costs of college

Should you bail on your 529 plan?

December 5, 2013 By Liz Weston

Long-time readers know I’m a big fan of using state-run 529 college plans to save for higher education expenses. (Remember the mantra: if you can save for college, you should!) Money in these plans grows tax-free when used for qualified college costs and doesn’t have much impact on financial aid (which is going to be mostly loans, anyway).

But the plans aren’t created equal–in fact, they’re so diverse it’s kind of daunting to track and compare them. Investment research firm Morningstar does just that, though, and every year creates a list of the best (and worst) plans. That list gives us 529 investors a chance to compare our plans against a gold standard and consider whether we need a change.

I’ve changed plans once, from California’s then-middling plan to Nevada’s top-rated one, and was surprised by how easy it was. (We still have some money in California’s plan, which is now higher in Morningstar’s ratings.) Some people are tied to their state’s plan by tax breaks or other incentives, but many aren’t. If you’re not happy with your plan, it’s time to consider a change.

You can read more about it in my Reuters column this week, “Is it time to switch 529 college savings plans?“

Will declining enrollment lower college costs?

November 22, 2013 By Liz Weston

The number of high school graduates peaked in 2011 at 3.4 million and will drop to about 3.2 million next year. That’s not a huge decline, granted, but it’s a big change from the two previous decades where colleges could count on an ever-growing population of “traditional age” students.

Still, the experts I interviewed for this week’s Reuters column about declining enrollment don’t believe we’ll see lower college costs any time soon. Less demand will moderate the increases, they say, and so will an improved economy. States are likely to restore some of the funds they cut during the recession and its aftermath, which should decrease the pressure to keep raising tuition.

The short version: college demographics, and college costs, are a many-faceted thing. There wasn’t just one factor that led to spiraling tuition costs, and a single factor won’t reverse that trend.

So keep contributing to that 529.

Parents, get your kids to college–but don’t give them a free ride

August 16, 2013 By Liz Weston

USA Today reported that more families are considering cost when choosing a college:

The survey by Discover Student Loans, to be released Thursday, found that nearly half of adults are limiting their child’s college choices based on price. And with rising student loan debt and a job market that continues to greet college grads with not-so-open arms, the ability to find employment has become a top factor in deciding what to study. The number of adults who say earning potential is more important to their child’s education than what they major in is up, at 42% vs. 38% last year, the survey shows.

All I can say is: What’s going on with the other half that cost isn’t a factor? I can’t imagine all those parents have the savings necessary to fund four or five years of undergraduate study. (And even if they do, they probably shouldn’t foot the whole bill…more on that in a minute.)

The idea that economic considerations shouldn’t sully the college decision process is absurd. If you aren’t borrowing money to pay for school, then maybe your employment prospects can take a back seat to the joy of learning. If you are borrowing, though, it’s crucial that you pick a) a school you can afford and b) a major that will resort in gainful employment that pays more than what you would have made had you skipped college. You want to ensure your investment of borrowed money gives you a return that’s worth the cost.

I’ve written a lot about how important it is that your kids get post-secondary education in a world where there’s an increasing divide between those who have college degrees and those who don’t. (For more, read “Ignore the talk: college is vital,” “Should you pay for kid’s college?” and “Should your kid skip college?“) And I’ve argued that parents need to help pay for this education if they possibly can, since letting your kids try to go it alone is often setting them up for failure (read: no degree and tons of student loan debt).

But there’s evidence that giving kids a totally free ride is a bad idea. Parental help is associate with higher “completion” rates–kids actually get the degrees they go to college for–but lower grades. The column I wrote about this has a somewhat misleading headline (“Why parents shouldn’t pay for college“), since refusing to help if you can puts your kid at a severe disadvantage.

Still, the column hit a nerve. It was the most-shared article on MSN Money yesterday. It should provide some comfort to parents who can’t afford to pay the whole bill for college–but I hope it doesn’t provide comfort to those who can help, but won’t.