Hi everyone! Welcome back to Melissa Making Cents!
If you ask a high school senior why “May 1” is important, they will probably tell you that it is “National Decision Day.” Under normal circumstances, May 1 is the deadline for high school seniors to make their final decision for college and submit a deposit to hold their place in the incoming class. But the coronavirus has changed a lot of the “normal” college process.
According to Inside Higher Ed, the pandemic has caused more than 400 colleges to extend the deadline for admitted students to submit deposits. Others have extended application deadlines in an effort to get more prospective students. And students are re-evaluating not only which college to attend, but whether they should attend college at all.
As a certified financial planner and college funding and student loan advisor, I see firsthand how our current crisis is dramatically affecting students and families planning for college. And it’s not only high school seniors mulling over where to send in a deposit! High school sophomores and juniors just starting to think about their search will have new considerations, too. Even in the uncertainty of COVID-19, it’s important to plan ahead and make informed decisions about college. Here are a few of the ways that COVID-19 will change the college planning process (perhaps, dare I say, for the better?).
Impact of Economic Uncertainty
COVID-19 has taken a toll on the economy, which in turn affects how much families might be able to spend on higher education. Open any newspaper, and you’ll see that unemployment rates are through the roof. As of mid-May, there have been more than 36 million unemployment claims in total over the past two months.
Not surprisingly, changes to a family’s financial situation, such as a job loss, affects college affordability. In a recent survey of high school seniors conducted by the Art & Science Group, 63% of respondents weren’t confident that they could attend their first-choice college. One out of five of these students cited unaffordability due to new financial circumstances brought about by the coronavirus. Families with juniors and seniors in high school might feel the most immediate impact of these issues, compared to those with younger students. But any stretch of unemployment can have long-lasting effects on a family’s finances, so economic instability from COVID-19 will affect incoming college students for years.
That brings me to one of the most important pieces of advice I can give you. Even if you don’t think you qualify for financial aid right now, I strongly recommend filling out the FAFSA anyway. You could be pleasantly surprised to learn that you are eligible for some financial aid. Use a "Net Price Calculator" to gauge how much financial aid you might receive. In addition, if your financial situation changes in the future, you can inform the university and ask for the aid package to be reconsidered (and having the FAFSA already on file makes the process a lot easier).
Impact on Colleges’ Finances
Students and parents aren’t the only ones experiencing economic uncertainty due to the coronavirus. Universities are also in a tough spot. On top of declining enrollments (an ongoing trend over the past few years), which affect tuition revenue, changes in the stock market are affecting endowments. Universities are losing cash--fast! In addition, many colleges have partially refunded students’ room and board since campus buildings were shut down in March--which has also had an effect on finances. In an effort to control costs, many colleges are laying off employees or implementing furloughs. Others have implemented tuition freezes, which means that tuition will not increase for students next year.
When it comes to finances, some colleges are more stable than others. It’s always a good idea to see how financially viable a school is, but more important than ever after the turmoil of COVID-19. There are a few resources I recommend checking out in order to understand a school’s financial situation. If you are looking at private colleges, try this Forbes list that analyzes the financial health of about 900 institutions and assigns a grade from A+ to D. Nonprofit universities are also required to submit a Form 990 to the IRS, which will include financial information such as the school’s income, expenses, and endowment. You can find each school’s Form 990 through databases like ProPublica. Be wary of schools that withdraw more than 5% from their endowments each year, as well as schools that spend more than they bring in.
Impact on Student Loans
Interest rates across the board are falling. That’s not great news for savers, but it’s helpful for borrowers! Decreasing interest rates mean that new student loan rates will likely follow suit when they’re announced over the summer. This makes the Direct Loan program a more attractive option for students, since interest rates will be low and repayment terms for this program are very flexible. Keep in mind that a Direct Loan needs to be accepted during freshman year and can be used for up to four years; upperclassmen are unable to sign for the loan if they already passed on it. Even if you are not eligible for the Direct Loan program as part of your financial aid package, it’s likely that private banks will also have lower student loan rates in the wake of COVID-19.
Regardless of where you can take out student loans, it’s important to make sure you aren’t biting off more than you can chew. I work with clients to establish a college budget and student loan plan using the College Pre-Approval™ process, which ensures that student loan debt is kept to a manageable load. Here’s a quick primer on how student loans work and if this might be an option for you.
Impact on Financial Aid Over Time
Let me tell you a dirty little secret that you won’t hear on a college tour--colleges are more likely to be generous with financial aid for freshman year, but not necessarily after. Aid packages are not usually locked in for the duration of the undergraduate program. Some scholarships and grants might be for first-years only, or require students to maintain a certain GPA to keep receiving their aid. In fact, it’s common for students to receive less aid after the first year. If you want to do some research into aid fluctuations, the website CollegeData.com provides averages on student financial aid at different colleges. You can also contact each school’s financial aid office to ask how aid changes for students from year to year--and how COVID-19 is expected to affect future aid packages.
I also tell my clients that it’s not just about saving FOR college; saving ON college is important, too. For students graduating at the top of their class, look into colleges that offer merit-based scholarships for all four years (though keep in mind the criteria or availability of these could change due to COVID-19).
Impact on Negotiating Power
Okay, so maybe a lot of these changes are about “doom and gloom.” But here’s a ray of hope! A little-known fact regarding financial aid is that you are allowed to negotiate. Negotiation is a widely accepted practice in accepting a new job, but many families wouldn’t even think to negotiate when it comes to financial aid. For example, if a student is accepted to two similar schools but receives a better aid package from one of them, request that the other school offer more aid! With enrollments expected to decline even further after COVID-19, some schools will think it is worth discounting tuition a little more in order to fill another seat. Remember, it never hurts to ask!
Impact on 529 Plans
If your family has been investing in a 529 plan for college savings, it’s likely that the account experienced declines as a result of market fluctuations during COVID-19. While fluctuations over time are normal, a dramatic dip right before starting college can be scary. Your concerns over your 529 plan probably depends on whether it’s an age-based portfolio, which typically reduces risk as the student approaches college-age, or a static portfolio that does not automatically reallocate assets to change risk over time. In fact, more aggressive static portfolios with a lot of stocks will have seen more drastic decreases over the past few months.
If you find yourself in this situation, there are a few things you can do. The first option in this instance is to reduce the risk now by adjusting the portfolio. Another option is to use other funds for the student’s first (and maybe second) year to give the market more time to recover, and then use the 529 funds for the remainder of their education. Your action plan will likely depend on how soon the student will go to college--there’s a big difference between three months and three years!
Impact on College Prep
Other aspects of college prep have changed as a result of COVID-19, too. For example, SAT and ACT testing is on pause until June. These tests are a major component of a college application, and often affect eligibility for scholarships and merit-based financial aid. Test optional schools might be a more attractive option for juniors who have not been able to take the SAT or ACT during COVID-19.
In general, students are receiving less guidance about the college search process for both admissions and aid. For example, students are unable to visit campuses in person and must rely on webinars or virtual tours. That makes it harder for students to get a feel for the college culture, make an educated decision about where they will “fit in” the best, and have more in-depth conversations about financial aid. Students have also been unable to meet with high school guidance counselors--often important in the college search process--in person. Similarly, low-income students who use college coaching services might have less accessibility to them during this time. However, organizations like College Possible are still committed to assisting students virtually.
Impact of Uncertainty About Future Instruction
Universities are weighing their options about how to reopen during the next school year. Some schools such as the California State University system have already announced that they will start most classes in the Fall 2020 semester online. Online instruction would affect many aspects of a student’s college experience. If buildings remain closed, then social opportunities could be limited, too. Students may wish to consider local colleges in order to save on room and board--which may or may not be available in the fall, depending on the school and if COVID-19 forces more closures. The Chronicle of Higher Education maintains an up-to-date list of schools’ plans to reopen in fall.
Impact of Educational Alternatives
So with all this uncertainty, what do students want to do? The combination of all the above factors has influenced students’ interest in attending a four-year institution right out of high school. According to a recent survey by the Art & Science Group, 17% of high-school seniors who expected to attend a four-year college full time before COVID-19 now think that they will change their plans this fall, such as undertaking a gap year (35%), enrolling part time in a bachelor’s program instead (35%), attending a community college (7%), or working full time (6%).
“Gap years,” which are popular in Europe, have entered the national conversation as a viable alternative to starting college during a pandemic. A gap year is typically used for other professional pursuits like work or volunteering for the first year after high school, rather than going to college right away. Some colleges will let you defer admission to pursue a gap year, but you would need to check with the admissions office first.
COVID-19 has caused unprecedented changes to the economy and higher education. Remember, there is nothing wrong with deferring college, choosing a more cost-effective option, or choosing another professional path entirely. Finally, if you’re a student or college graduate dealing with loans, it’s not too late to get help! Look into some of the coronavirus relief from the CARES Act or speak with a certified financial planner to help you get your student debt under control.
Until next time...this is Melissa Making Cents!
Melissa Anne Cox
CERTIFIED FINANCIAL PLANNER™ is also a College Planning and Student Loan Advisor in Dallas Texas.