Rising college costs have Americans
making greater sacrifices to get their degrees. In 2008, families took on more
than $86 billion in college loans and the average undergraduate finished school
with more than $23,000 in debt. Higher education is now one of the most
important investment decisions middle class Americans make. But far too often
they're lured to colleges with the greatest number of campus clubs, the most
celebrated reputation for partying, or the highest ranking in the popular press.
These temptations win out because
the choices are complicated and families aren't getting the information they
needed to make truly informed decisions. Beyond choosing a school, families trying
to find the best savings plan or the least expensive loan also face complicated
choices with insufficient information.
According to the new MassINC
report, "Planning for College: A Consumer Approach to the Higher Education
Marketplace," the choices families make in saving, selecting, and paying for
college have a considerable impact on the price they ultimately pay for a postsecondary degree. This in turn can have
a profound impact on their careers, families, and quality of life.
"When you look at the tuition
prices that middle class families are facing, together with the debt burdens
graduates are taking on, it is astounding that there is such little
transparency in the higher education marketplace," said Greg
Torres, President of MassINC and Publisher of CommonWealth
magazine. "By laying out a framework for how parents and students navigate this
system, we hope to shed some light on what we can do to give more support to families
making one of the biggest investments of their lives."
The new report, by C. Anthony Broh
and Dana Ansel, is part of MassINC's Family Financial Skills initiative, which explores new pathways to help families
navigate the complex financial decisions increasingly tied to major milestones
of American life.
Nearly two-thirds of students from
private four-year college graduate with debt. This makes loan choices
particularly critical. But evidence shows that families can make the wrong
choice when picking a loan product.
"Interest payments on loans add to
the overall price of an education. Families need information about the least expensive
place to borrow, the terms and conditions of borrowing, and the total price of
borrowing before making a decision about when and where to apply for college,"
said author Tony Broh.
In the report, the authors describe the branches of a college-bound
decision tree to examine the major decision-points for families as they 1) save
for college, 2) choose their college, 3) pay for college, and 4) repay their college
loans. Each of these branches is fraught with complexity and limited transparency.
Currently, there are 118 different 529 savings
plans from which to choose. Each managed by different states with different brokerage
houses, investment strategies, fees, and records of performance.
have limited understanding of the price they will actually pay when comparing
colleges. While the average 2009 published tuition at a private four-year
college was $35,640, the net price after financial aid for the average student was
$21,240. Families have little information for predicting how much they would
pay based on their own individual circumstances.
choosing schools do not have access to indicators on the college experience
they value such as price relative to student-teacher ratios, direct education
spending, and graduation rates. The report shows considerable variation among
schools on these important measures.
and lending institutions do not routinely explain the total price of a loan or the
probable monthly payments after graduation. While recent legislation will bring
borrowers greater transparency in this area, lenders still have no obligation
to describe repayment options for various scenarios that may occur after students
complete their coursework, such as loan forgiveness or forbearance.
Helping families access the information they need to become savvy
consumers in the higher education marketplace could help them get more from
their college investment. More importantly, consumers equipped with better
information might make choices in ways that would fundamentally alter the way
institutions compete, creating a more efficient higher education marketplace.
This new research was made possible with
generous support from the Highland Street Foundation, the State Street
Foundation, and the Cabot Family Charitable Trust.
Paying for College describes the branches of a "College-bound decision tree" for examining the major decision points for
families as they: (1) save for college, (2) choose their college, (3) pay for
college, and (4) repay their college loans.
Each of these decisions is fraught with branching complexities and
limited transparency. It
explores the pathways and financial consequences for families that are
increasingly tied to major milestones of American life.