MONEY College

Private Colleges Are Offering Record Tuition Discounts to Win Students

hand holding chalkboard that reads: 50% off
Sarina Finkelstein (photo illustration)—Getty Images (1)

Where to find the biggest bargains.

Those scarily high tuition prices most private colleges say they charge are increasingly as make-believe as Freddy Krueger: Only 11% of freshmen paid them last year, according to a survey of private colleges released today.

The rest—89% of freshmen at private colleges—received a school grant or scholarship worth, on average, 54% of the published or “sticker” tuition, the National Association of College and University Business Officers reported. Both those numbers are all-time records.

The survey indicates that colleges eager to recruit applicants are luring students with big grants— often labeled “merit scholarships” to flatter recipients, but in reality more like the discounts off of a retailer’s price tag.

In 2013, the latest year for which data are available, most private colleges reported sticker prices for tuition and fees somewhere between $30,000 and $45,000 a year. (Room, board, books, and travel typically add another $15,000 to $20,000 to the total annual costs.)

But schools that accepted more than half of applicants charged net tuition, after scholarships were subtracted, of less than $20,000. Those that accepted less than half of their applicants charged their students an average net tuition of about $23,600

That explains why the odds are lower for getting a deal at an Ivy League college. Nearly a third of schools—mostly large, selective, wealthy universities with plenty of applicants—didn’t increase their discounts last year, NACUBO reported. The most selective colleges on MONEY’s Best Colleges list—those with admissions rates of 33% or less—gave only about half of their students grants.

But that still leaves more than 1,000 non-elite private colleges attempting to attract students with ever-bigger scholarships or discounts off their ever-higher tuition. In fact, among the 736 colleges in MONEY’s rankings, nearly 100 award a scholarship to every single freshman. Those schools accept an average of 66% of applicants.

College officials cited three key reasons for the rise in discounts.

  • Psychology. Research by Lucie Lapovsky, a former president of Mercy College in New York who now serves as a consultant to colleges, shows that at least 40% of students and parents would opt for the bragging rights they get when a school gives them a large scholarship off a high tuition, rather than a school that has lower tuition and lower aid, but similar net costs.
  • Economics. The combination of rising tuition and financial woes for the middle class mean more applicants need scholarships to afford private colleges, said Steven Klein, vice president for enrollment management at Albion College in Michigan, where 100% of freshmen received a school grant in 2012 (the latest year for which federal data are available).
  • Competition. In part because of a decline in the number of 18-year-olds, more colleges are having recruiting problems, and thus need to offer bigger discounts. About a third of the schools surveyed told NACUBO that their enrollment declined last year.

The latest numbers “provide more evidence that students and families should look beyond sticker prices,” said NACUBO President and CEO John Walda. Instead, he said, families should focus on the “net” price, which is the price they pay after grants and scholarships have been subtracted.

One unfortunate result of the growing practice of raising sticker prices and offering more aid is confusion for students and parents, Lapovsky contends. Students have to apply to colleges in the fall, without a good sense of how much the college will actually cost them. Although colleges are required to provide a net price calculator tool on their websites, Lapovsky says many are outdated or give such general estimates that they aren’t helpful.

So students typically have to wait until April to see their final offer. And because colleges demand an answer by May 1, many students have just a few short weeks to make a potentially life-changing financial decision.

In addition, Lapovsky says, the common but mistaken assumption that colleges with high tuition are “better” than those with lower tuition can lead families to make costly college choices.

In fact, MONEY has found no significant relationship between the average net price charged by the colleges in our rankings and important quality indicators such as the earnings of recent graduates.

For more advice on paying for college, and to create a customizable list of colleges based on criteria such as size, selectivity, and affordability, visit the new MONEY College Planner.

MONEY

A New Way to Define ‘Affordable’ College

mortarboard with price tag
Sarina Finkelstein (photo illustration)—Shutterstock (2)

Everyone talks about affordability, but what exactly do they mean?

During a higher education hearing on Capitol Hill last month, Lumina Foundation CEO Jamie Meritosis made a telling observation: While nearly everyone agrees that higher education has become unaffordable for many families, few can define what “affordable” actually means.

“It’s an eye of the beholder issue for us right now,” he added later.

Today the foundation, which focuses on higher-ed issues, is out with a suggested formula for determining what’s affordable. It would be the amount families could set aside by saving 10% of their discretionary income for 10 years, plus what students could contribute from working 10 hours a week while in school, or $14,500 over four years at current minimum wage.

Check out the new MONEY College Planner

Most conversations about affordability focus on college prices, then available grant aid, and finally, what students are left to pay, the Lumina paper says. Instead, this “Rule of 10” proposal aims to reverse that by first defining the maximum amount students can reasonably be expected to pay, and then encouraging colleges and policymakers to use that as a guide in setting prices or designing aid programs.

The proposal is set up as a sliding scale, so that families who earn more would be expected to pay more. And in recognition that some families can’t afford to save 10%—or anything, for that matter—those with an income below 200 percent of the poverty rate would be exempt from the savings part of the contribution. (That would be a household income of $48,500 for a family of four, under current poverty rate guidelines.) Following the formula, a family making an average of $100,000 annually would be expected to save $429 a month for 10 years, or $51,500 in total for college costs.

The Rule of 10 was designed to be easily understandable, Lumina says, unlike the complicated formula the federal government currently uses to determine expected family contribution.

But that also means it may be unrealistically simple. There’s little mention of how much families would contribute from current income while a student was in school or what an acceptable amount of loans would be, aside from a suggestion that those families who don’t meet the savings guideline could be expected to make up the difference through current earnings, additional work, or loans. Another option, according to the paper, would be using the same formula to set the maximum amount of loans a student should be expected to borrow.

“The idea behind this framework isn’t to create a one-size-fits all approach, but rather to provide guidelines that can be easily understood and tailored to individual students,” said Zakiya Smith, strategy director at the foundation, in a press release.

To demonstrate that, Lumina compares college costs to housing costs. The general guideline is that housing shouldn’t eat up more than 30% of income. But while that’s a goal, it’s certainly not applicable for every household. The same will be true of college savings, the paper says.

And like housing affordability, agreeing on a definition of affordable is helpful, but it isn’t the same as finding a solution for how to pay for all the costs that go beyond what’s affordable.

MONEY College

Students Are Totally Clueless About Financial Aid and It’s Costing Them a Lot of Money

Text books and money
Getty Images/iStockphoto—Getty Images/iStockphoto

A new report says better outreach and simpler financial aid information would help students choose the right college and know how to pay for it.

Planning for the unknown is hard. But when the “unknown” is how much college will cost and how to pay for it, experts say some students become so discouraged they never even apply.

That’s why the findings in a report out today from the New America Foundation are concerning: Nearly a quarter of prospective students surveyed said they were unsure whether they’d receive financial aid, even though nearly nine out of 10 said the cost of college or availability of aid were important factors in deciding which school to attend.

The report, “Familiarity with Financial Aid,” is part of a series of papers based on a survey that looked at various aspects of college decision making, including how students choose a school and pay for their education.

Check out MONEY’s 2015-16 Best Colleges rankings

The survey found that students were most familiar with scholarships they receive from a college (82%), student loans (79%), and state scholarships or grants (61%). Less than half, however, knew much about Pell Grants—the federal grant worth $5,775 this year that’s given to low- and moderate-income students—and only about a third knew other ways to make college costs more affordable, including tax deductions and federal work-study.

Of the undergraduates who filed for federal financial aid, 92% with family adjusted gross incomes of less than $50,000 were awarded a Pell Grant, according to data from the U.S. Department of Education. Yet in this survey, 48% of students in the same income bracket weren’t familiar with the Pell Grant, including more than a quarter who’d never heard of it.

Knowing about the “free money” that’s available to them could change where low- and moderate-income students apply to college or whether they apply at all, said Rachel Fishman, a senior policy analyst at New America and the paper’s author. Pell Grant status also is used as a qualifier for many state and school aid programs, so receiving a Pell Grant often opens the door to a lot more money for school.

The paper supports allowing families to use older tax information when applying for financial aid, a policy proposal that’s gained significant support among college access advocates and some lawmakers in the past year. That change would make it possible for families to complete the Free Application for Federal Student Aid (FAFSA) earlier.

Other initiatives that Fishman says could improve students’ familiarity with financial aid include early commitment programs, which would tell students what type of aid they’d qualify for as early as 8th grade, and an improved system of net price calculators to give them an estimate of how much they’d have to pay at a particular college based on their family income.

Only 14% of students said they’d used a net price calculator, and half of survey respondents said they’d never heard of the calculators before. While the Education Department has net price data on its College Navigator website, Fishman said it would be more helpful to provide a more personalized formula, rather than the broad income brackets that the federal information is based on now. Likewise, colleges are required to publish a net price calculator, but finding it often requires digging through multiple pages of a website. Fishman suggested creating a single website where students could submit their financial information once and then see cost estimates from all the colleges they’re interested in.

“For lot of these resources, students have to have to the savvy to go out and find them,” Fishman said.

Interestingly, while the majority of students in the survey said that they’d found high-quality information regarding financial aid, 63% of respondents also reported feeling lost at some point during their research.

Fishman thinks that’s indicative of how complex financing higher education has become, with grants, different types of loans, and seven loan repayment plans.

A simple web search will return a ton of information, Fishman said, but “students still leave confused because it’s such a complex, confusing system.”

For help navigating that system, check out MONEY’s College Planner, which has news and advice about applying to and paying for college.

MONEY College

Will a Trust Fund Mess Up Our Financial Aid?

Ask the Expert - Family Finance illustration
Robert A. Di Ieso, Jr.

Q: My father has put money into a trust for my daughter; she gets access to it in November 2015, when she will be a senior in high school. How will this affect her financial aid for college in 2016? Should we put the money into our name? — Sheila B., Maryland

A: Trust funds must be reported as an asset on the FAFSA; as a result, this will likely hurt your daughter’s financial aid eligibility.

That’s because financial assets belonging to a student have a far greater impact on financial aid than parent-owned assets do, says financial adviser Fred Amrein, author of Financial Aid and Beyond: Secrets to College Affordability. Colleges expect a family to use 20% of a dependent child’s funds each year to pay for college, Amreim says, while parents are only expected to use 5.6% of their own assets to pay for college expenses. So for example: If your daughter is the sole beneficiary and the total amount held in the trust is $25,000, her aid eligibility would be reduced by $5,000.

And there’s a double whammy: Annual income from the account must also be reported as part of your daughter’s income on the FASFA form. This could reduce her aid eligibility by as much as 50% of the amount of income.

If your daughter cannot access the funds within the trust until a later date — when she is 30, for instance, or after her grandfather passes away — Amrein says you can make an argument to the financial aid office that those unavailable trust assets should not be factored into the aid equation. But there is no guarantee this will work, because each college’s aid office uses its own discretion.

As for whether to move the funds into your name: It may not even be possible, depending on the type of trust and the wording of the documents. But even before you go through the hassle of attempting it, Amreim suggests, calculate your Expected Family Contribution to see if your income and assets as a parent are already too great to qualify for financial need. (You’ll also need to know the cost of the schools your daughter will be applying to.)

If so, it won’t matter what assets are in the child’s name, he says.

For more information on how your assets will impact your financial aid, see our Saving for College guide.

MONEY

Student Aid Company Fined for Its Sales Practices

Graduates with $$ on their caps
Mark Scott—Getty Images

The company allegedly earned money from 200,000 charges to customers who were no longer using their financial aid services.

A company that charged families for help in filling out the Free Application for Federal Student Aid (FAFSA) engaged in deceptive sales and billing practices, according to a complaint filed today by the federal Consumer Financial Protection Bureau (CFPB).

The bureau says that Student Financial Aid Services, Inc. used its websites—FAFSA.com and SFAS.com—to lure customers with misleading information about the cost of its services and then it charged them automatic, recurring annual fees. Under the CFPB’s order, the company would be fined $14.5 million for the alleged violations. Full payment will be suspended if the company meets certain obligations, including paying $5.2 million in refunds.

FASFA is the U.S. Department of Education’s form to apply for financial aid, and it’s also used by many states and colleges to determine students’ eligibility for aid. The official website, FASFA.ed.gov, is run by the government. But the similarly named FAFSA.com was owned by Student Financial Aid Services, Inc. from at least July 2011 until earlier this month, when the web domain was turned over to the Education Department.

On its website, SFAS offered paid FAFSA preparation that included access to an experienced financial aid adviser who would answer questions about the financial aid process, according to the CFPB complaint. The company charged consumers up to $80 for online FAFSA preparation and as much as $100 for help over the phone.

Two of the company’s programs put customers on a renewal plan that charged their accounts for subsequent years, regardless of whether they continued to use SFAS’s services. But those terms weren’t clear to consumers when they signed up for the services, according to the CFPB.

In its five years of operation, SFAS collected money from about 206,000 accounts of customers who didn’t use the company to file a FAFSA that year. The recurring fees ranged from $67 to $85 and were charged to consumers’ cards or bank accounts for up to four years, unless they actively asked to be taken out of the program.

To take effect, the CFPB’s order needs to by approved by a U.S. District Court judge in California, where the complaint was filed.

In an emailed statement, SFAS denied any illegal activity or wrongdoing, saying that the CFPB hasn’t provided evidence to support its claims and that it settled with the bureau to avoid drawn out legal action.

“SFAS is not aware of a single consumer complaint to the CFPB about its services,” the statement reads.

The move against SFAS marks the second CFPB action in the student financial aid industry in as many days. On Wednesday, the bureau announced an $18.5 million payment from Discover Bank to settle allegations that its student loan servicing and debt collection practices were illegal. The bureau said Discover overstated the minimum amount due on borrowers’ statements, misrepresented information about tax benefits available to borrowers, and called borrowers, sometimes excessively, in the early mornings and late at night. Of the fine, $16 million will go toward refunds to the borrowers.

For MONEY’s advice on paying for college and our latest college rankings, check out the new MONEY College Planner.

 

 

 

 

TIME College

Parents Are Shelling Out More Money For Kids to Attend College

Proposed Budget Cuts Threaten Funding For California Universities
David McNew—Getty Images Students go about their business at University of California, Los Angeles (UCLA).

More financing from the Bank of Mom and Dad

Parents opened their wallets more generously in the 2014-2015 school year, a report shows, reclaiming their place as the primary source of college funding for the first time since 2010.

Parental income and savings now cover 32% of college costs, surpassing scholarships and grants as the largest share of college funding, according to the How American Pays for College 2015 survey, released by Sallie Mae. The percentage of college funding contributed by parents’ savings and income had hovered at and below 30% since it nosedived from 37% in 2010.

Parents are paying more for college in part because it’s costing more. The amount that families spent on college rose to an average of $24,164 this year — a 16% gain from $20,882 in 2014.

But the increased wallet-opening isn’t just linked to rising tuition. Parents are less worried about a volatile economy impacting their ability to pay for college. Only 17% of parents reported extreme concern that losing a job would impact their income, compared to 23% in 2014. In 2015, 62% of families eliminated potential colleges because of the cost, down from 68% in 2014 and the lowest percentage since 2009. The financial worries of parents — which were at record levels in 2010 as loan rates rose and the value of savings diminished — had eased significantly by 2015. Whereas a quarter of parents in 2010 recorded “extreme worry” about college costs because they were concerned about the value of their homes, only 6% said the same in 2015.

In addition to parental income and savings, 30% of college funding, on average, came from grants and scholarships in 2015, while 16% came from student borrowing, 11% from student income and savings, 6% from parental borrowing, and 5% from friends and family.

Despite the widespread coverage of student loan burdens, the majority of families did not take out loans to pay for college. When they did, the students were the ones who signed the dotted line three-quarters of the time. Families with students enrolled at private four-year colleges were far more likely to borrow (with 56% taking out loans) than those in four-year, or two-year public schools, where 43% and 22% of families took out loans, respectively.

MONEY Best colleges

Get College Money by Playing Video Games

This university offers video game scholarships to some of its students. Really.

Chicago’s Robert Morris University is the first college to offer video gaming scholarships for students. The program is part of the school’s athletic department, and students are required to attend practices and competitions just like any other student athlete. The team plays League of Legends, a popular computer game in which players work in teams of five to destroy the opposing side’s home base. School officials say rather than distracting from the academic curriculum, students’ involvement with the e-gaming team helps students build teamwork and communication skills.

See the entire list of MONEY’s Best Colleges here.

MONEY College

How to Go to College for Free

At one of MONEY's Best Colleges, students are graduating with zero debt.

Instead of paying tuition, students at College of the Ozarks in Point Lookout, Mo., work at one of over 100 different on-campus jobs. The 1,000-acre campus has dairy, hog, and beef farms; a hotel; a fine dining restaurant; a farmers market; and much more. The cost to educate a student is approximately $18,000 a year, which is defrayed by students’ work, grants, scholarships, and donations and endowments to the school. The school doesn’t accept private or federal loans. In addition to a diploma, students graduate from college with a strong work ethic and real-world skills desirable to employers.

Read next: Check out MONEY’s 2015-16 Best Colleges rankings

MONEY Student Loans

What Could Happen if You’re Caught Lying on the FAFSA

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Troels Graugaard—Getty Images

A third of all FAFSA applications are selected for verification by the Department of Education.

College is expensive, and it’s especially shocking to some parents and students when they start the financing process to learn that one form — the FAFSA — may largely determine their financial fate when it comes to federal student aid. It may be tempting to fudge the numbers on the FAFSA to get more money to help pay for your child’s education, but getting caught could spell big trouble. Unfortunately, federal student loan fraud is a growing trend:

  • One commenter in the College Confidential forums said her parents were planning to claim to be separated in order to try to maximize their chances of financial aid: “I was definitely NOT on board with this but they refuse to listen to anything I’m saying,” the student wrote.
  • In 2014, the Boston Globe reported that a father of a former Harvard student pleaded guilty to charges of falsifying income information to get more than $160,000 in financial aid. (He apparently filed false tax returns, which likely carries additional penalties.)
  • A college professor and counselor was charged with fraud after he allegedly falsified applications for students he said he was just trying to help.
  • A mother and daughter pleaded guilty in 2014 to making false statements to federal agents in connection with an investigation of student aid fraud. The mother reported no income for a time period during which she reportedly received over $521,000 in income.

If you’re thinking of falsifying your FAFSA, just don’t. Under the Higher Education Act of 1965, penalties include a fine of up to $20,000 and/or up to five years in prison. Plus, you’d have to return any aid you had received.

And don’t think you can’t get caught. “College financial aid administrators are more skilled and experienced at detecting lies than families are at perpetrating them,” warns Mark Kantrowitz senior vice president and publisher of Edvisors.com which publishes a variety of FAFSA tip sheets.

What about the commenter whose parents want to pretend to be separated? It’s not an uncommon scenario says Kantrowitz, but “if it’s a informal separation, it’s only acceptable if the parents don’t live together,” he says. “They may ask for evidence that the parents don’t live at the same address.” And there are ways to find out they aren’t telling the truth. The college could “call the home of the custodial parent and ask for the other parent. If that parent picks up the phone then it’s very likely they live together,” he says, by way of example.

A more common scenario, he says, is when parents are separated or divorced and lie about which parent has custody in order to maximize the chances of getting aid. But there are ways of finding that out, too. For example, the school can match up the custodial parent’s address with the address of the high school from which the student graduated. If they don’t match? It may be fraud.

“You would be surprised how often the student blabs,” says Kantrowitz. “When a school has credible information about fraud, they are required to investigate it.”

A college education is expensive and parents and students who want to avoid student loan debt may be tempted to fudge facts. But it’s not worth it. Here’s a guide to paying for college without a mountain of debt — and without lying on your financial aid applications.

If federal student loans aren’t enough to cover your total student loan bill, you have other options. Private student loans are available for students and parents, but private loans (unlike federal student loans) will most likely require a credit check to determine your interest rate, and a co-signer if the borrower has a limited or non-existent credit history. If you have great credit, private student loans may even get you a better interest rate than Parent PLUS loans, so doing your research, improving your credit and monitoring your progress are key.

Read next: The 50 Most Affordable Private Colleges

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MONEY retirement planning

Retiring? Redefine Yourself

senior golfing
iStock

The happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Far more than merely an economic event, retirement is a life redefining milestone. Leaving work and transitioning to a different way to spend your time and money can change your identity. One trick: an open mind regarding leisure, learning, family and, believe it or not, even more work.

Many unhappy retirees have enough money. They simply failed to come up with a new idea of who they are and what they do after the working years ended. Planning finances to understand how you can afford to live — and how long you can support the lifestyle you want — looms large. You needn’t retire just because you reach a certain age or a certain dollar amount of savings.

Retire because preparation for the next phase of life leaves you eager for new pursuits.

Such reinventing takes many forms. Children and grandkids can fill more of your calendar. You may become a nearly full-time volunteer. The golf course may call you or you may further develop a long-lost hobby.

Maybe you’ll return to formal learning, a great way to keep your mind active and expand your knowledge or skills. Especially given the mushrooming of online education, you can audit classes, watch the lectures via the Web or participate in research, homework and earn credits. You may even qualify for financial aid.

Couples face special considerations about retiring. Do you each intend to retire at the same time? Do your individual visions of retirement include the same or very different pastimes?

Frankly, don’t rely on your spouse to share all your interests — or to want to spend all day every day with you. I once heard a colleague, talking about retirement plans, share this perspective from his wife: “I married you for better or worse, but not for lunch.” Get out of the house and find something to occupy your time.

Planning remains as important in retirement as before it. You can travel, depending on your financial situation, yet even heavy travelers wind up filling a lot of at-home days. Catching up on that stack of books on your nightstand or your long-overdue garden project may initially occupy your golden years. Beware eventual bouts of boredom.

One option: Don’t fully retire. Simply cutting back on work may be in order, more vacation, part-time hours and a slow transition rather than you on the job one day and retired the next. Try a month of vacation, living as if retired to see how it suits you.

Of course, you might not get to pick your retirement date: Job loss, health problems or other unexpected troubles can end your career before you expect. If this happens to you, a ready plan in place can help give you a sense of your options financially and occupationally.

Plan for different stages of retirement; your first retired decade may differ a lot from the following 10 years. In general, I find that the happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Staying engaged in life and socially connected can help keep you from worrying about finances – suddenly the least interesting topic in your newly defined life.

Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Tacoma, Wash. Read more at his blog The Money Architects.

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