MONEY College

5 Ways to Get Free College Education Even If (When?) Obama’s Plan Dies

Congress probably won't approve the free community college plan, but there are lots of ways you can get free or affordable college courses.

Almost as soon as President Obama floated his proposal for free community college on Thursday night, experts began explaining the political, economic, and practical reasons it was unlikely ever to become a reality.

Chances are slim, it was pointed out, that he can persuade a Republican-controlled Congress to approve and fund the expensive plan

And community college leaders worried about their ability to handle a big influx of students attracted by free courses, some noting that insufficient revenues and high demand have forced some community colleges to turn away students in recent years.

But don’t despair: Many other programs are already making college free for thousands of students. And there are other proposals to eliminate up-front tuition that could open the college gates to more students in the future.

Here are five ways you can find free or very affordable college courses right now:

1) Some states and cities already have free or low-cost community college tuition. The Tennessee Promise, which is the model for President Obama’s plan, waives tuition not covered by other aid programs for students who file a Free Application for Federal Student Aid (FAFSA), donate eight hours of community service each semester, and earn a C grade point average. Similar programs are being debated in Oregon, Texas, Mississippi, and Chicago. Community colleges in California, the most affordable in the country, charge less than $1,500 a year in tuition and fees.

2) Financial aid and tax benefits already cover most community college tuition. The average community college charges about $3,350 a year in tuition and fees. By taking advantage of the $2,500 federal tuition tax credits, as well as financial aid such as the federal Pell Grant, the average community college student gets enough aid to cover tuition and the approximately $1,000 book bill, according to research by the College Board.

3) Alternative free college proposals. Several states are considering “Pay It Forward” proposals that would allow students to attend college without paying any tuition right away and instead repaying a percentage of their income over time. And other “free college” plans have also gained traction.

4) Established free college programs: The military, work colleges, and many generous colleges offer ways to get free college educations.

5) Free online courses: There are hundreds of free Massive Open Online Courses (MOOCs). Many, for a nominal fee, will award you college credits.

MONEY Ask the Expert

Why You Might Want to Take Student Loans Before Using Up College Savings

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

Q: “My daughter will be starting college this fall. I’m estimating the tuition will be about $25,000 each year. I’ve got about $45,000 put aside in a 529 for her. When should I tap that money?” —Henry Winkler, Colorado

A: The first thing you and your daughter should do is fill out a FAFSA, the federal financial aid application. Even if you think your household income will be too great to qualify for aid, it’s worth applying just to be certain, says Mark Kantrowitz, publisher of Edvisors.com, a website that helps people plan and pay for college. “I have seen many cases where families assume they won’t receive any aid, but actually do qualify based on the number of children they have currently attending college or because the high costs of the tuition resulted in a lower than expected family contribution amount.”

Don’t worry that the savings you currently have in your 529 will hurt her chances for aid either. Federal aid will be reduced by no more than 5.64% of the value of the account and account distributions are not considered income, Kantrowitz says.

Next, she should apply for the most available in federal direct student loans. In her first year, she can borrow $5,500. In her second year, $6,500, and any of the years following up to $7,500. Because you only get to borrow a certain amount in these direct federal student loans—which have much lower interest rates than Parent PLUS loans or private loans—it’s worth borrowing the max each year and accruing that interest rather than waiting and trying to borrow the full cost of college her third or fourth year, says Kantrowitz.

If you have other savings accounts you can draw from, Kantrowitz recommends setting aside $4,000 a year from such an account for your daughter’s college education so that you can take advantage of the American Opportunity Tax Credit.

With this credit, you get 100% of the first $2,000 you spend on tuition, fees and course materials paid during the year, plus 25% of the next $2,000. The credit is worth $2,500 off your tax bill. Also, 40% of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

The caveat: You will need to have a modified adjusted gross income of $80,000 or less, or $160,000 or less for married couples, a year to get the full benefit. If you earn more than $90,000 or $180,000 for joint filers, you cannot claim the credit.

You cannot use any of the funds from your 529 to qualify for the tax credit since that plan is already a form of tax-free educational assistance. If you do not have an additional $4,000 a year to put toward her education, you can also qualify for the credit by using the student loan amount she received—but just know that you may not be also able to claim the student loan deduction on that amount since you’ve already received a tax break on it, says Kantrowitz. (Right now you can claim both, but Kantrowitz says that could change in the future.)

After deducting any grant aid, her student loan sum, and the $4,000 from another savings account, pay the remaining education expenses with funds from the 529 plan.

“Under this plan it is likely your 529 will be exhausted after her third year of college, or sooner if you don’t put aside that additional $4,000 for the tax credit each year,” says Kantrowitz.

To make up the difference you’ll need to secure another loan. If you own a home, consider home equity financing before PLUS loans, since the latter currently carry a 7.21% interest rate and come with an “origination” fee of about 4.3% of the principal amount you borrow.

If you must take the PLUS, you might be tempted to try to lock in current interest rates by borrowing to cover the first two years’ worth of expenses. But you’d end up having to borrow more since she’ll be getting less federal loan money those first two years, and you’d have to pay two more year’s worth of interest. Even with possible rate increases, you’re still better off taking the PLUS loans in her last two years.

RELATED:

MONEY financial aid

7 Legal Ways to Squeeze More College Aid From the FAFSA

vice squeezing dollar bill
Steven Puetzer—Getty Images

Smart timing, cash management and college application strategies can mean thousands of dollars in extra financial aid.

Correction appended: January 8

Filling out the 10 eye-crossing pages of the 2015-16 Free Application for Federal Student Aid, the most important application for need-based college financial aid, may not seem like a fun adventure in Super Mario’s Mushroom Kingdom. But hidden among its 103 questions are hints that, if followed correctly, can dramatically increase your need-based aid and possibly rescue your dreams of an affordable college education.

Before you spend a lot of time on this, though, use a few college Net Price Calculators, the federal government’s FAFSA Forecaster, or the College Board’s Expected Family Contribution (EFC) calculator to see whether you’re likely to receive any need-based aid. If you’re planning to attend an in-state public college, and your family has an Expected Family Contribution (or EFC) above about $25,000 (which general means the family income is above $125,000) the odds of getting need-based grants are very low, says Paula Bishop, an independent financial aid counselor in Bellevue, Wash. For students planning on private colleges, the need-based aid EFC cutoff is generally about $65,000, she says (which typically means the family has an income greater than $200,000).

If you’re above those cutoffs, it still pays to fill out the FAFSA to qualify yourself for low-cost student loans, and merit programs that require the form, but your focus should be on maximizing merit aid – which is money awarded based on the student’s grades or other accomplishments without regard to family income.

If you’re below those cutoffs, use this “not-cheating” (since all these strategies are legal) FAFSA cheat sheet:

1. Go online. You can print out a PDF and fill out the FAFSA on paper. But the online version uses skip logic, which makes it easier and faster. Also, for later filers, the online version will import your tax information, which speeds things up even more.

2. Time it right. Fill out the 2015-16 form right now if you live in one of the nine states with “first-come, first-served” financial aid programs: Alaska, Illinois, Kentucky, North Carolina, Oregon, South Carolina, Tennessee, Vermont, and Washington. These states often run out of money quickly, so act fast, even if you don’t have your 2014 tax information. You can fill out the 2015-16 form using estimates based on your 2013 tax forms. Then, when you do your taxes, you can go back into your FAFSA and make any updates or corrections.

Everybody else has more time—but not a lot. Those who file the FAFSA by March 30 receive, on average, twice the grant money as later filers, calculates Mark Kantrowitz, publisher of the financial aid website Edvisors.com. Many colleges and states have early deadlines for state aid: The deadline for filing for state financial aid in Connecticut is Feb. 15; Idaho, Maryland, Michigan, Oklahoma, Rhode Island and West Virginia cut off their state aid after March 1. California’s deadline is March 2. You can check your state’s aid deadline here, but you’ll have to call, or check the websites of, the colleges you’re applying to for their aid deadlines.

Don’t despair if you still haven’t filled out last year’s FAFSA. You can still qualify for federal aid for the 2014-15 academic year by filling out last year’s FAFSA, even as late as June 30 of this year

3. Clarify your relationships. Questions 16 and 59 ask about the students’ and parents’ marital status as of the day you file the form, to see if both parents’ income should be counted as financial resources for the student. Rules adopted in 2014 eliminated a loophole that allowed parents who were cohabiting but didn’t happen to be married to report only one parent’s income (which usually increased the student’s eligibility for need-based aid). Divorced or separated parents may report one parent’s income (the parent with whom the student spends the most time) only if the other parent does not live in the same house. In other words, if you’re in the process of getting divorced or separated anyway, one spouse should move out before you finish the FAFSA.

4. Parents: Don’t brag. Some states and colleges offer extra aid to children of parents who haven’t earned college degrees. Questions 24 and 25 ask about the highest level of education your parents completed. So if one or both of your parents, attended community college, or even are just one credit away from a bachelor’s degree, make sure to fill in the dot only for “high school,” Bishop advises.

5. Pay your bills first. Questions 41 and 90 ask about how much cash students and parents have in savings and checking accounts at the moment you are filling out the FAFSA. But notice that there are no questions on the FAFSA about your debts or bills. So if you’ve got a sufficient emergency cash reserve, use any extra cash to pay down credit card, car loan, or other bills before you finish filling out the form, and report the newly lower cash amount on the FAFSA.

6. Shield your investments. Questions 42, 43, 91 and 92 ask about the student’s and the parents’ investments. But many filers don’t realize that the value of any retirement accounts, as well as the home you live in, should not be included in these boxes. So if you’ve got a lot of money in non-retirement accounts, prepay your mortgage or plow some into Roth IRAs. One big advantage of Roth IRAs: You can take out your contributions (but not any earnings) tax-free to pay college bills.

7. Strategize your college list. A growing number of colleges are analyzing the order in which students list colleges on FAFSA question #103 to determine how likely the student is to attend. Colleges assume that students list colleges in their order of preference, and some will award more aid to those who list their college second or third, say, in an effort to woo students away from their first choice. So make sure the top three colleges in your list are schools you really want to attend, and, if possible, are schools that compete with one another, in the hopes of encouraging them to raise your aid offer.

Correction: The original version of this story misstated the scenario in tip No. 6. The time to take these steps is when you have a lot of money in non-retirement accounts.

Read next: Best Colleges You Can Still Apply To For Fall 2015

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MONEY College

Here’s How the Government Thinks We Should Grade Colleges

Access, affordability, and outcomes are the three most important factors. But how will the government measure them?

The federal government Friday morning released what it’s calling a “framework” to rate America’s colleges on their performance in three areas: how many low-income and disadvantaged students they educate; how affordable they are; and how well their graduates do financially, in the job market, and in graduate school.

The U.S. Department of Education said it planned to issue the ratings “in time for the 2015 school year” — so, presumably, by August of 2015.

But researchers familiar with the government’s plans say that ambitious and idealistic plan will be stymied by an ugly reality: much of the information needed to rate the colleges on these factors doesn’t exist yet.

While describing the government’s plan as “thoughtful,” Terry Hartle, a spokesman for the nation’s largest association of colleges, the American Council on Education, said “It is not clear how they will get it done.” The problem, he and other researchers said, is that there is currently no easy way to mine the government’s data on citizens to find out, for example, which graduates of which colleges go on to graduate schools, how much graduates of each college earn, or how much alumni of each college are paying on their student loans.

In August of 2013, President Obama pledged to create ratings based on which colleges are “offering the best value so students” and giving taxpayers “a bigger bang for their buck.” He said he hoped the government would provide more financial aid to students at colleges that do the best job providing opportunities, educating students, and helping launch good careers.

In its announcement Friday, the Education Department asked for public comments on its plans to judge colleges by the following factors:

Access: The Education Department said it was thinking of judging colleges’ provision of opportunities to all by examining, for example, factors such as the percentage of students receiving Pell Grants, which are grants awarded only to low-income students, and the percentage of students whose parents did not attend college. It was also considering looking at the family incomes of students at each college, and giving higher ratings to colleges with more students from the lowest income groups.

Affordability: The government is considering giving poor ratings to schools that provide so little financial aid that families end up having to pay much more than the “Expected Family Contribution” (EFC) after they fill out their Free Application for Federal Student Aid (FAFSA). Financial aid is generally in such short supply that 99% of colleges fail to provide enough grants or scholarships so that every student has to pay only their EFC. But currently, colleges are not required to reveal how many students they leave with financial aid “gaps” or how large those gaps are. Additionally, the ratings may ding colleges with high “net prices,” which is the price students (and their parents) pay after all grants are subtracted. The government said it may look at either the overall average net prices, or the average net prices paid by families divided into five income groups, such as those earning up to $30,000, or those earning more than $100,000.

Outcomes: While graduation rates are a commonly used metric for judging colleges, the Education Department proposes adding other gauges such as how many new graduates find jobs quickly, and how much money they earn over the long term. In theory, the Internal Revenue Services or the Social Security Administration might be able to provide the employment and earnings information for graduates of each school, but privacy concerns have stymied efforts to gather that data in the past. The Department says it may also consider what percentage of graduates are paying their loans off, and what percent go on to graduate school. For community colleges, the Department said it may consider what percentage of students transfer to four-year colleges.

To help families gauge the affordability and value of colleges, MONEY hired Mark Schneider, a former head of the federal National Center for Education Statistics, to develop college rankings based on quality, affordability, and outcomes, using the best data currently available, including, for example, a national survey of college graduates’ earnings by Payscale.com. Our rankings of the 665 top colleges in the country were released in the summer of 2014.

Read next: The Long, Sad Tradition of College Admissions Mistakes

TIME

1 Number That Debunks Everything You Think You Know About College

College Student Graduation Debt Loans
Getty Images

'Four-year degree' doesn't mean what it used to

There’s been plenty of ink and pixels spent parsing the problem of student loan debt: Why it’s so high, who to blame, how to stop it and so on. But a recent study sheds light on a huge contributor to the problem that goes largely overlooked: Public college graduation rates, even at big flagships schools, are jaw-droppingly low.

A study conducted by nonprofit group Complete College America tallied up both state-level and national data on graduation rates at two-year and four-year public colleges, and the results are sobering.

Only 5% of two-year students actually graduate in two years. The picture is hardly better for four-year institutions, especially when you consider that the cost of obtaining a bachelor’s degree is significantly higher. Only 36% of students at flagship public schools, and 19% of students at satellite and regional campuses, are able to walk out of the gates, diploma in hand, after four years.

“[We were] surprised at how pervasive the problem of time to degree has become at all public higher education institutions,” says Bruce Vandal, the group’s vice president. While two-year schools tend to attract more older, lower-income and first-generation students — all demographics more likely to be part-time students — Vandal says the issue goes far beyond that. “We did not expect flagship institutions and more selective public institutions to also have low on time graduation rates,” he says.

The numbers paint a clear picture showing that school administrators and policymakers, not to mention students, now consider a four-plus year timeframe to be the norm.

To some extent, Vandal says, this is a product of student error. Kids might not know what they want to major in when they first get to college and wind up taking a bunch of classes that don’t advance them towards the major they eventually choose. There also are a

But blaming a bunch of 17- and 18-year-olds for not being able to navigate the higher education system essentially on their own isn’t the answer. Vandal says there are plenty of things schools and states can do to make students better-informed consumers of the educational services they receive.

Some schools are experimenting with what Vandal calls a “guided pathways system:” Students have to pick a broad category — say, Health Sciences, for example — right away, then they get a year to narrow down their specific field of study.

“Another problem is that too few students enroll in the requisite 15 credits a semester that are necessary to graduate on time,” Vandal says. Students become eligible for “full time” financial aid while taking 12 credits a semester, and this mismatch adds up.

“For four-year students, registering for only 12 credits a term automatically puts them on the five-year plan,” Vandal says.

This has a big impact on students’ budgets and, ultimately, the debt loads they’ll carry with them for the first decade of their adult lives. “Once students’ time to degree exceeds four years, the costs to attend college increase and debt levels rise dramatically,” Vandal says. Every extra year of college for two-year degree seekers costs an average of $15,933 more. For four year degrees, it’s even higher: $22,826 for every extra year.

After four years, grants and scholarships may expire, and the savings of students and their families are more likely to be depleted, Vandal says, forcing them to rely more heavily on loans to complete their degrees.

“Reducing the time to degree and credits to degree for students will dramatically decrease student loan debt,” he says.

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

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 Kids and Money

Ace a Personal Finance Game, Win a College Scholarship

H&R Block is the latest financial firm with a program to teach kids about money. This one can earn students a college scholarship.

As the financial industry has worked to restore its image since the meltdown six years ago, one popular approach has been underwriting financial education programs aimed at teens and young adults. Tax preparer H&R Block unveiled its salvo on Monday, offering $3 million in college scholarships to high school students who ace an online budget game.

Block joins a bunch of national and regional banks from Bank of America to Key and FirstBank that sponsor some kind of financial education program. Credit-card company Visa and accounting giant PwC have made big commitments to youth financial education. The result of this broad push has been a disparate and often questioned effort to teach young people practical money skills while the financial industry nurses a badly damaged reputation.

Block is not a bank or credit company. It never sold anyone an exploding subprime mortgage. Still, when the company began looking around for a signature cause it landed fairly quickly on financial education for youth. “It’s appalling how clueless many teens are about money,” says Block CEO William Cobb.

He makes no apologies that Block’s “budget challenge” is as much about smart marketing as it is about helping teens get smart about money. The challenge concludes on Tax Day, April 15. But Cobb says educating high school kids about student loans and more is also “the right thing to do” and is “at the emotional center” of what the company stands for.

In a recent PISA assessment spanning 18 countries, the first of its kind, American 15-year-olds were found to be just average in terms of money know-how. Numerous other studies have shown that young people have a flunking knowledge of things like compound growth, inflation, taxes, investing and budgets.

Block’s program is built around an online game that simulates real world decisions. It is designed as part of a class with a teacher augmenting lessons that adhere to the Jumpstart Coalition’s standards for youth personal finance instruction and the Council for Economic Education’s standards for financial literacy.

The carrot for high school students is a college scholarship. The first challenge will begin Oct. 3 and last for nine weeks. Five more challenges will run through mid-April next year. Students need about 30 minutes to set up their profile and about 30 minutes per week after that in order to compete.

Students who score well by making smart decisions about insurance, retirement saving, fees, unexpected expenses and more may win as much as $20,000 toward college tuition. There will be 132 such awards along with some prize grants for teachers and classrooms—and one grand prize scholarship of $100,000 going to the top student across all six challenges.

The Block program appears both fun and engaging. Participants will have access to a real-time leader board to see where they stand and, Cobb says, winning isn’t as simple as just choosing the most conservative options. As in life, things are constantly changing. Kids will need to figure which trade-offs make the most sense in this simulated world of money so that, maybe, one day they’ll be good at it in the real world.

Related:
3 Mistakes That Will Cost You a College Scholarship
How to Get Full Credit When You Swap Colleges

MONEY College

The Important Talk Parents Are Not Having With Their Kids

College tuition jar
Alamy

The new Fidelity College Savings Indicator survey reveals that parents are only on track to pay a third of college tuition—and that they're keeping mum on the topic.

Moms and dads expect their children to pay for more than one-third of college costs—but only 57% of parents actually have that conversation with their kids, according to a new study out by Fidelity today.

The cost of college has more than doubled in the past decade, and parents are having a hard time saving for it, Fidelity’s 8th annual College Savings Indicator study shows. While 64% of parents say they’d like be able to cover their kids total college costs, only 28% are on track to do so.

That jibes with reality: For current students, parents’ income and savings now only cover one-third of college costs on average, according to Sallie Mae’s recently released report How America Pays For College. Kids use 12% of their own savings and income. Loans taken by students and parents account for 22% of the funds, while another 30% comes from grants and scholarships.

Experts urge parents to have a frank conversation well in advance with their children about how much college costs and how much they are expected to contribute, either through summer jobs, their own savings or part-time jobs while in school. “If children know that they are expected to contribute to their college funds, they are more likely to save for it,” says Judith Ward, a senior financial planner at T. Rowe Price.

A T. Rowe Price study released earlier this week found that 58% of kids whose parents frequently talk to them about saving for college put away money for that goal vs. just 23% who don’t talk to their parents about how to pay for school.

There’s also reason to believe that parents shouldn’t feel so bad about not being able to take on the full tab. A national study out last year found that the more money parents pay for their kids’ college educations, the worse their kids tend to perform. In her paper “More Is More or More is Less? Parent Financial Investments During College,” University of California sociology professor Laura Hamilton found that larger contributions from parents are linked to lower grades among students.

Apparently, kids who don’t work or otherwise use their own money to pay for school spend more time on leisure activities and are less focused on studying. It’s not that these kids flunk out, according to Hamilton. She found that students with parental funding often perform well enough to stay in school, but they just dial down their academic efforts.

Given all these findings, parents should feel less pressure pay the full ride for their kids—especially if it means falling behind on other important goals like saving for their own retirement. “Putting your kids on the hook for college costs is better for everyone,” says Ward.

MONEY 101: How much does college actually cost?

MONEY 101: Where should I save for college?

MONEY Ask the Expert

The Best Way to Give Your Grandkid Cash for College

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: “My wife and I will soon be first-time grandparents and would like to make monthly investments for our grandson. What are the benefits and limitations of 529 plans? We live in N.Y., but our grandson will be born in Massachusetts.” —Joe Kostka, Fairport, N.Y.

A: If you want to help with your grandchild’s college costs, a 529 plan is the best route, says Mark Kantrowitz, publisher of Edvisors.com, a website that helps people plan and pay for college.

These state college savings plans have significant tax advantages. Your contributions grow tax-deferred, and withdrawals are tax free as long as the money goes toward qualified higher education expenses such as tuition or books. (If you spend it on something else, you will be hit by both income taxes and a 10% penalty.)

Since you’re funding an education account, you can contribute even more than the annual gift tax exclusion—$14,000 in 2014, or $28,000 as a couple—without running the risk of owing gift taxes. You can gift five times the annual exclusion in a single year, or $70,000 for a single person and $140,000 for a couple (but you then can’t give that child more for the next four years).

In more than half of states, if you use your state’s 529 plan you can deduct at least a portion of your 529 contribution on your state income tax return. New York offers a deduction of up to $5,000 per year ($10,000 for married couples filing jointly). Massachusetts has no deduction. To find out which states offer tax benefits, check out Edvisors’ full list.

For you to get a tax break in New York, you need to be the account holder of the 529 plan (naming your grandchild as beneficiary). But you might want to forgo the deduction and make the parents the account holder (or the child, though custodial 529 plans have other drawbacks, including no option to later change the beneficiary).

When grandparents own 529 plans, the account is not reported as an asset on the student’s FAFSA application for financial aid, but any plan distributions count as income. This can reduce your grandchild’s aid eligibility by as much as half of the distribution amount.

If the parent or child owns the plan, the account is reported as a parental asset on the FAFSA and has a minimal impact on aid eligibility, says Kantrowitz (aid is reduced by no more than 5.64% of the value of the 529). And 529 distributions are not reported as income.

The savings from the state tax deduction are small compared to the harm it could cause to your grandchild’s financial aid, says Kantrowitz.

Other Ways to Stay In Control

To keep control of the account without jeopardizing future financial aid, you have a few options. You can retain ownership of the plan until right before your grandchild takes a distribution and then switch it to your children. While New York allows this kind of account change (not all states do), you risk having to pay back the your tax savings (talk to an accountant).

Another option to minimize the hit to financial aid while still getting the tax break: Wait to take out the money until the child’s senior year of college, after the last financial aid application has been filed. The only risk is that if their expenses don’t outweigh what’s in the account, you could be stuck with leftover funds.

Best Plan Options

While you can invest in any state’s 529 college savings plan, you should opt for a direct-sold 529 plan, which usually has much lower fees than adviser-sold 529 plans do.

“The best option is to focus on a 529 plan with low fees that has an age-based asset allocation that mixes an all-stock fund, such as a S&P 500 fund, with a fund that has no risk of loss to principal,” says Kantrowitz, who prefers plans run by Vanguard, Fidelity, or TIAA-CREF. New York’s plan is run by Vanguard, while the Massachusetts direct 529 is run by Fidelity.

To help you boost what’s in the 529, Kantrowitz also suggests joining a program like Upromise. You earn rebates on everyday purchases, which are automatically put into the 529 plan you specify. Kantrowitz says a family will typically earn between $1,000 to $2,000 in rebates over the lifetime of the account.

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