What are colleges doing to make higher education more affordable?
By Joe Messinger, CFP®
September 8, 2017
We are at the breaking point. The price of college has risen to the point where enrollment is declining. The cost has reached the point where families simply can’t afford to send their child to college. Some universities are looking for ways to make college more affordable and keep costs contained. Some are really thinking outside of the box, and families should keep their eyes open for opportunities that may fit their student.
Consider Purdue. They have been implementing several new ideas: income share agreements, three-year degree program, and partnerships. Other colleges are freezing or resetting tuition, partnering with community colleges, and accepting credit from outside sources like AP, IB, and dual enrollment programs. Let’s examine them each in detail.
Income Share Agreements
An income share agreement (ISA) is a contract between the student and the college that says the institution will pay a portion of your education costs while you attend. After you graduate, you pay a percentage of your income back to the school.
An ISA is a replacement for a student loan and should be considered carefully. Although not subject to interest, you could end up paying back more than you borrowed if your job is a high paying one.
The ISA payback is a specific percentage over a specific period of time based on a student’s major. The maximum amount a student will have to pay back is 2.5 times the original amount you received in Purdue’s case. Most students will pay back around 1.67 times the original amount.
Let’s look at an example (from Purdue’s Comparison Tool)…
Mathematics/Business Major graduating in May 2020. If you accepted $12,000 in college funding assistance from the ISA, your Income Share would be 4.9% over 96 months after graduation. The estimated starting salary for this major is $45,000. The tool assumes a 3.8% salary increase per year. The total amount paid back to the ISA would be $20,097. The total paid for a federal PLUS loan for $12,000 at 7% would be $21,235 and for a private loan at 9.5% would be $24,091.
So, what’s the downside? Well, we don’t know how these plans will play out in the long run. They are relatively new. If your income is at or below the projections, ISAs can really make sense.
Despite repayment caps that range from 1.0x to 2.5x the value of initial funding, if your income is significantly higher you will end up paying substantially more than you borrowed.
Three-year degree programs
Colleges like Purdue and Ashland are offering three-year degrees in some majors. At Purdue, they are offering a three-year degree in their arts and sciences. Students will need to take 18 credits per semester and some summer courses, but the savings of a full year of tuition is very attractive.
At Ashland, their three-year degrees are in arts and sciences as well as business. Students will attend six semesters over the period including fall and spring semesters as well as two summers semesters.
The value in a three-year program is not just the tuition and other costs of that extra year. Students will also have an extra year of earnings and potential retirement savings when they graduate ahead of time.
Purdue is again on the forefront of testing the bounds of non-profits and partnerships. In August 2017, they announced a training partnership with Infosys, a IT outsourcing firm. American students can receive training through Purdue for employment with Infosys. The details of what this will look like are still being worked out.
In April, Purdue acquired the for-profit Kaplan University chain. With 85% of Kaplan’s students taking online courses, Purdue is venturing into new territory with more custom offerings for students and new revenue streams.
This acquisition is still in its infancy, but it will be interesting to see how it affects the higher education landscape. Online education is a way colleges can save on overhead with a scalable online classroom that in theory could serve thousands of students across the country. These courses can be offered at a discounted rate and help families save on college.
Here in Ohio as well as in other states across the country, governments are pushing for tuition freezes. Many colleges including Ohio State here in Columbus are making the choice to freeze tuition.
Tuition will not increase for a specific incoming class as they move from year to year. However, tuition will see increase for each subsequent class as they enter OSU. Without this freeze in place, the senior year could cost a student 15 to 20 percent more than their freshmen year.
Remember, this freeze is for tuition only. Room and board and other costs continue to rise. However, knowing the tuition number will remain the same for 4-years is helpful for planning–a real aid to family budgeting!
However, we are seeing many universities who are freezing tuition require students to live on campus for two years as opposed to just one. An extra year parents will need to pay for housing! Of course, students living on campus will eat on campus so an extra year paying for that too. With room and board costs continuing to rise each year, my guess is that the math still works in the college’s favor!
Some colleges are making the decision to cut prices–sometimes drastically. Often, we see high tuition with high discounts. Colleges are starting to flip that and choosing to go with lower tuition and lower discounts. The net result is the same, but when they cut the price colleges are seeing applications increase.
As an example, Concordia University in St. Paul cut their tuition and fees from $29,700 to $19,700 in 2013. They have seen an increase in enrollment, student retention, and lower debt. All are key drivers for college rankings. Make no mistake that this is one of the primary goals of the tuition reset!
The key for institutions is to make smart choices and simplify the process when possible. Families should look for institutions who make these decisions thoughtfully.
When does it pay to attend a community college? Community college is often not what people envision for their kids, but spending part of the college career in a community college seat is becoming more popular as prices continue to rise. In 2016, 49% of US graduates with a bachelor’s degree spent some time in a community college.
Tuition costs at most community colleges are less than half the cost of traditional 4-year state universities. Students need to consider financial and non-financial considerations when deciding if this route makes sense. Perhaps your student is not completely sure what they want to do. Perhaps they are not emotionally or socially ready to leave home. They might be an ideal candidate for community college.
Partnerships between community colleges and area universities make the process much easier. The Preferred Pathways program through Columbus State Community College allows for easy transfer of credits to area universities like Ohio State, Miami, Ohio University, Ohio Dominican, Otterbein, Ohio Wesleyan, Capital, CCAD, and Franklin. It doesn’t matter where you start your education; the degree you receive is from the institution where you finish.
Credit from other sources
A final way colleges are trying to help families save money on the cost of college is by providing credit for classes taken during high school like Advanced Placement (AP), International Baccalaureate (IB), and dual enrollment (College Credit Plus in Ohio). You can read more about these programs in our blog.
When thinking about these programs, families need to:
- understand if their student will be a fit for this coursework
- identify the final grade needed to earn college credit
- research whether the colleges on their student’s list accept these programs for college credit
Can colleges do more to make college more affordable? Probably. But other options may be more difficult to implement. For now, be aware of programs at institutions across the US who are trying new things to tackle this problem and ultimately contain the cost of higher education.
After all…they don’t want to see their enrollment numbers decline. It is in their vested interest to keep the students coming.
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