MONEY College

The Best and Worst Places to Live for a Low-Cost College Education

Classroom with map of United States on chalkboard. Wyoming is shaded pink.
Want to save $50,000 on your kids' college education? Move to Wyoming. Sarina Finkelstein (photo illustration)—John Kuczala/Getty Images (classroom); Tuomas Kujansuu (chalkboard)

With a wide spread in tuition and tax burdens, the cost of sending your children to local public schools can come to just over $40,000 for four years—or more than $130,000—depending where you live. See where your state ranks.

Want to cut your family’s college tuition bills by more than $50,000? Bring up your kids in Wyoming. Or Florida. Or even New York. But not New Hampshire.

Using new College Board data on the average cost of tuition and fees at public colleges in all 50 states and the average amount of state tax dollars that go toward higher education, MONEY calculated where parents would spend the most and least to raise two children and send both to an in-state public university.

Wyoming, which the Tax Foundation reports has the lowest total tax burden in the country, is also the nation’s best bargain in higher education, thanks to the lowest public-college tuition in the U.S. Yet low taxes alone aren’t enough to make a state a good deal. Although New Hampshire has the sixth-lowest tax burden in the nation, Granite State parents face the highest college-related bills.

To estimate the total cost of a public education in each state, MONEY calculated how much a family earning $50,000 a year would likely pay in state taxes earmarked for higher education over 25 years, and added that to four years of in-state tuition for two children. This back-of-the-envelope analysis, of course, assumes no change in prices or taxes, nor any financial aid.

The results, while rough, do a reasonable job of showing the impact of different philosophies toward government services, says Andy Carlson, senior policy analyst at the State Higher Education Executive Officers Association.

You’ll generally pay more if you live in a state where the students who earn the benefits of the degree have to pay the bulk of the costs, Carlson says. And you’ll usually—though not always—face lower overall college costs in states that view access to higher education as a public good, and as a result direct significant tax support to public universities.

The Best Places to Live

For families, how this difference usually plays out is in higher or lower in-state tuition. And you’ll end up paying the most for your kids’ education in states with high in-state tuition, even if those states have comparatively low college-related taxes.

New Hampshire has no tax on earned income. It funds government services with taxes on things like investment income, real estate, and liquor. For a family earning $50,000, the amount of state revenues that support the state’s colleges equates to about $82 this year, or a little more than $2,000 over 25 years. Not surprisingly, New Hampshire has the highest average public college tuition in the country—$14,712 this year—pushing total higher education tuition and tax spending for parents of two children to more than $132,000 over two decades.

Wyoming, which has low direct taxes on its residents, funds much of its government services with taxes on mineral and energy mining. Out of those revenues, it allocates the equivalent of nearly $600 a year per family to higher education, the highest subsidy in the nation. As a result, tuition and fees at the University of Wyoming are just $4,646. The total higher education taxes and tuition costs for a typical Wyoming family adds up to just $42,000—or $90,000 less than New Hampshire families pay.

Some high-tax and high-subsidy states are bad deals for parents, however. Illinois taxpayers, for example, spend 13% more than the national average on higher education support—about $340 a year per middle-class family. And Illinois public colleges charge some of the highest tuition in the U.S. As a result, Illinois has the nation’s fifth-highest combined tax-and-tuition bill for a typical family—$115,000.

In contrast, a middle class household North Carolina contributes about $500 worth of state taxes to higher education annually. That high level of taxpayer support helps keep North Carolina’s in-state tuition, $6,700 this year, below the national average. The total higher education tax and tuition costs for parents with two children comes in at about $60,000.

One last surprising note: You don’t have to travel far to reap big savings. Moving across the river from high-tax New Jersey, for example, to slightly higher-tax New York cuts the public college tuition you’re likely to pay by about $5,000 a year, and a family’s total lifetime higher education bill by more than $50,000.

The 50-State Ranking

Here’s how the math plays out in all 50 states. For more on finding a great college value, check out our Best Colleges rankings, including the 25 Best Public Colleges.

State State higher-ed spending per $1,000 in personal income 25-year total state higher-ed spending for families earning $50,000 Average in-state tuition 2014-15 Estimated total tuition costs for two children Total estimated tuition + taxes
1. Wyoming $11.92 $14,896 $4,646 $37,168 $41,814
2. Alaska $10.48 $13,101 $6,138 $49,105 $55,243
3. Utah $7.63 $9,537 $6,177 $49,416 $55,593
4. New Mexico $11.51 $14,387 $6,190 $49,523 $55,714
5. Montana $5.70 $7,125 $6,279 $50,233 $56,512
6. Florida $4.84 $6,048 $6,351 $50,808 $57,159
7. Nevada $4.49 $5,616 $6,418 $51,341 $57,759
8. Idaho $6.59 $8,236 $6,602 $52,816 $59,418
9. West Virginia $7.80 $9,753 $6,661 $53,292 $59,953
10. North Carolina $9.62 $12,027 $6,677 $53,418 $60,096
11. Mississippi $9.50 $11,877 $6,861 $54,888 $61,749
12. Oklahoma $6.52 $8,145 $6,895 $55,157 $62,052
13. New York $4.91 $6,134 $7,292 $58,338 $65,631
14. Louisiana $5.98 $7,471 $7,314 $58,510 $65,824
15. Nebraska $8.07 $10,093 $7,404 $59,234 $66,638
16. North Dakota $10.02 $12,522 $7,513 $60,106 $67,620
17. Arkansas $8.01 $10,013 $7,567 $60,535 $68,102
18. South Dakota $5.04 $6,303 $7,653 $61,224 $68,877
19. Iowa $5.92 $7,402 $7,857 $62,857 $70,714
20. Kansas $6.06 $7,577 $8,086 $64,684 $72,770
21. Georgia $7.31 $9,139 $8,094 $64,753 $72,847
22. Missouri $4.02 $5,023 $8,383 $67,068 $75,451
23. Tennessee $6.25 $7,810 $8,541 $68,324 $76,865
24. Maryland $5.42 $6,771 $8,724 $69,790 $78,514
25. Wisconsin $4.51 $5,632 $8,781 $70,248 $79,029
26. Texas $5.78 $7,226 $8,830 $70,637 $79,467
27. Oregon $4.01 $5,018 $8,932 $71,453 $80,385
28. Indiana $6.69 $8,363 $9,023 $72,182 $81,205
29. California $5.84 $7,306 $9,173 $73,381 $82,554
30. Kentucky $7.44 $9,301 $9,188 $73,508 $82,696
31. Maine $4.99 $6,243 $9,422 $75,378 $84,800
32. Alabama $8.18 $10,220 $9,470 $75,759 $85,229
33. Colorado $2.78 $3,479 $9,487 $75,897 $85,384
34. Hawaii $8.08 $10,106 $9,740 $77,921 $87,661
35. Ohio $4.42 $5,526 $10,100 $80,799 $90,898
36. Arizona $3.57 $4,468 $10,398 $83,181 $93,578
37. Minnesota $5.42 $6,780 $10,527 $84,217 $94,744
38. Connecticut $4.63 $5,782 $10,620 $84,957 $95,577
39. Washington $4.81 $6,017 $10,846 $86,765 $97,610
40. Virginia $4.40 $5,503 $10,899 $87,192 $98,091
41. Rhode Island $3.45 $4,316 $10,934 $87,469 $98,403
42. Massachusetts $2.88 $3,605 $10,951 $87,608 $98,559
43. Delaware $5.44 $6,798 $11,448 $91,581 $103,029
44. South Carolina $5.38 $6,729 $11,449 $91,594 $103,044
45. Michigan $4.31 $5,386 $11,909 $95,271 $107,180
46. Illinois $6.77 $8,467 $12,770 $102,156 $114,926
47. New Jersey $3.99 $4,993 $13,002 $104,020 $117,022
48. Pennsylvania $3.02 $3,775 $13,246 $105,967 $119,213
49. Vermont $3.21 $4,018 $14,419 $115,353 $129,773
50. New Hampshire $1.64 $2,050 $14,712 $117,698 $132,411

Sources: College Board, MONEY calculations

MONEY College

Average College Grad Now Leaves School With $28,400 in Debt

man overboard waving arms in the air for help
Gary John Norman—Getty Images

A new report from the Project on Student Debt shows that many recent grads are drowning in student loans, but also offers advice for avoiding this destiny.

Student debt has hit another record—with the typical 2013 college grad who borrowed commencing post-collegiate life with loan bills totaling $28,400, according to a Project on Student Debt report released Thursday.

That number is up 2% over the class of 2012, who owed $27,850.

Not all the news was so grim: a new College Board study of financial aid also released Thursday indicated that the total amount of undergraduate federal student loans fell by about 7% in 2014, while enrollment only fell about 1%.

But several debt experts warned against celebrating this as a herald to the end to the student debt crisis.

The recent decline in federal borrowing may simply reflect parents’ shift to other kinds of borrowing, like home equity loans, noted Lauren Asher, president of The Institute for College Access and Success, which runs the Project on Student Debt.

Also, nearly one-fifth of new graduates’ debt load is made up of private student loans, which charge much higher rates than federal loans and have much less flexible repayment plans, she added.

Mark Kantrowitz, publisher of Edvisors.com, attributes the recent dip in borrowing to the economic rebound. But since states continue to stint on funding for public colleges, and since college prices are rising faster than financial aid budgets and incomes, borrowing will likely soon bounce back up, he predicts.

State budget cuts “will continue to shift the burden of paying for college from the government to students and their families. Family income and savings do not increase enough to cover the added cost. This forces students to shift their enrollment to lower-cost colleges and to increase their debt at graduation,” Kantrowitz warns in his own recent analysis of student debt numbers.

The key takeaway for students, says Asher is that students should continue to pursue degrees—for the great advantage they provide in the job market—but should also be making sure to limit their debt loads.

Perhaps the single most important step: choosing a college with a net price you can afford using your family’s savings, earnings, your scholarships and no more than the maximum standard federal student loans: $5,500 a year for freshmen, $7,500 a year for upperclassmen. (Here’s more advice on how to avoid crushing student debt.)

The Project on Student Debt also noted that there were many low-debt schools students could choose from. These tend to have some combination of low tuition and/or generous financial aid. They range from private schools such as Princeton University and Berea, to the public campuses of the City Universities of New York and the California State Universities.

On the other hand, colleges that load students up with debt tend to have high tuition and small financial aid budgets. That list includes public schools such as the University of New Hampshire and private schools like the Ringling College of Art and Design.

You can also search for low-debt colleges using MONEY’s list of the 100 colleges with the lightest debt loads.

This story was updated on Nov. 14 to delete an incorrect description of the rate of borrowing by 2012 college graduates.

MONEY College

Why College Costs Keep Eating Up More Of Your Paycheck

141113_FF_College
Aydin Buyuktas / Alamy

Tuition is rising faster than incomes. But a new private college price war and the improved economy have meant lower prices for many students.

College became a little less affordable again for most students in 2014, as the typical school raised prices faster than financial aid—and faster than average income growth.

In its annual analysis of the state of college prices, the College Board found that most higher education charges continued to outpace the 1.5% average growth in incomes. The cost of attending the typical public university–including dorms, dining hall privileges, textbooks, and miscellaneous expenses—reached $23,410, up 2.6% from last year. Private college costs hit $46,272, up 3.4%.

Even after subtracting scholarships and grants, the average cost of a public education rose by 3.5%. The average net cost of attending a private college was up 4.1%.

A Few Bright Spots

With college costs continuing to eat up a higher percentage of most families’ incomes, “you can see why there is a lot of stress for people” says Sandy Baum, a co-author of the College Board report.

But, she added, “things are looking a little bit better” for some students. The lowest-cost option—attending a local community colleges while living at home—remained comparatively affordable. The total for tuition, fees, textbooks, and commuting to campus averaged $6,410 this year, a 3.1% increase over 2013. But since most of those students received grants or were able to take advantage of at least some of the $2,500 American Opportunity Tax Credit, the net cost of attending a community college averaged $1,320.

And the College Board noted that in real terms—in other words, after adjusting for inflation—private colleges are about 4% less expensive than they were in 2008. The reason: A decline in the number of 18-year-olds has sparked a scramble to fill seats at many small and non-prestigious private colleges, says Susan Fitzgerald, who analyzes college finances for Moody’s Investors Services.

Elite colleges are in such high demand that they can charge whatever they want. But schools without national reputations, Fitzgerald says, “are facing a very competitive environment, and one of the ways they are competing is on price.” So while such colleges typically hike published tuition prices, they are also raising the amount of financial aid they offer. As a result, the net prices charged to new freshmen have remained fairly flat.

A Pause at the Publics

In 18 states, the average cost of public college tuition rose by less than the 2% inflation rate, the College Board found. For example, after many years of dramatic tuition increases, the University of California, Berkeley charged tuition and fees of $12,972 this year. While that’s an 80% increase over 2007, it’s a rise of only 1% from last year. At the other end of the country, tuition and fees at the University of Maine averaged $10,606 this year, up only $6 from 2013, and $24 from the fall of 2011.

Many public universities have been able to moderate tuition inflation because the economic rebound has increased state tax coffers. And states have used some of those gains to at least partially alleviate the severe higher education budget cuts of the past few years, Baum says.

But, she notes, on average states are providing about 20% less funding per student to public colleges than they were prior to 2007.

A recovery in state budgets has put tuition inflation on pause in many states, she says. Unfortunately, there’s no guarantee that tuition hyperinflation won’t return. “We will again at some point experience tighter state budgets,” Baum warns.

In fact, in an ominous sign, some college leaders are already pushing for tuition hikes in 2015. Janet Napolitano, president of the University of California system, last week requested permission to raise tuition by 5% a year for the next five years.

Public universities: Sticker price Public universities: est. average net cost (after grants and tax aid) Private colleges: Sticker price Private colleges: est. average net cost (after grants and tax aid)
2013-14 $22,826 $16,717 $44,750 $33,710
2014-15 $23,410 $17,300 $46,272 $35,082
1-year $ increase $584 $584 $1,522 $1,372
1-year % increase 2.6% 3.5% 3.4% 4.1%

Source: The College Board

More on saving for college from Money 101:

MONEY college savings

One Foolproof Way to Earn More on Your College Savings

handing money over
PM Images—Getty Images

Tax breaks, matching grants, and scholarships can effectively boost your investment by an average of 6%.

Savers in many states don’t have to rely solely on the markets to build up a college fund. Grants or tax benefits can effectively boost the value of your investment in a 529 college savings plan by 10%, 20% or even 30%, according to a newly released analysis by Morningstar.

In the 32 states (plus the District of Columbia) that offer subsidies to college savers who contribute to their home state’s 529 plan, the average benefit is a one-time boost worth about 6%.

In New Jersey, parents who seed a NJ BEST 529 account with $1,200 when their kid is about six and kick in at least $300 a year after that will qualify the student for a one-time $1,500 freshman scholarship to an in-state public university. That’s a return of 31.5% on a total investment of $4,800.

Most states simply give parents a tax credit or deduction for a 529 contribution, which translate into a lower state tax bill and thus more money in your checking account. That’s money you can use for anything—including adding to your 529 or offseting the cost of saving for any college.

Residents of Indiana, for example, qualify for a state tax credit worth up to 20% of what they invest in the state’s 529 plan, which can reduce a typical family’s state tax bill by $480. Vermonters get tax breaks typically worth 10% of their investments in their local 529 plan.

Five states offer tax breaks for an investment in any 529, allowing residents to shop for the best plan anywhere. Two of those five states reward both choices: Maine offers a 1.7% tax benefit for any 529 investment, but also provides matching grants for saving in the state’s 529. Pennsylvania’s has tax breaks worth about 3% for any college savings, but it also offers scholarships to hundreds of mostly private colleges across the country for those who invest in-state.

Fifteen states either have no income tax or don’t offer any subsidy to college savers. Check out this 50-state map to see whether to invest in your state, or out of state.

Beware of the Gotchas

The author of the Morningstar report, Kathryn Spica, says you should watch for two big potholes when trying to maximize these freebies.

1. High fees: Some states charge such high fees in their 529 plans that any parent with a child younger than, say, 13 should probably forgo the tax benefit and choose a low-cost, highly-rated direct-sold plan. But for parents of teens close to college, the immediate tax benefits can outweigh only a few years of higher fees.

For example, D.C. offers tax breaks that amount to a one-time 8.5% effective boost to your college savings. But D.C.’s plan charges a high annual fee of 1.35% of assets. Utah’s plan, which gets the highest rating by Morningstar, charges only 0.2%. Within eight years, D.C.’s higher fees would likely eat up your tax benefit.

2. Changing rules: North Carolina cancelled its tax break for 529 savings last year. And Rhode Island has stopped enrolling new parents in its savings match program, Spica says. Parents in states that end or slash tax benefits should take a few minutes to run the numbers and see which investment option best meets their needs.

The Value of the Tax Breaks

The chart below lists the states that offer benefits for investing in the home state 529 as of fall 2014. Morningstar’s estimated value of the subsidy is based on a family earning $50,000 a year and saving $2,400 a year for college. The fees are those charged for an age-based fund for a 7- to 12-year-old that employs a moderate (as opposed to conservative or aggressive) investment strategy.

The final column is Money’s recommendation on whether parents of kids younger than 13 should stick with their state’s best 529 option, or risk giving up the state’s benefit and shop for the best plan nationally.

If your state is not listed here, you won’t be giving up anything if you simply pick the best plan available. Here are Money’s recommendations for the best 529s nationally, based on a combination of the fund’s fees, the state’s tax benefits, and the ratings given the plans by Morningstar and Savingforcollege.com.

State Est. value of state tax benefit on savings of $2,400 a year Effective yield on $2,400 investment Average fee for moderate equity plan for 7- to 12-year-old Should parents of kids under the age of 13 invest in-state or shop?
Indiana $480 20% 0.57% In-state
Vermont $240 10% 0.45% In-state
Oregon $216 9.0% 0.38% In-state
District of Columbia $204 8.5% 1.35% Shop
Idaho $178 7.4% 0.75% In-state
Arkansas $168 7.0% 0.60% In-state
South Carolina $168 7.0% 0.12% In-state
Montana $166 6.9% 0.88% Shop
Iowa $156 6.5% 0.26% In-state
New York $155 6.5% 0.17% In-state
Wisconsin $150 6.3% 0.23% In-state
Georgia $144 6.0% 0.33% In-state
West Virginia $144 6.0% 0.32% In-state
Maine $140 5.8% 0.30% In-state
Virginia $138 5.8% 0.61% In-state
Oklahoma $126 5.3% 0.51% In-state
Alabama $120 5.0% 0.32% In-state
Connecticut $120 5.0% 0.40% In-state
Illinois $120 5.0% 0.19% In-state
Mississippi $120 5.0% 0.65% Shop
Nebraska $120 5.0% 0.48% In-state
Utah $120 5.0% 0.22% In-state
New Mexico $118 4.9% 0.36% In-state
Maryland $114 4.8% 0.88% In-state
Colorado $111 4.6% 0.39% In-state
Michigan $102 4.3% 0.28% In-state
Louisiana $96 4.0% NA In-state
Ohio $90 3.8% 0.23% In-state
North Dakota $68 2.8% 0.85% Shop
Rhode Island $38 1.6% 0.20% In-state
Pennsylvania Variable N.A. 0.38% In-state
New Jersey Up to $1,500 N.A. 0.77% In-state can pay if student definitely will attend a participating college
MONEY 529 plans

Why the Best College Savings Plans Are Getting Better

stack of money under 5-2-9 number blocks
Jan Cobb Photography Ltd—Getty Images

Low-cost 529 college savings plans continue to rise to the top in Morningstar's latest ratings.

Competition is creating ever-better investment options for parents who want to save for their kids’ college costs through tax-preferred 529 college savings plans, according to Morningstar’s annual ratings of the 64 largest college savings plans.

In a report released today, the firm gave gold stars to 529 plans featuring funds managed by T. Rowe Price and Vanguard. The Nevada 529 plan, for example, which offers Vanguard’s low-cost index funds, has long been one of Morningstar’s top-rated college savings options. The plan became even more attractive this year when it cut the fees it charges investors from 0.21% of assets to 0.19%, says Morningstar senior analyst Kathryn Spica.

“In general, the industry is improving” its offerings to investors, Spica adds.

You can invest in any state’s 529. In many states, however, you qualify for special tax breaks by investing in your home-state 529 plan. If you don’t, you should shop nationally, paying attention to fees and investment choices.

Morningstar raised Virginia’s inVEST plan, which offers investment options from Vanguard, American Funds and Aberdeen, from bronze to silver ratings, in part because Virginia cut its fees from 0.20% to 0.15% early this year.

Virginia’s CollegeAmerica plan continued as Morningstar’s top-rated option for those who pay a commission to buy a 529 plan through an adviser. American Funds, which manages the plan, announced in June it would waive some fees, such as set-up charges.

But there are exceptions. Morningstar downgraded two plans—South Dakota’s CollegeAccess 529 and Arizona’s Ivy Funds InvestEd 529 Plan—to “negative” because of South Dakota’s high fees and problems with Arizona’s fund managers.

Rhode Island’s two college savings plans moved off the negative list this year after the state started offering a new investment option based on Morningstar’s recommended portfolio of low-cost index funds. Given the potential conflict of interest, Morningstar did not rate the plans in 2014.

Joseph Hurley, founder of Savingforcollege.com, which also rates 529 plans, says he hasn’t analyzed the Morningstar-modeled funds because they are new and don’t have enough of a track record. But, he adds, the Rhode Island direct-sold 529 plan offers several low-cost index fund options.

Here are Morningstar’s top-rated 529 plans for 2014:

State Fund company Investment method Expenses (% of assets) for moderate age-based portfolio (ages 7 to 12) Five-year annualized return for moderate age-based portfolio (ages 7 to 12)
Alaska T. Rowe Price Active 0.88% 11.25%
Maryland T. Rowe Price Active 0.88% 11.42%
Nevada Vanguard Passive 0.19% 8.65%
Utah Vanguard Passive 0.22% 8.01%

Related:

 

 

 

MONEY family money

This Company Will Give You $500 If You Have a Baby Today. Wait, What?

141017_FF_BabyMoney
Mike Kemp—Getty Images

It's no joke. As part of its rebranding campaign, investment firm Voya will give money to the newest of new parents.

Lucky for you if you’re in labor right now.

A company called Voya Financial has announced that it will give every baby born today—Monday, Oct. 20, 2014—500 bucks.

The promotion, timed to coincide with National Save for Retirement Week, is part of a marketing campaign to alert the public that the business that once was the U.S. division of ING is now a separate public company with a new name.

Get out the castor oil and order in Indian if you’ve already hit 40 weeks, because the offer is only available to those who exit the womb before midnight tonight—though soon-to-be-sleep-deprived new parents have until December 19 to register a child.

Voya estimates that it may have to kick in as much as $5 million, since there are about 10,000 babies born every day in the U.S.

While the company has promised that families will not have to sit through a marketing pitch to get the money, and that the baby’s information would be kept private, this special delivery still comes with a catch.

The money is automatically invested into Voya’s Global Target Payment Fund, which according to Morningstar has above-average costs and below-average performance.

Regarding the fees, Voya’s Chief Marketing Officer Ann Glover says that the funds Morningstar uses as comparison are not apples to apples. In any case, Glover says families are free to sell out of the fund if they so choose. “Of course, we would hope people would hold on to the investment,” she adds.

But hey, money is money, so if you’re due, you may as well take what you’re due.

And for those mamas and papas whose progenies aren’t quite ready to make their debuts? While you won’t get money from Voya, you may have other opportunities to get big bucks for your little one.

Start by checking in with your employer to see whether the company helps with college savings. A growing number do. Unum, for example, offers its workers with newborns $500 towards a college savings account.(Our Money 101 can help you find the best 529 college savings plan.)

Also, in several communities around the country, charitable or government programs seed savings accounts for kids. For example, residents of northern St. Louis County in Missouri can get $500 through the 24:1 Promise Accounts. Babies born in Connecticut get $100, plus $150 in matching funds by age four, thanks to the CHET Baby Scholars program.

“This is gaining significant momentum nationwide,” says Colleen Quint, who heads one of the nation’s most generous free savings program, the Harold Alfond College Challenge. Started by the founder of Dexter Shoes, the charity gives every resident newborn in Maine a $500 college savings account.

In fact, Mainers can get the most free money for their children according to a survey of such programs by the Corporate for Enterprise Development, which has gathered details on at least 29 free childrens’ savings programs.

Besides the $500 college savings account, a state agency will match 50¢ for every $1 parents contribute each year up to $100 a year and $1,000 over a child’s lifetime. So Mainers can, in theory at least, get up to $1,500 in free college savings money on top of any additional freebies they can get from companies.

That should be more than enough to buy a chemistry textbook in 2032.

MONEY College

This “Smart” Way to Pay for College Could End Up Costing You an Extra 3%

A senior at Western Kentucky University walks past flowering cherry trees on WKU's campus on his way home from class.
Western Kentucky University has one of the highest credit card surcharges. Alex Slitz—AP

A new study from CreditCards.com finds that colleges are increasingly adding surcharges for charging tuition. And these fees typically exceed any potential miles or cash back earned from your card.

It’s getting harder to turn junior’s college tuition bills into free vacations for Mom and Dad.

Wealthy parents have long tried to lessen the pain of paying their kids’ tuition bills by charging the costs to a credit card that pays rewards, with the hope of getting a bit of cash back or a roundtrip flight to Rome out of the deal.

But colleges are now making this strategy less profitable by adding fees for charging tuition, according to a study released Tuesday by Creditcards.com.

The survey of the largest public, private, and community colleges found that 90% of the 100 biggest public universities that accept credit cards charge convenience fees, and almost 70% of the 100 biggest private colleges. (Only 12% of the largest community colleges add credit card surcharges, but community colleges tuition tends to be quite low.)

In most cases, the fees now exceed the value of frequent flier miles or cash back that the parents can earn on a rewards card.

The average reward mile or point is worth less than 2¢, says Matt Schulz, senior industry analyst for CreditCards.com. Meanwhile, the average big college now charges 2.62% for processing tuition through a credit card, according to the survey.

And some schools charge much more. According to the CreditCards.com survey, the big colleges charging the highest fees are:

School State Type Convenience fee rate
Western Kentucky University KY Public 2.99%
Saint Joseph’s University PA Private 2.99%
Roger Williams University RI Private 2.99%
Kansas State University KS Public 2.90%
Ohio University-Main Campus OH Public 2.90%
Kent State University at Kent OH Public 2.90%
University of Akron Main Campus OH Public 2.90%
Bowling Green State University-Main Campus OH Public 2.90%

The Impetus for the Fees

Such fees have become increasingly common in the last decade. A separate survey last year by the National Association of College and University Business Officers had found that 44% of colleges charged a fee for using a credit card, up from 14% in 2003.

Colleges have been adding surcharges in part because they have come under pressure to pare expenses. And credit card companies charge all vendors—including colleges—for processing payments. In 2013, for example, MasterCard’s fees ran from 1.05% to 3.16%.

In addition, schools that do charge fees appear to be encouraging their competitors to follow suit.

“I get a lot of complaints from other schools” that charge fees, says Michael Reynolds, executive director of student financial services at Auburn University, which doesn’t add a surcharge. Reynolds says Auburn absorbs the surcharge—which he estimates at between 1% and 2% of the amount charged—as a cost of doing business.

He estimates that about half Auburn’s tuition bills are put on credit cards. In most cases, he says, it’s just a matter of convenience for the parent or student. But he added that some families do seem to be trying to build up rewards.

The Better Alternative for Most

The fees are just one of many reasons financial experts warn parents away from charging tuition.

Credit card interest rates are usually so high that parents who don’t have enough ready cash to pay off the bill immediately could end up paying thousands of dollars in extra interest, says Kevin Yuann, director of credit cards for NerdWallet.

Anyone who can’t pay cash up front for tuition would really be better off with federal student or parent loans.

Compared to the 15.66% average annual percentage rate on credit cards, federal student loans charge just 4.9% this year, after fees are added in. Parent PLUS loans have a total APR, including fees, of 8.1%.

The federal loans also have much more flexible repayment options, allowing borrowers to stretch out payments for up to 25 years or adjust the payments downwards if their incomes fall. Students working in public service jobs can also get some of their federal loans forgiven.

The Best Reward for the Rest

Absolutely sure you can pay off the big credit card balance quickly? Contact your school to find out whether there’s a fee for swiping.

While the majority have one, there are still several schools that do not charge students or parents extra. For example:

School State Type
Auburn University AL Public
DePaul University IL Private
St John’s University-New York NY Private
The University of Alabama AL Public
University of Nevada-Las Vegas NV Public

And then, assuming there is no charge, make sure you’re getting the most back you can.

Nick Ewen, a frequent business traveler who writes often on rewards at ThePointsGuy.com, says parents with lots of ready cash can turn tuition into valuable goodies.

One British Airways card, for example, offers a free companion ticket to those who spend at least $30,000 a year. And Southwest Airlines offers a year’s worth of free companion tickets to those who earn at least 110,000 points each calendar year.

Or, consider the winners of MONEY’s Best Credit Cards of 2014. The Barclaycard Arrival Plus World Elite offers two points per $1 spent and miles can be applied to your credit card bill to offset the costs of any kind of travel. Or if you prefer cash back, Citi Double Cash and Fidelity Investment Rewards American Express each give you 2% on every purchase.

With the latter, you can direct your earnings to a 529 college savings account—thereby reducing the amount you have to charge next semester.

MONEY College

5 Quick College Diplomas That Can Lead to Good-Paying Jobs

140929_FF_HighPayingDegrees
Blend Images—Getty Images

You don't have to spend four years on a bachelor's degree to get a job that pays at least $40,000 a year. New research from one state identifies several shorter college programs that can lead to lucrative jobs.

Over the long run, people with four-year college degrees and graduate educations earn more on average than workers who spend just a few years in school. But you don’t necessarily have to invest a lot of time and money in a four-year degree to get ahead. In some cases, new research confirms, a quicker education can lead to a good-paying job.

“There are many paths to the middle class, including two-year technical degrees from community colleges,” says Mark Schneider, president of College Measures, who authored a study of recent graduates of Tennessee colleges that was released today.

The findings are based on College Measures’ analysis of earnings data for millions of workers collected from state unemployment insurance offices. So far six states, Arkansas, Colorado, Florida, Tennessee, Texas and Virginia, have allowed researchers to track government-reported earnings after students leave school.

For the latest state report, College Measures tracked five years worth of earnings for all Tennessee workers who earned any kind of college certificate, diploma, or degree in 2006, drilling down to which majors, and which schools, produce the highest earners. The results, says Schneider, “confirms other findings from other states.”

Only a few types of two-year degrees consistently lead to high-paying jobs, however, and there is a wide variation in earnings by college, some of which may have to do with the local labor market. “You do have to be really careful about which degree you get,” Schneider says.

Those with associate’s degrees in electrical engineering earned annual salaries of about $42,000 within a year of leaving school. They typically progressed to more than $61,000 after five years. Those who earned certificates in heavy equipment maintenance made about $35,000 within a year on average and about $42,000 after five years.

Similarly, a 2011 report by Georgetown University’s Center for Education and the Workforce found that 28% of people with associate’s degrees earned more than the average salary reported by those with bachelor’s degrees.

This new data from states is helpful because it identifies exactly which community college and which majors produce students most likely to earn bigger paychecks, says Jeff Strohl, research director for the Georgetown center. “If you are going to roll the dice on a particular school or major,” says Strohl, “the new data will give you an idea of how people end up, earnings-wise.”

According to College Measures’s new report on Tennessee workers, these five programs that don’t take four years can lead to good-paying jobs.

Degree type Subject Avg. earnings in 1st year Avg. earnings in 5th year
1-2 year certificate Precision metal working $33,100 $41,900
1-2 year certificate Heavy equipment maintenance $34,800 $42,600
Associate’s Industrial production $41,400 $46,200
Associate’s Nursing $47,300 $54,300
Associate’s Electrical Engineering $42,000 $61,500

The earnings reports, however, are sobering for those who get associate’s degree in other fields. The average starting salary for Tennesseans with an associate’s in liberal arts was about $28,000. Five years out those folks were earning about $35,000, roughly equal to the pay of those who earned an associate’s in business but less than most workers with technical degrees.

What’s more, students shouldn’t assume they will earn the average earnings published in these kinds of reports, warns Thomas Bailey, director of the Community College Research Center at Columbia University. “A lot of this depends on other factors, such as the local labor market and the student.” In other words, your coursework and workplace performance matters too.

To find four-year colleges that are likely to help you find a good-paying job, you can search Money’s rankings of the best value colleges – colleges across the country with the best combination of net price and high-earning alumni. (College Measures advised Money on the development of the rankings, which used earnings estimates from a 2010 to 2013 national survey of 1.4 million Americans by Payscale.com.)

MONEY Student Loans

8 Ways to Stop Student Loans From Ruining Your Life

Hello my debt is $127,086 name label
MONEY (photo illustration)—Shawn Patrick Ouellette/Getty Images

New tools and services are making it easier to lower your monthly payments, pay off loans faster, and avoid borrowing too much in the first place.

As tuition and student debt have soared, so has the number of college graduates struggling financially under the weight of hefty school loans. About one in four borrowers is at least a month behind on their federal student-loan payments, the Department of Education reported this summer, and the number of defaulters has jumped by more than 500,000 in the past year, bringing the total number of student loans gone bad to about 7 million. And that’s not even counting the many more borrowers who keep up with their payments but find themselves stretched to make rent, buy groceries, pay everyday bills, or start saving for the future.

The ray of hope in this black cloud: A growing number of government programs and private start-ups are offering new tools and services to help student borrowers avoid borrowing too much, get out from under onerous monthly payments, or dig their way out if they’re in financial trouble.

Here’s what you need to know to get your student loans under control, no matter where you are in the borrowing process:

If you’re currently a student—or will be soon:

Look for colleges that help you rely less on loans. Uncle Sam is making it easier for students to identify and avoid colleges that tend to overload students with debt. The Department of Education is cracking down on colleges with high default rates—an indication that students there routinely have to take on more debt than they can afford. Schools where 40% of borrowers stop making loan payments over a three-year period, for instance, will no longer be eligible for federal loans to students. In addition, the agency is posting each college’s default rate online. Favor schools with low three-year default rates: “At four-year schools, 5% is pretty reasonable,” while anything above 10% should be considered a danger sign, says Ben Miller, a former DOE official who is now a senior education policy analyst for the New America Foundation. You can also check out MONEY’s list of The 100 Best Private Colleges If You Need Student Loans, which identifies the schools with the best records of manageable debt loads, and the 25 Most Affordable Colleges. Keep in mind, however, that all default rates and debt stats are averages, and may not reflect the personalized financial aid package you get from an individual school.

Know your limit. Don’t borrow more to get your degree than the salary you can reasonably expect to make in your first year out of school, recommends Mark Schneider, president of College Measures and the adviser to MONEY’s Best Colleges rankings. (MONEY’s Best Colleges rankings include estimates of student debt loads at graduation for all 665 colleges on the list.) If you stick with that rule of thumb, your payments will likely amount to no more than 11% of your gross income, which is usually considered a manageable amount, Schneider says. The key is to be realistic about your first-year salary, which is sometimes tough given that stats on how much recent college grads make are spotty beyond broad averages. CollegeMeasures.org offers the only data that breaks down first-year earnings by major, and they only have the figures for six states. To get a ballpark estimate, pick a state and school that seem similar to yours and search for the first-year earnings for your anticipated major. The MONEY rankings also include early career earnings data from Payscale.com, but the average annual salaries listed are for the first five years after graduation, not year one.

If you’re paying off students loans now—or will be soon:

Pick the repayment plan that suits your needs. Federal student loan programs automatically enroll all borrowers in a standard 10-year repayment plan, with first payments due six months after graduation. That’s next month for many borrowers who got their degrees in May. But the government offers six other repayment options that may result in lower payments now or allow you to delay paying altogether. The Education Department has created a simple tool that will help you figure out your best choice.The new income-driven plans are generally the most attractive because they adjust monthly bills to your salary and offer the possibility that the loan may be forgiven before you’ve totally paid it off, says Lauren Asher, president of the Institute for College Access and Success. Under these plans, if you work in a government, nonprofit, or other public service job and pay on time every month for 10 years, you can have the remainder of your debt forgiven, without paying taxes on the balance. Other student borrowers who elect income-based repayment may be eligible to have their loans forgiven in 20 or 25 years, depending on when you borrowed, but you will owes taxed on the outstanding amount.

Put payments on automatic. Most lenders cut rates or offer other bonuses if you agree to have payments automatically deducted from your bank account every month. The federal government cuts your rate by one-quarter of a percentage point, which amounts to about $500 if you pay a $30,000 debt over 10 years.

Reduce your principal. Got a little extra cash you want to use to pay down your student debt faster? Make sure it goes toward lowering the original amount you borrowed. The Consumer Financial Protection Bureau says it has received many complaints from borrowers alleging that their lenders applied extra payments to their next month’s bill instead of reducing the principal. Since it’s financially advantageous to pay down your highest-interest debt first, that can be a costly misstep. To make sure there is no confusion, the CFPB suggests borrowers send a letter to their lender with specific instructions about how to credit extra payments. Here’s their sample letter.

Reduce your rate. If you have a steady job and your monthly paychecks total at least $1,000 more than your total monthly debt, there’s a good chance you can refinance a high-interest student loan into a lower rate one that will lower your monthly costs and allow you to pay off your debt sooner. “The refinance market is heating up,” says Bill Hubert of Overture Marketplace, a loan shopping website. Refinancing a high-rate private loan into a lower-rate private one is a no-brainer. But a growing number of banks and start-ups are offering to refinance federal student loans, some of which have annual rates as high as 7.9%, into loans with rates as low as 3.6%. Weigh that decision carefully. Switching from a standard $30,000 federal Stafford loan at 6.8% to, say, a 4% private loan would cut your payments by about $40 a month, and slash the total interest you’d shell out over five years by about $5,000. But you’d lose other benefits like the guaranteed ability to switch to other payment plans and potential forgiveness of your loan.

If you’re having serious trouble making your loan payments:

Act quickly: Although it is human nature to ignore unpleasant confrontations such as those with bill collectors, there’s a big financial payoff to calling your lender as soon as you start missing payments. As long as you haven’t missed more than eight consecutive monthly payments on a federal student loan, you can switch to a more attractive payment plan and get back on track without having to pay any extra collection fees or penalties, says Jason Deslisle, a debt expert at the New America Foundation.

If all else fails, try bankruptcy. Bankruptcy should be a last resort, in part because it remains on your credit record for seven years. What’s more, any relief might be indirect. The laws governing student loans make it very difficult for bankruptcy judges to free borrowers from their student loan debt. But there are two small bits of good news for those in desperate straits: A recent study by a Princeton graduate student found that bankruptcy courts reduced or eliminated student loans for almost 40% of those who asked. Jason Iuliano found that thousands more borrowers would likely also have gotten relief, if only they had asked. What’s more, many borrowers could get relief without having to hire an attorney. Iuliano found that borrowers who represented themselves were just as successful at getting relief as those who hired attorneys.Even if you aren’t able to get relief from your student loans, the bankruptcy court will likely reduce or eliminate some of your other debts—such as credit card obligations—thus freeing up money you can use to pay off your student loans.

MONEY Student Loans

The 5 Colleges That Leave the Most Students Crippled By Debt

Almost 650,000 federal student loan borrowers have defaulted on their debt, new data shows. A handful of for-profit schools are a big part of the problem.

UPDATED: September 25, 2014

More than one out of eight students who had a federal student loan and left college or graduate school in 2011 has since defaulted—a total of almost 650,000 Americans, the U.S. Department of Education reported today.

In all, 13.7% of the 4.8 million federal student loan borrowers who graduated or dropped out of a higher education program in 2011 have gone at least nine months without making a payment on that debt.

That number is alarming to many analysts because new flexible repayment programs have made it much easier to repay federal student loans. Some of the government’s new income-driven repayment plans, for example, cap payments at 10% of a borrower’s discretionary income.

Students and parents should be wary of colleges with high default rates, advises Debbie Cochrane, research director of The Institute for College Access and Success. “At schools with both high borrowing rates and high default rates, too many students are clearly leaving school worse off than before they entered,” she says.

A handful of for-profit colleges are responsible for a disproportionate number of the defaults, according to the new government statistics.

The Education Department says it will stop making loans to students at the 21 colleges with the worst default rates. (It will cut off schools with a three-year default rate above 40%, or three consecutive three-year default rates above 30%.) Twenty of those schools are for-profit colleges.

Many of the colleges with the highest default rates are trade schools, and many are comparatively small. The Coast Career Institute, a California-based trade school with a 56% default rate, for example, currently reports having only 169 students. Eleven of the 21 colleges with the worst default records are beauty or barbering schools. On average, 19% of students at for-profit schools who left school in 2011 have defaulted.

What’s more, several other government agencies are looking into whether some for-profit colleges are trying to attract students using false or misleading marketing. Allegations of fraud leveled by the California attorney general have forced for-profit Corinthian College to shut down.

Overall, the default rates for public colleges was 12.9%. The default rate for private, non-profit colleges was 7.2%. But the four colleges with the largest numbers of defaulters were for-profit schools. They produced a combined total of more than 75,000 defaulters in the past three years.

The University of Phoenix, a for-profit company and the nation’s largest higher education system, with 242,000 students, accounted for more than 45,000 of the defaulters in the most recent three-year group. That represented 19% of all of the Phoenix students whose bills started coming due in 2011.

Spokesmen for Phoenix and an association of for-profit schools note that their default rates have been declining. The University of Phoenix’s three-year default rate for students who graduated or dropped out in 2010 was 26%, for example.

The largest producer of defaulters among public schools was Ivy Tech, a community college in Indiana, where 23% of the student borrowers who left there in 2011 have since defaulted on their student loans. On average, 20% of community college borrowers have defaulted over the past three years. Community college officials note that their students generally tend to borrow less than others because the schools charge lower tuition.

These five schools have the highest numbers of defaulters among those who left school in 2011, according the Education Department.

College Type # of federal student loan defaulters, 2011-14 % of borrowers who defaulted on federal loans due in 2011
1 University of Phoenix For-profit 45,123 19%
2 ITT Technical Institute For-profit 11,260 22%
3 Kaplan University For-profit 10,684 20%
4 DeVry University For-profit 9,081 19%
5 Ivy Tech Community College of Indiana Public community college 7,237 23%

Update: This post has been updated to add more information about schools with the highest default rates and to correct the Department of Education’s policy on loans for schools with high default rates.

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