The Rising Costs for Higher Education

THE RISING COST OF HIGHER EDUCATION Attending a college or university represents a significant investment for families. Tuition fees have continued to rise which has made it increasingly difficult for families to accurately budget and save. This problem is exacerbated for low and middle-income families where tuition fees as a percentage of median family income has increased significantly. The Rise of College and Tuition Fees The rise of college and tuition fees continues to outpace the median family income and other key individual economic indicators. Just 12 years ago, the cost of a four-year public college education was about 18% of the annual income of a middle-class family. Ten years later, it accounts for 25% of that same family's Average College 500% and Tuition Fees 400% annual income. Medical .. 300% Care 18% 1999-2000 Median: 200% Family Income 25% 2007-2008 ..... 100% Consumer Price Index (CPI) Il|| During the last 25 years, the cost of higher education has grown Nearly four times the rate of inflation and double the rate of medical care cost increases. The cost increases have occurred at both public and private colleges. 440% Net College Costs as a Percentage of Median Family Income BOTTOM FIFTH LOWER- MIDDLE UPPER- MIDDLE TOP FIFTH MIDDLE Four-year public college 18% 12% 1999-2000 39% 23% 7% 1999-2000 1999-2000 1999-2000 1999-2000 55% 33% 25% 16% 9% 2007-2008 2007-2008 2007-2008 2007-2008 2007-2008 Two-year public college 40% 6% 1999-2000 22% 15% 10% 1999-2000 1999-2000 1999-2000 1999-2000 29% 20% 13% 2007-2008 49% 7% 2007-2008 2007-2008 2007-2008 2007-2008 Using median college costs including tuition and room and board, net of public aid. Sources: National Center for Public Policy and Higher Education, New York Times, Forbes Seemingly Unstoppable Growth Average cost of a year's tuition, room and board, and fees at a private college H Average cost of a year's tuition, room and board, and fees at a public college 60,000 r The College Board forecasts that in 15 years, the cost of a four-year college education at a private college will top $400,000 50,000 40,000 (at the current rate of cost increases). 30,000 20,000 10,000 Sources: National Center for Public Policy and Higher Education, www.collegeboard.org The Student Loan Landscape In the United States, there are two types of student loans for undergraduate students: FEDERAL LOANS SPONSORED BY THE GOVERNMENT The U.S. Department of Education (for federal loans) or the private lender (for private loans) sends the loan funds to the student's PRIVATE LOANS from banks or other private lenders that carry no government guarantee interest rate capped at a fixed rate school. O Stafford Loans The school uses the loan money first to pay the student's tuition, fees, and room and board. If any funds remain, the parent receives the amount as a check, O Perkins Loans O Plus Loans t rate ................ that must be used for education expenses. 10% of people who graduated in 2007-8 with student loans had borrowed from 5% Interest rates are basically free from limits and almost to 7.9% $40,000 or more always higher than those on federal loans. The median debt for bachelor's degree recipients who borrowed while attending private, nonprofit colleges was $22,380 Interest rates can change over time. More than two-thirds of all The number of graduates in debt increased by 27% over just the past five years. Over the last 14 years, the default rate for graduating seniors has grown each year. Student loan debt reached $830 billion in June of 2010, surpassing credit card debt college graduates have student loan obligations. in America There are Ways to Save 1 Community Colleges Students may choose to attend a community college for their first two years in order to keep tuition costs low. Two-year public institutions After graduating from a community college, some students transfer to a four-year college to complete a Bachelor's They provide: Higher education Tertiary education Certificates degree Diplomas Associate's degrees 2 529 Plans These are qualified tuition plans with tax advantages designed to encourage saving for future college costs. There are two types of 529 plans: PRE-PAID COLLEGE TUITION PLANS SAVINGS PLANS They allow people saving for college to purchase credits at colleges for future tuition, and room and board At least one type of 529 plan is offered in each state. In addition, a group of colleges and universities (both private and public alike) sponsor a pre-paid tuition plan They establish an account for a student, in order to pay their future college expenses Locks in tuition prices Some, at eligible public and private colleges No locks 00 00000 Covered expenses Tuition and mandatory fees only, but some plans offer to purchase room and board options Tuition and mandatory fees, room and board, books, computers, etc. Costs Variable. Most plans set a lump sum based on age of the student and years of tuition purchased Most plans have contribution limits in excess of $200,000 State guarantee State plans require either the owner or No state guarantee, plans are subjected to market risks and beneficiary to be a state resident may make no profit or decline in value Age limits Most plans have age limits No age limits Source: Smart Saving for College SchoolTutoring.com A CADE MY 2002 1984 ' 1985 2003 – 9861 1987 – 2005 9007 |2007 1988 - 6861 - 066L 8007 6007 2010 1992 – 2011 2012 - E661 2013 2014 1995 – – 966 1997* 2015 2016 2017| 1998 – - 666L - 0007 2001 2002 – - E007 2005 9007 L/00z