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PHOTO: ASSOCIATED PRESS (SUSAN AND SARAH HODGES)
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Enough!
By ANNAMARIA ANDRIOTIS
Jeff and Robbie Zbar would like to send their son Zack to the best college he can get into, but they’ve made one thing clear to him: They don’t intend to go into debt to make that happen. They’ll look for grants and scholarships, or they’ll turn to an in-state option. “If we can’t afford it, then we have some reckoning to do,” says Mr. Zbar. Like the Zbars, a growing number of parents are rethinking how much they’re willing to spend on a child’s college tuition. According to a recent report by student lender Sallie Mae, about 51% of parents “strongly agreed” that they would stretch financially to send their children to college, down from 64% of parents last year; about the same number said they would go into debt to do so, down from 59%. It marks the first time those numbers have dropped since the firm began the survey in 2007.
HIGHER STAKES It also marks a reversal in the longstanding ambition of parents to send their kids to the college of their choice, despite the costs. Those costs have gone way up. The average annual cost, including tuition and fees, at a four-year private university last year was more than $27,000—a 70% increase from a decade ago and nearly three times what it cost 20 years ago, according to the College Board. The average cost at a public college, meanwhile, has grown fourfold since 1991, hitting about $7,600 last year. But wages haven’t grown nearly as fast, and even for higher-income parents, the rising costs have become a major challenge. For their children, who may face six-figure debt levels upon graduation, it raises the stakes significantly. Many experts applaud parents for pulling back. “Students should have some skin in the game to reduce parents’ costs,” says Deborah Fox, a financial planner and founder of Fox College Funding. As a whole, the parents of college-age kids belong to a generation that has saved too little. Only 27% of individuals aged 45 to 54 have $100,000 or more in savings and investments; just 41% of those 55 and over, according to 2011 data from the Employee Benefit Research Institute. That’s far from the amount of money they’ll need to fund their retirement. TIME TO RE-EVALUATE The changing attitude is largely due to the economic downturn’s impact on family finances. For many, incomes have been flat, or one parent has lost a job. Home values have fallen, and investments that may not have fully recovered from the last crash now seem vulnerable again, says Lydia Sheckels, an executive of a wealth-management firm. Parents whose children enrolled in college at the beginning of the last recession may not have been willing to derail long-held college plans, but parents of this year’s freshmen and current high school juniors and seniors have had time to re-evaluate how much they are willing to spend, says Cliff Young, who co-authored the Sallie Mae study. Another factor that’s making parents think twice is the high price of defaulting on a student loan, which is different from other kinds of debt. Credit-card debt, for example, can be wiped out in bankruptcy. Mortgages can be discharged through foreclosure. But for borrowers who fall behind on their student-loan debt, there’s no chance at a fresh start. The loan still must be paid off, and often with new collection costs tacked on, making it much more expensive than before. Parents may be forced to surrender part of their retirement savings, and up to 25% of a student’s wages can be deducted until the loan is paid off. “Defaulting can be completely devastating to a family’s finances and sense of well-being,” says Mark Kantrowitz, publisher of FinAid.org and Fastweb.com. ‘GOT TO MAKE A CHOICE’ For many students, the result may be a downsized college experience. Already the number of parents asking their kids to graduate in fewer semesters has doubled to 28% in the last five years, according to a Fidelity Investments survey. Meanwhile, 37% of students from families making $100,000 or more a year lived at home while attending college, up from 25% the previous year, according to Sallie Mae. And more students from high-income families are starting at two-year colleges to help cut costs. Mark and Jennifer Schmitt of Oakton, Va., recently made a deal with their three daughters: They would cover the full cost of in-state public school tuition and a little bit more. But if any of the girls chose a private college, they’d have to make up the difference. “You’ve got to make a choice: Do you delay retirement significantly or do you fund education?” says Mr. Schmitt. That’s not an easy choice, says Ms. Sheckels. “It’s one of the toughest things for a parent to admit to themselves or a child that they can’t afford to do this.” Longer term, it’s possible that both parents and students could benefit. If, by taking on less debt and not depleting their savings, parents end up better prepared for retirement, there may be less financial stress for their children as mom and dad age. And if, by being more cost-conscious from Year One, students graduate with less debt, they could be more likely to make ends meet after graduation. They’ll also have a better shot at pursuing a profession they truly want, rather than having to find a job that pays enough to cover their loan payments.
ADDITIONAL READING "Estimating the Return to College Selectivity over the Career Using Administrative Earning Data" is the study, by economists Alan Krueger and Stacy Dale, mentioned in the article. "One Plus One Equals..." examines the pros and cons of duel graduate degree programs. "Is an M.B.A. Worth It?" is a Wall Street Journal Q&A with current, past and future M.B.A. students. "College Grads Gain on M.B.A.s" looks at why some companies are looking for new hires with only a bachelor's degree. "Dose of Humility With a Harvard M.B.A." is a Wall Street Journal Q&A with Harvard Business School dean Nitin Nohria. WEB RESOURCES "Path to Professions": The Wall Street Journal's 2010 survey of college recruiters found that state universities have become the favorite of companies recruiting new hires because their big student populations and focus on teaching practical skills. SmartMoney's College Planning: Articles and worksheets help parents and learn about the financial aid process. Payscale.com: Its 2011-2012 College Salary Report, "Best Colleges: Most Lucrative Schools and Majors," includes information about the best-paying degrees, popular majors, schools and salaries. Young Money: This personal finance website focuses on issues young adults are facing, such as careers and college decisions and debt and credit.
OVERVIEW STANDARDS REVIEW ACTIVITY IDEAS • Select two colleges you would like to attend and use the Internet to determine the cost of four years of tuition and fees. Then select a possible career and use the Internet to research the median salary for entry-level workers. Calculate your Payback Score for each college. Are you surprised with the results? Why or why not? Then, create a list of intangibles that are important to you, such alumni network, weather, campus culture or proximity to your hometown. If these intangibles were factored into the Payback Score, how would that change each college's score? Discuss your findings as a class. • Select five CEOs from Fortune 500 companies. Use the Internet to find out where they went to college and what degrees they hold. From your findings, create a hypothesis about the relationship between college choice and career success. Share your findings with the class and discuss. Did everyone have a similar hypothesis? Explain. • The parents detailed in the Cover Story articles "Making College Pay" and "Enough!" had to weigh the trade-offs of paying for their children's college educations. If you plan to attend college in the next couple of years, review this article with your parents or guardians. How much financial help are they willing to give? How do they balance their college and retirement savings commitments? How much does your dream school cost? What is more important to you right now: attending a prestigious university or graduating virtually debt free? Explain. • Interview three adults about their college-to-career experience. What did they major in, and how relevant was it to their work now? If they had to do it again, what would they study? Do they feel like their education was worth the expense? Did they have to take out loans? Present your findings to the class, and then discuss what can you do to make sure your college education most effectively supports your career ambitions. • College students routinely switch majors--a decision that may be as expensive as it is pivotal. Using the Internet, research some ways you can get pre-college experience or knowledge relevant to your planned major--perhaps through a job-shadow, after-school job or internship, through taking a gap year, or through talking with somebody already working in your planned career field. Come up with at least three ways that you can get a better sense of what your major, and the subsequent career, would entail and whether you'd like it. • Read through the "Employment Change by Detailed Occupation" (link here) from the Bureau of Labor Statistic's Occupational Outlook Handbook. Then as a class, discuss which industries are growing and which are shrinking. What skills would you need to get a job in one of the expanding occupational fields? How confident are you in the government's ability to predict which industries will grow and shrink over the next 10 years? Explain. "Estimating the Return to College Selectivity over the Career Using Administrative Earning Data" is the study, by economists Alan Krueger and Stacy Dale, mentioned in the article. "One Plus One Equals..." examines the pros and cons of duel graduate degree programs. "Is an M.B.A. Worth It?" is a Wall Street Journal Q&A with current, past and future M.B.A. students. "College Grads Gain on M.B.A.s" looks at why some companies are looking for new hires with only a bachelor's degree. "Dose of Humility With a Harvard M.B.A." is a Wall Street Journal Q&A with Harvard Business School dean Nitin Nohria. WEB RESOURCES "Path to Professions": The Wall Street Journal's 2010 survey of college recruiters found that state universities have become the favorite of companies recruiting new hires because their big student populations and focus on teaching practical skills. SmartMoney's College Planning: Articles and worksheets help parents and learn about the financial aid process. Payscale.com: Its 2011-2012 College Salary Report, "Best Colleges: Most Lucrative Schools and Majors," includes information about the best-paying degrees, popular majors, schools and salaries. Young Money: This personal finance website focuses on issues young adults are facing, such as careers and college decisions and debt and credit.
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