
Thus, while Money properly brings up the possibility that a private college is affordable, for many that possibility can only be realized by resorting to costly borrowing.
Federal loans, capped at $12,500 per year for undergraduates, aren’t enough to cover the cost at most private universities. And private loans, with their high interest rates, make college costlier in the long run.
For many families, private school education is simply out of reach.
“Myth” #3: A liberal arts degree won’t pay the bills.
In defense of liberal arts majors, Money makes the rather tepid statement that “many liberal arts majors do as well or better [than STEM majors].” Maybe so, but most do not.
A 2011 study by Andrew Sum of Northeastern University found that 25.2 percent of 2009 humanities graduates were unemployed. Another 29.4 percent were working in jobs that did not require a college degree, earning just $14,051 per year. Humanities graduates who were employed in jobs requiring a college degree earned $20,953.
According to a recent study by the Center for College Affordability and Productivity, “48 percent of employed U.S. college graduates are in jobs that the Bureau of Labor Statistics (BLS) suggests requires less than a four-year college education. Eleven percent of employed college graduates are in occupations requiring more than a high-school diploma but less than a bachelor’s, and 37 percent are in occupations requiring no more than a high-school diploma.” It is unlikely that most of those graduates have math or engineering degrees.
In the past, any college degree would do. But in today’s competitive job market, liberal arts degrees rarely provide the return on investment that graduates expect.
“Myth” #4: Student loans will cripple your child financially.
Money explains that only two percent of borrowers owe more than $50,000. But with today’s bleak job prospects (see above), $50,000 is hardly the right benchmark. Moreover, that number includes all borrowers—some of whom borrowed 10 or more years ago.
The statistics for more recent student cohorts are less rosy. According to American Student Assistance, 66 percent of 2007-08 bachelor’s degree recipients graduated with some education debt, while 10 percent had borrowed $40,000 or more. As of October 2012, the average amount of student loan debt for the Class of 2011 was $26,600, a 5 percent increase from approximately $25,350 in 2010.
Payback trends show that student loans, for many, are a serious financial burden.
Of the 37 million borrowers who have outstanding student loan balances, 14 percent, or about 5.4 million borrowers, have at least one past due student loan account. Only about 37 percent of federal student loan borrowers between 2004 and 2009 managed to make timely payments without postponing payments or becoming delinquent. Two out of five student loan borrowers are delinquent at some point in the first five years after entering repayment.
Student loans are not the “good debt” that universities claim.
“Myth” #5: Starting at community college, then transferring, is a great way to cut the cost of a B.A.
Money points out that many community college students who intend to transfer to a four-year school never do so. From that fact, the author concludes that starting at a community college is a bad strategy. Unfortunately, she has confused correlation with causation.
What the article overlooks is that community colleges have an open-door policy, accepting students with mediocre or even poor academic track records. Many of those students, whether they start at community colleges or four-year schools, are unlikely to graduate because they lack academic skills, discipline, or both.
Students who are better prepared, however, can succeed regardless of what kind of university they attend.
Data from UNC schools show that students who transfer from community colleges have a 4-year graduation rate of 66 percent—better than the national average.
Thus, the 5 “myths” that Money attempts to debunk aren’t entirely mythical at all. The message to take away from this point/counterpoint is that it is hard to generalize about how college costs will affect each family.
Personally, I recommend that you err on the side of frugality—I think you’ll find that it’s not an error to do that.
Despite its overly rosy depiction of how to pay for college, Money dispenses some good advice: Save in a tax-free 529 plan, look for scholarships, get an internship, avoid private loans, and do your homework before choosing a college.
And that homework includes sorting out the truths from the myths.