TIME Education

7 Ways the SAT Is Changing

No penalty for wrong answers is one big change

High school students who take the SAT in 2016 will face a very different test than those who came before them. From an increase in curriculum-based questions to a revamped essay section, here are the seven ways the SAT is changing next year:

1) Free test prep: Thanks to a new partnership with Khan Academy, students will be able to access high-quality online test prep without signing up for programs like Princeton Review or Kaplan, which are often difficult for students from low-income families to afford. The Khan Academy test prep has an exclusive relationship with the College Board, which designs the SAT, meaning the free prep might also be the best prep.

2) No penalty for wrong answers: Students won’t be penalized for wrong answers anymore, which means an end to the days of staring at the bubble sheet and guessing whether it’s worth it to guess.

3) Revamped essay: Instead of penning a personal essay for the writing section, students taking the new SAT will be asked to read a passage and then explain how the author is persuading the audience. The essay question will be consistent and will be widely available before the test, but the students won’t see the passage until they take the test.

4) Evidence-focused reading: Just like the new essay section, the reading section will also be more focused on evidence. Students will be asked a question about the text, and then asked which piece of evidence best supports that answer. That means if you get the first question wrong, it could be difficult to get the second question right.

5) No more obscure vocabulary: Instead of quizzing students on words they’ll never use again like “abrogate” or “plaudit,” the new SAT asks students to define a word based on how it’s used in context. Sample questions show familiar words that can have various meanings—for example, “intense” can mean “concentrated,” “emotional” or “determined,” depending on the context.

6) More graphs and charts: The new test will have an increased emphasis on questions that make students infer information from graphs and charts, especially in the reading section. Students will also be asked to revise sentences in order to make them consistent with information in graphs.

7) More great texts: The new SAT reading section will include excerpts from U.S. founding documents like the Declaration of Independence and the Bill of Rights, as well as other important works by authors including Elizabeth Cady Stanton, Mahatma Gandhi and Martin Luther King, Jr. Students will not be expected to be familiar with the documents beforehand (so it’s not like an Advanced Placement History test) but they are included to make sure the SAT is more relevant and more closely aligned to what kids are actually learning in school.

MONEY College

Free SAT Prep Now Has the Official Stamp of Approval

High school students using Khan Academy
courtesy of the J.A. and Kathryn

Two non-profit organizations have teamed up to create a free online SAT practice program. Can it compete with powerhouse for-profit test prep companies?

If you want to feel confident that you’ve done everything to help your high schooler excel on college admissions exams, you’d better be able to shell out serious dollars for specialized coaching.

Or at least, that’s what commercial test-prep companies would have you believe. And that’s exactly what the makers of the SAT college entrance exam hope to disprove with a new tool out today.

The Official SAT Practice, an interactive online platform, is the result of a partnership between online education company Khan Academy and the College Board, which manages the SAT.

College Board announced plans last year to make the SAT more transparent and more relevant to what test takers actually need to know for college-level work. With those changes, College Board president and CEO David Coleman also promised to combat an expensive test-prep culture that drives inequality in college admissions. This free tool is part of the attempt to do so.

College Board wants to partner with school districts and nonprofit organizations to make sure that students in economically disadvantaged areas know about the tool and have resources, such as computers and Internet access, to take advantage of it. The Boys and Girls Club of America is the first such partnership announced.

The tool includes diagnostic quizzes to determine a student’s skill level, practice questions that include step-by-step hints if you feel stuck, and how-to videos. There are also study tips and full-length practice exams.

The official practice website is tied to the new SAT, which will come out in March 2016, meaning the tool will largely benefit rising juniors and younger students.

Up until now, test-preparation companies have always been on the outside looking in, says Cyndie Schmeiser, chief of assessment at College Board. “Now the assessment and the practice tools are fully aligned, creating a connection between assessment and instruction that we haven’t seen before,” she says.

While there have always been some free test-prep resources available, it’s been a hodgepodge of websites offering study tips or practice questions, little snippets here and there, says Nicole Hurd, CEO of College Advising Corps, which works with more than 500 high schools to increase the number of low-income and first generation students in college. “Having a trusted, one-stop-shop resource from the people that actually create the test and people who understand how to do online education in a thoughtful way, it’s a game changer,” she says.

So what can for-profit companies offer with their pricey courses that College Board and Khan Academy can’t with a free one?

Peace of mind. Right now, parents don’t know enough to know they don’t need to spend the money, says Eric Loken, a professor at Pennsylvania State University. Fifteen years ago, Loken helped found Number2.com, a website that offers free SAT practice.

“It feels like when you spend $500, you’re doing something good for your kid,” Loken says. “Someone offers the image of authority, and you go for the brand name and recognition.”

The problem is that there’s little evidence that the return on that investment is what people think it is, Loken says. Studies show that test prep has a positive but small effect on scores—an average of between 30 and 40 points.

Regardless, the major testing companies don’t appear concerned that increased accessibility will threaten profits for the $4.5 billion industry.

“We think it’s great,” says Michael Boothroyd, director of SAT and ACT programs for Kaplan. “The more material and the more transparent the materials are on the exam, the better.”

Kaplan’s online class costs $300, and Princeton Review offers a self-paced course starting at $169. Both companies also have much more expensive in-person coaching options.

Executives at both companies say they’re confident their test-prep material can still offer advantages over the free version that has College Board’s backing.

Boothroyd points to the role live teachers play in helping students improve their score, while Robert Franek, senior vice president at the Princeton Review, notes that the ACT has surpassed the SAT as the dominant college admissions exam. (The ACT first passed the SAT in 2012, and had 1.84 million test takers to the SAT’s 1.67 million in 2014.) The Princeton Review can help students figure out which test is best for them and help them prepare, Franek says.

DeAngela Burns-Wallace, an assistant vice provost for undergraduate studies at the University of Missouri, reviewed the website before it was released to the public and says the major difference between the new free tool and all the existing tools is a shift from test-taking strategy to learning the skills being tested.

Most of the options already out there focus on the test itself, but if the goal is to really help students learn, that’s where Khan Academy’s adaptive learning — designed to adjust lessons based on a student’s abilities — is powerful.

“This is going to be the highest quality, best measure guide for these types of exams,” she says. “That opens up access in a very different way.”

MONEY First-Time Dad

How to Make Saving for College Less Impossible

Luke Tepper

Use a tool that not that many people know about.

Four-fifths of adulthood is negotiating competing interests. The other fifth is whisky gingers.

One example: paying for college. As a pair of 29-year-olds with graduate degrees who left university at the peak of the higher education bubble, only to descend into the depths of a great recession, my wife and I have a combined student loan bill between five and seven figures. We also have a 16-month-old whom we will drop off at college orientation day in 17 short—or, if we don’t start getting more sleep, long—years.

The word that comes to mind to describe the feeling of tackling historic education debt while saving for your son’s college tuition while planning for retirement, not to mention the rest of life’s expenses, is not euphoria. And Mrs. Tepper wants to double the number of our dependents in the not-too-distant future.

Fortunately, since misery loves company, my family isn’t the only one fretting about the future. In fact paying for college is the biggest worry for those with children under 18, per a Gallup survey.

At times it seems that even the most conscientious and prudent families can only hold their finances together with mud and spit. But there is one valuable arrow in my quiver, only most people aren’t aware of its existence.

Two-thirds of Americans don’t know what a 529 plan is or does, per a recent Edward Jones survey. Even among those earning six figures, 42% couldn’t pick the college savings tool out of a lineup. Perhaps that’s why more than four out of five people surveyed say they cannot afford the cost of college.

Financing any portion of your child’s education is difficult enough. But it’s even harder without this vital tool.

A 529 plan is basically an IRA for college savings, as MONEY explains here. You put money into the account, named after the section in the tax code that created them, and select how your contribution is to be invested. The choices generally revolve around how aggressive (think stocks) you want to be and how old your child is. The money grows tax-deferred and isn’t subjected to Uncle Sam’s treatment when you withdraw it to pay for education expenses. Some states also allow tax deductions on contributions (you can find a list here). Most plans are sponsored by states, but you don’t have to invest in the state you live in.

What should you look for in a plan? I posed that question to Jeremy Thiessen, a senior director with TIAA-CREF Tuition Financing. He boiled it down to three considerations:

Taxes

“Tax benefits are one of the best reasons to choose your home state’s 529 plan, so review that plan first,” he says. Fortunately for me, New York offers a $10,000 deduction on contributions for joint filers, $5,000 for single.

If your state doesn’t offer tax breaks, and even if it does, you’ll also want to take into account the two other key considerations, costs and investment options.

Costs

Investing through a 529 comes with fees: fees for advisers, program management, and the investment themselves. Just as with mutual funds, higher costs lower your returns. In general, you want to look for low-cost plans that invest in index funds. You can find a tool here to compare plans costs and tax savings. My 529 option, for instance, charges $16 per $10,000 invested, which is pretty good.

Investment Options

“You want to make sure that your 529 plan offers investment choices that suit your timeline and risk tolerance,” Thiessen says. By the time Luke goes off to college, the total cost will be close to $160,000 for a four-year in-state school. If I want to pay for a third of that, I’ll need about $53,000, which I won’t be able to amass from savings alone.

By starting early a 529 plan early on, you give yourself the chance to take more risk while your kid is still young. My plan works like a target-date fund. For the first five years or so, I’ll own only stocks. As Luke ages, the portfolio adds more bonds to smooth out ups and downs. This tool at Savingforcollege.com helps you put into perspective how much you’ll need to save and which plan offers the best path to get you there.

There are other do’s and don’ts to keep in mind. Financial planners will tell you to save for retirement before you start putting money away for your kid’s college, since you can borrow for one and not the other. But starting a college fund early, even if you just contribute a month’s worth of coffee expenses, will go a long way. You don’t need to foot the entire bill; it’s nice if your tyke has some skin in the game.

As I teeter on the precipice of 30, I’m easily distracted by the daily errands and deadlines that are right in front of my nose. But by picking a low-cost college savings plan and contributing to it regularly, I’m slowly completing one of the most important jobs I’ll ever do: helping my son earn a degree.

MONEY college savings

The Earnings on Your 529 College Savings Account Stink. Here’s Why That’s OK

dollar bill shoved in pile of books
Mudretsov Oleksandr—iStock

It's not all bad news.

The average investor in a college savings plan made just about 4% last year, even though the total U.S. stock market rose by almost 14%, a new study from Morningstar found.

But the lead author of the report, Leo Acheson, says that performance may not be quite as depressing as it sounds, for these six reasons:

  • It still beats tuition: Although 4% severely lags the Standard & Poor’s 500, it beat tuition inflation, which rose by 3.7% in 2014, according to the College Board.
  • Older students should earn less: A disproportionately large percentage of all 529 assets are funds that have been saved over time for students who are now at or nearing college age. Funds for those students should be—and typically are—invested very conservatively. Savings plans designed for current college students, for example, are typically almost entirely in safe bonds, which means they are earning less than 2% a year right now, Acheson notes.
  • Diversification setbacks should be short-term: Younger and more aggressive investors whose portfolios were globally diversified also earned less than the Standard & Poor’s 500 in 2014 because of trouble in international markets. Overall, emerging markets funds lost about 5% in 2014, for example. But, in theory, at least, globally diversified portfolios should do better over the long run.
  • Savers get federal tax benefits: When parents take the money out of 529 accounts to pay college bills, they don’t have to pay taxes on the gains, which boosts their effective return. Morningstar estimated that a family in the 25% to 35% tax bracket that saved $2,400 annually over the last five years would have netted $15,275 after taxes in a typical mutual fund, but $15,628 after taxes from the same investment in a sheltered 529 account.
  • Some also get state tax benefits: About half of Americans live in one of the 34 states that give deductions or credits on state tax returns for contributions to 529 plans. Those initial tax breaks reduce families’ state tax bills by an average of 8.7% of the contribution, according to Morningstar. (See if you live in a state with a 529 tax break.)
  • Fees are shrinking: One of the biggest criticisms of 529 plans has been the high fees that eat away at parents’ investment returns. Morningstar found that, for example, large value index funds offered in 529 plans charge expense ratios of .78% of assets, while the equivalent mutual fund outside of 529 plans charges just .56%. But 40 plans cut their fees in 2014, bringing the average gap between mutual funds and similar 529 plans down by more than half, Acheson found. In addition, the best plans, recommended by MONEY and by Morningstar, have fees as low as .08%.

The bottom line of all of these developments, Acheson says, is that for families in moderate to high tax brackets, and those who live in a state with a 529 tax break, “it makes sense to save for college in a 529 plan…especially one with low fees.”

TIME Education

How My High School Lunch Lady Helped Me Get Into Princeton

Be nice to your lunch ladies, people

This is the story I tell whenever someone asks me how I got into Princeton, mostly because that question is always awkward and begets SAT score questions, which isn’t a very exciting topic. Anyway, back to 2003.

We had an array of hall monitors in my high school, most of whom were older women who had retired or wanted a relaxing not-quite full-time job. Some were moms of classmates, others locals. They were all generally friendly, some a little cranky and more on the disciplinarian side.

One though, Rose, was the sweetest woman. She would always chat us up at lunch, make sure we were staying out of trouble, ask how classes and sports were going. Just a really friendly lady who knew we were good kids and cared about our success. We didn’t know much about her other than that she was the “cool” one and took a liking to us. We appreciated that.

Come spring semester senior year, everyone is waiting on college admissions and Rose knew that I had applied early to Princeton. Around the week or so that you’d expect to hear back, she would ask me every single day. “Lev, did you hear from Princeton? Did you get in?” Without fail, every single day. She took an interest, but this was a bit much for me. “Rose, I’ll tell you when I know.”

One afternoon that week I came home early because I had a few free periods toward the end of the day and didn’t have sports practice or anything after school. I peeked in the mailbox and found a big fat letter from Princeton. Good sign. Open it up and the first word is “YES!”

Naturally, I was a pretty excited 17-year-old and drove back to school to tell everybody. It was still the middle of a class period so nobody was around. Except, of course, Rose, hanging out by the main hallway door.

“ROSE! I GOT IN!”

“I know! I’m so excited for you!”

“Huh? What do you mean, you know?”

“It’s been killing me these last few days not telling you, but I’ve known for the last week. That’s why I’ve been asking you every day.”

Ummm…what?! You’re the lunch lady, the hall monitor. What could you possibly know about my college admissions before I do? Isn’t that kind of sensitive information?

Turns out, before Rose retired she was the executive assistant to an important and wealthy business person who also happened to be a Princeton alumnus and had some power in the University.

When she found out I applied and it was around admissions time, she made a phone call to her good friend and former boss. He made his own phone calls and reported back that I got in, apparently on my own. I’ll never know if I got in on my own or not, but Rose and everyone else are convinced I did. I get the feeling that if I hadn’t, this guy would have changed that for Rose.

Either way, when people ask how I got into Princeton I tell them my lunch lady got me in. Or at least she would have had the need arisen.

Be nice to your lunch ladies, people. They’ll get you into college.

Lev Berlin graduated Princeton in 2007 and runs the food software business ReciPal.

This article originally appeared on Quora.

Related links:

TIME Education

3 Myths About the Gap Year

volunteer-building
Getty Images

A gap year is not a vacation

The term “gap year” traditionally applies to the year between high school graduation and college matriculation. For many students, the gap year is a time for adventure and personal exploration. While the gap year has long been an accepted tradition in other parts of the world, it is still growing in popularity in the United States. The reasons that a student might opt for a gap year are various: he or she might feel burned out after more than ten years of school, or he or she might desire a change of scenery and routine. Some students may simply feel uncertain about which direction to take after high school.

A well-structured gap year can inform your college and career path, and it can educate you in ways you might not have imagined. But the gap year you see on television is not always the gap year that you find in reality. Here are three gap year myths that stand in the way of honestly evaluating whether a gap year is right for you. Debunked, they may make your decision process much clearer:

1. A gap year is like a vacation

Your gap year is whatever you make of it. Certain students choose to work, while others complete internships. Some students volunteer, or they travel while pursuing a self-directed education. But each of these options involves effort. A gap year is not a week at the beach.

For instance, consider City Year, an AmeriCorps project that places individuals between the ages of 17 and 24 in high-needs communities across the United States. While you gain a stipend, real-world experience, health care, and access to scholarship money, you do so through completing long hours of challenging – and rewarding – work.

Internships and self-directed education also involve concentrated effort. Internships are like a work-learning hybrid, and they can be an excellent way to explore a potential career field. If you choose to participate in a gap year internship, be sure to do your research first. Look for internships that offer training in specific skills, as well as a reasonable number of hours per week. Beware of “internships” that are actually commission-based sales positions – or schemes that take advantage of your labor and savings.

Finally, websites like Coursera and Udacity offer free or low-cost education around which you can design a gap year. If you are undecided about what you would like to study in college, it makes a great deal of sense to explore various subjects before you begin to pay thousands of dollars a year in tuition. Self-directed education can also help you improve a weak academic portfolio. You can even develop marketable skills via programs like Codecademy. If possible, select those options that offer certificates of completion (or another way of tracking your progress) so you will have demonstrable proof of what you learned during your gap year.

2. A gap year can harm your admissions chances

The effect a gap year has on your college applications depends entirely on how you spend that year. A 12-month gap in your education and/or work history could be a significant warning sign for a prospective school, but if you instead participate in meaningful experiences, your gap year can serve as a significant admissions boon. A gap year can enable you to start college refreshed and eager, and for students with less impressive high school records, it can also be a chance to demonstrate your maturity and dedication to your personal growth.

Some schools, such as Princeton University, have even developed programs that allow admitted students to pursue a year of volunteer work before beginning their traditional college educations. In other words, prospective freshmen submit their applications in their senior year of high school, but they delay starting classes in order to complete a gap year project. Inquire with the admissions departments at your top-choice schools to determine if such a plan exists, or if they have advice for students who are interested in the gap year experience.

3. A gap year is expensive

Certain gap year programs require a significant monetary investment, but there are many opportunities for students who wish to spend less on this experience. For example, if you live at home and work part-time, you can participate in a volunteer project in your free hours. You can also further your education with the (mostly) free resources mentioned above. Delaying college for a year can seem like a daunting opportunity cost (as it also delays your entry into the workforce by a year), but a gap year can ultimately become an excellent long-term investment.

While deciding whether or not to pursue a gap year, work with your high school guidance counselor, as well as the admissions and financial aid departments at your top-choice colleges, to identify the best possible option for you and your goals.

Brian Witte is a professional SAT tutor with Varsity Tutors. He earned his Bachelor of Science from the University of Washington and holds a Ph.D. from The Ohio State University.

More from Varsity Tutors:

TIME Research

Rape Is Common Among Female College Freshmen, Study Shows

Demonstrators protest sexual assault on college campuses at the #YesAllWomen rally in solidarity with those affected by violence in Seattle on May 30, 2014.
Alex Garland—Demotix/Corbis Demonstrators protest sexual assault on college campuses at the #YesAllWomen rally in solidarity with those affected by violence in Seattle on May 30, 2014.

Sexual assaults and rape have reached "epidemic levels," researchers say

A new study of first-year women at a large private university in the Northeastern U.S. reveals that many freshman women have suffered some form of rape.

The study looked at 483 women (a relatively small study size) who were a representative sample of the freshman class and who volunteered to partake in the study. The women filled out questionnaires when they arrived on campus, at the end of their fall semester, at the end of their spring semester and at the end of the summer following their first year at college. The study was published Wednesday in the Journal of Adolescent Health.

Before entering college, about 18% of the women reported enduring a completed or attempted incapacitated rape (involving drugs or alcohol) since age 14, and 15% reported being victims of completed or attempted forcible rape. Over the study year, the researchers found that 9% of the women reported experiencing attempted or completed forcible rape and 15.4% reported attempted or completed incapacitated rape. Some of the women in the study reported more than one incident. At the end of the study, the lifetime experience of forcible rape was 21.7% among the women in the study, and 25.7% for incapacitated rape.

In general, rape involving drugs and alcohol was most common among the women in the study. The data also suggests that women who had already undergone a rape before entering college were more likely to report experiencing rape during their first year. “These findings are important not only for sexual assault prevention but for mental health promotion on campus as previous work has illustrated that multiple exposures to violence are strongly associated with poor mental health, including suicidality,” a corresponding editorial on the study reads. The study authors add that risky drinking behavior should be a target for prevention.

The researchers conclude that incapacitated and forcible sexual assaults and rape have reached “epidemic levels” among college women. The findings are among a small population of women, but underline that rape is not an altogether uncommon experience among young women. While it should be noted that the study looks at self-reported rapes and not clinically validated assaults, it’s also important to note that Department of Justice data suggests up to 80% of rapes and sexual assaults of female college students go unreported.

The study replicates findings in a number of other studies, which tend to find that close to 1 in 5 women in college are sexual-assault victims. But over the past year, there’s been a great deal of controversy about using the results from one study as a stand-in for a national average of college rape victims. This has been particularly true of the 1-in-5 number often cited by the White House, which comes from the 2007 Campus Sexual Assault Study of two different colleges. This new study was much, much smaller — its value should be taken as one data point to build a broad picture of sexual assault on America’s campuses.

“These data make clear that prevention programs for both men and women in both high school and college are necessary,” the study authors write. “Programs may need to address trauma-related concerns for previously victimized women.”

MONEY Kids and Money

How New College Grads Can Beat the Tough Job Market

Paul Bradbury/Getty Images

The career expectations of college grads may be overoptimistic. But these strategies can boost their odds of landing a job.

As another crop of college graduates frame their diplomas, another dose of reality is about to set in. The financial crisis may be ancient history for this group, most of whom were still in middle school when the market began to plunge. But the effects linger—and new entrants to the job market may be surprised at how difficult it is, even now, to move ahead in this economy.

Eight in 10 new graduates expect to have a job in their field within a year, with more than half expecting to land one within two months, according to an analysis from Upromise.com, a college savings website. That jibes with research from Accenture, which found that 80% of the Class of 2015 say their education prepared them well for the workforce. Yet here’s the reality: 49% of graduates from 2014 and 41% from 2013 report being underemployed (having no job or one that does not require a college degree), Accenture found.

Meanwhile, just 15% of this year’s graduates expect to earn $25,000 or less in their first job. But almost three times that many from the classes of 2013 and 2014 report that level of income. So for entry-level job seekers, it’s still surprisingly tough out there.

Despite their upbeat expectations, most new grads do have a fallback plan: Mom and Dad. About half expect to be financially dependent on their parents for two years after graduation, and they are prepared to move back home and pay rent, Upromise found. This won’t surprise their parents. Nearly a quarter of 25- to 34-year-olds lives with parents or grandparents, up from 11% in 1980, Pew found. This failure to launch is so widespread psychologists have given it a name: emerging adulthood. The share of parents that expect to support their college graduates for two years or more doubled to 36% this year, according to the Upromise analysis.

Why, then, is this class of graduates so optimistic? First, optimism is rightfully a trait for the young, and Millennials possess it in staggering proportions—probably because they were raised by helicopter parents who constantly extolled their greatness and rewarded them with trophies for showing up. But more is at work here. The economy has been growing since 2009, when this class was taking the SATs. In their college years, this group has known only rising stock prices and an improving jobs and housing market. Consider: through four years of higher education the S&P 500 rose 2%, 16%, 32% and 13%. Even for the uninvested, that’s an encouraging backdrop.

This optimism may also spring from the Class of 2015’s improved career preparation. Accenture found that 82% considered the availability of jobs in their field before choosing a major. That’s up from 75% in the Class of 2014. To minimize student debt, more from this class also started at a community college. And—a crucial step—some 72% of this year’s class had an internship or apprenticeship while in school, up from 65% of graduates the year before.

This is all smart planning. More than half who took part in an internship said it led to a job, Accenture found. At the Intern Group, 88% of those who take part in an internship find work at a graduate level job within three months and 95% say the program was good for their career, says David Lloyd, the firm’s founder. Still, it seems we’ll be talking about the Great Recession a while longer.

Read next: The Costly Career Mistake Millennials Are Making

MONEY College

Why an Out-of-Stater May Be Taking Your Kid’s Seat at State U.

Getty Images/David McNew UCLA, like many state schools, has been increasing the number of out-of-state students to make up for reductions in funding.

Study says public universities' need for revenue and desire for reputation means they’re increasingly giving grants to wealthy, smart, out-of-staters.

State universities historically served the public good, offering a college degree to a broad swath of residents and paving a path to the middle class for low-income families.

But a paper out today from New America says the nature of state universities is changing—for the worse.

Driven by a desire for dollars and higher rankings, public colleges are increasingly using their financial awards to recruit affluent out-of-staters instead of helping needy state residents attend college, the report charges.

As a result, writes author Stephen Burd, public colleges are losing sight of their public mission.

An analysis of non-need-based aid at 424 public four-year colleges found that schools that provide large amounts of merit aid have seen a greater drop in enrollment of in-state freshmen since 2000 than colleges that don’t award much merit aid.

Those colleges also tend to enroll fewer students with Pell Grants and charge low-income students a higher average net price. (In this case, merit aid is defined as any aid that’s awarded to students who don’t meet federal guidelines for need-based financial aid.)

Burd identifies several factors driving the trend. Some colleges, especially after seeing their state allocations cut during the economic recession, need the higher tuition that out-of-state students provide to meet their bottom line.

At the University of South Carolina, for example, the state has cut its annual funding to the university by 50% since 2007. This year, out-of-state students had a sticker tuition price of $29,372, compared with $11,128 for in-state students. Offering an out-of-state student a $10,000 tuition discount still generates more tuition revenue for the university than it would get by giving that seat to a state resident.

“Now we’re becoming more like the private schools in the way we approach admissions,” said Scott Verzyl, an associate vice president for enrollment management, who was quoted in the report. “We’re more in the mode of hustling for business and trying to find new markets.”

Nonresidents now compose 45% the University of South Carolina’s freshman class—more than double what it was in 2000.

Other universities use institutional aid to recruit high-achieving students to help it climb up college rankings lists, or to offset the decline in the number of high school graduates in some parts of the country. In some states, such as Missouri, colleges started directing their aid money to high-achieving in-state students to keep them from being poached by other states, the report notes.

Competition has grown so aggressive that even small, regional universities that once filled their seats with students from a limited geographic area are feeling the pressure. “Everyone’s territory appears to be becoming everyone else’s territory, to the point that we don’t have a territory, really,” said Thomas J. Calhoun Jr., a vice president for enrollment management at the University of North Alabama, in the report. “It has created the need for us to redefine what our region is.”

Almost one in five public colleges gives merit aid to at least 20% of freshmen, and nearly half provide merit aid to at least 10% of freshmen, the analysis found.

The idea of an “aid arms race” isn’t new to higher education insiders, and the paper cites other media reports and policy studies that have examined the issue at the university level.

The problem is there’s little incentive for any one institution to unilaterally stop the practice. And so colleges have continued increasing the dollar value of their awards to meet their goals, creating a self-perpetuating cycle.

An Inside Higher Ed report on a recent analysis from Moody’s captures the pressure public universities are under: “Universities that have greater flexibility to adjust revenue, such as through tuition increases and growth in out-of-state enrollment” stand the best chance of outperforming their peers in a particularly tough higher education market.

One could argue that filling up seats with nonresidents who still pay a significant amount of tuition produces revenue that could then help subsidize the cost for low-income students.

But the New America report notes that there are concerning trends linking merit aid and low-income enrollment, even if there isn’t enough data to prove an increase in merit aid is directly responsible for freezing out low-income students.

For example, Pell Grant recipients made up about 32% of the student body at schools that provide a lot of merit aid, compared with 42% of the student body at low merit aid schools.

Likewise, at schools where merit aid is given to at least a quarter of incoming students, the freshman class is made up of about 28% out-of-state students. But at schools that don’t award much merit aid, nonresidents comprise just 10% of the freshman class.

 

MONEY financial advisers

The 3 Biggest Money Worries of First-Time Parents

first time parents
Ashley Gill—Getty Images

Good news, explains a financial planner: They're easily addressed.

Over the last 13 years I’ve worked with countless millennials preparing to embark on their journey to parenthood. First-time parents are concerned about many things, starting with feeding their newborn, keeping the little one healthy, or just sleeping through the night (for both parent and baby).

Amid the whirlwind of emotions a single parent or couple may go through leading into the birth of their first child, I’ve found that first-time parents all find themselves confronting the same three financial questions:

  1. How will we afford this baby?
  2. How will we pay for college?
  3. What if something happens to us?

As a financial adviser, I often find myself counseling first-time parent trying to process it all. The great news is that all three of these questions can be answered with a little bit of planning.

1. How will we afford this baby?
You can count on new and unexpected expenses with your little one on the way. Many of my new-parent clients have found that three of the most significant expenses in the first year are daycare, diapers, and baby food. By increasing your monthly contributions to a liquid investment savings account, you can get a head start on changing your spending habits and begin to prepare for costs you know are coming.

2. How will we pay for college?
College is getting more expensive every year. If you want to put your money to work, start saving early and take advantage of time and compound returns. A 529 college savings plan offers you 100% federal tax-free growth for qualified higher-education expenses. (State tax advantages vary from state to state and may depend on whether you are a resident of the state sponsoring the plan.) As the parent, you retain complete control of the assets. To help bolster their child’s college fund, many parents encourage family and friends to contribute to their child’s 529 plan instead of giving toys or other presents for major events like birthdays and graduations.

3. What if something happens to us?
It probably isn’t going to hit you in the first trimester, or maybe even the second, but it’s a realization so many parents reach by the time their newborn comes home to the nursery: What if something happens to us? Most new parents have never had to sit down and plan for contingencies like death. But the moment you have someone depending on you — both financially and emotionally — for the next 20-plus years, it hits you: “I need a plan.” For many, this plan has two major pieces that ultimately answer two questions:

a. Who will take care of my baby? An estate planning attorney can help you gather information and consider some important issues designed to protect your family. Through your estate plan you can dictate guardianship instructions for your baby, control over the distribution of your assets, and medical directives.
b. Who will pay all my baby’s expenses? Life insurance can provide your child, or your child’s guardian, with a lump sum payout upon your death. Term life insurance is typically the least expensive, and thus the most common, option; you pay a set amount each month over a certain number of years, and in turn are guaranteed a death benefit should you die during that term. The policy’s lump sum payout can help your beneficiaries cover the costs you would have otherwise paid.

By starting your planning early, you can set aside the extra cash you’ll need when your family’s newest addition arrives, split the college bill with your old pal “compound returns,” and prepare for the unthinkable. Once you have these pieces in place, you’ll have your mind clear to focus on what is most important — your family. (And your sleep.)

Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

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