First, to be perfectly clear, this is NOT a political piece… AT ALL.
In fact, as I write this, the ultimate make up of the next Congress remain unsettled, while the winner of the presidential election is settled, even if some will dispute that. And I will absolutely leave the analysis of all that to those more qualified… and inclined.
Instead, what I’m going to share in this post is an encapsulated version of the responses I’ve given when I’ve been asked (which is frequently) about how I expect any change in either the legislature or the executive to impact my clients’ educational planning. Again, this information should not be construed as any political statement, it’s merely a look at what I believe may unfold for those of us with college-bound teens.
Here are the three potential higher ed proposals that I am most frequently asked to discuss – as well as my take on whether, how and to what extent (if any) they may affect your planning.
1. Pell Grants: Pell Grants represent the largest bucket of need-based, Federally-funded financial aid available, at least in the aggregate (more on that in a moment). That’s why they garner so much attention. For many lower income families, these grants are an essential, albeit relatively small (as a percentage) component of college access and affordably. For perspective, the average gross Cost of Attendance at an in-state, 4-year public university is about $25,000 (Note that very few families pay the ‘gross’ amount; our/your goal is always to pay ‘net’ or discounted price, which can/should be substantially less! Read on to learn why.)
Pell Grants are typically awarded to families earning less than $50,000 per year; and for the current academic year, the maximum Pell Grant a student can receive is $6,345. Joe Biden has proposed doubling the size of the Pell Grant program by increasing the amount of funding available.
So, what could this mean for your college-bound student and how will any of this impact your family?
The short answer is that for most middle class families it won’t mean much. That’s because a) it is highly likely that an increase of this magnitude will face significant congressional obstacles; and b) the plan does not propose any changes to the qualifying criteria. The grants will still be ear-marked for families earning less than $50,000.
The fact is that Pell Grants are rarely awarded to the middle class. But that’s not as horrible as you may fear. You see, while the Federal Government is and will remain the largest single source of need-based financial aid, the lion’s share of need-based grants for middle class families actually come from university endowments. In addition to legislated (read, politically dependent) federal financial aid, colleges and universities award their own need-based grants and scholarships. And these awards are often designated for middle class families who earn up to $250,000 in adjusted gross income. More importantly, the amounts of these endowment-based institutional awards often greatly exceed the maximum Pell Grant by 4x or more. But there is a catch (there’s always a catch).
Endowment based awards are very much school (and student) dependent. This is why I spend so much of my planning time with families in creating the right admissions strategy. Net net: though Pell Grants get a lot of oxygen inside the Beltway, getting great grants and scholarships, i.e. discounts, for college (for most families) has far more to do with where a student applies to school than it does with which political party is in the majority, much less the White House.
2. Student Loan Forgiveness
In the United States, student loan debt exceeds $1.5 trillion, an amount that surpassed credit card debt (approx. $1 trillion) about a decade ago. Many young Americans face a steep burden in paying off these debts, which keeps them from making important life choices like moving into an apartment, purchasing a home or car, or getting married, which all generate economic activity.
In his proposed plan, Biden has expressed support for a number of previously proposed student debt forgiveness plans that have been previously discussed. More specifically, as a component of a future coronavirus relief measure, Biden endorses eliminating $10,000 for all student borrowers, providing a moratorium on interest and payment maximums for those earning less than $25,000, as well as providing partial forgiveness (for additional tuition debts) for student borrowers earning less than $125,000 per year.
The Reality: Debt forgiveness is trickier than it may seem as it comes saddled with a number of unintended consequences that extend beyond the individual beneficiaries. Many student loan debts are repackaged and sold as securities, similar to mortgage-backed securities. Forgiving such debt could have a serious trickle effect on the financial markets, which makes this topic much more complicated – and thus more legislatively challenging – than simply “forgiving debt”.
3. Tuition-Free College
The idea of ‘free’ college goes back at least to 2016 when Bernie Sanders incorporated this into his primary platform.
For clarity, “free college” refers to tuition at public universities only, and in most cases it addresses tuition and fees only. By contrast, the Total Cost of Attendance for college also includes housing/living expenses, books, etc. Under this proposal, families will still be required to pay for those other expenses. It’s likely that free college will be needs-based (like Pell Grants), meaning only families with incomes below $125,000 will qualify for some kind of benefit.
There is already an existing ‘free college’ model that was implemented in NY. It’s called the Excelsior Scholarship, and offers free tuition to in-state residents who attend in-state schools (CUNY and SUNY) and agree to stay and work in-state after college. We wrote about this plan and its fine print when it was announced a few years ago.
Free college certainly holds some merit conceptually; but as with most well-intentioned programs, there are implications that we should address first. For starters, there is the issue of capacity. With the exception of this (COVID) year, many in-state public universities have seen unprecedented surges in the number of applicants, creating mind-numbing competition, classroom/teacher shortages and in some cases, has led to the creation of ‘creative’ enrollment solutions (including new acceptance designations that admit a student without actually allowing them to participate on campus for the first couple of years). This program has the potential to further erode the actual and perceived quality of education and the state education budget. Additionally, there are some legitimate concerns that when programs like these offset costs en masse, public schools are able to raise prices, which hurts students from middle or upper middle class families who don’t qualify and ultimately negates the benefit for all.
On the other hand, programs such as free college referenced above can apply pricing pressure on private colleges – in a good way. We’re already starting to see downward pressure, tuition freezes and reductions at many private institutions. That’s good news, especially as private college endowment returns remain strong, as these endowments are used to fund the very private school grants that students from various backgrounds enjoy.
In the years since I started this business, we have seen three administrations from different political parties, two recessions (at least), a dozen enrollment booms – and one or two busts. There is one constant. The kids we work with still apply to, get into and graduate from great colleges…with degrees they can actually use and WITHOUT DRAINING their parents’ life savings or taking on onerous student loans.
That is most definitely not an accident.
For the vast majority of the people we counsel, what happens in the White House or on Capitol Hill has and will have little to no impact on their higher education plans. That’s because they’ve planned for those scenarios. A successful college admissions and funding strategy of most often the result of advanced planning. In other words, a great college is attainable and affordable if you make a great college plan. For most families that means looking at academic and affordability planning early in high school. We recommend getting started on a plan in 10th grade (families are on the income clock for need/merit-based grants/scholarships beginning in January of their child’s 10th grade year). And then to maximize all of your options, it’s important to execute on that plan throughout high school, and certainly well before your child completes their first college application (in the summer before 12th grade).
In our office, we have proprietary software that helps us accurately project what our families will have to pay at schools that their children are targeting. (Remember, it’s not the gross price that should garner your attention; rather you should focus on what percentage of that gross you’ll have to bare!) As part of our program, we run these True Net Cost of College scenarios early and update them often.
If you’re the parent of a college-bound high school student and have questions about your child’s higher education plan, admissions prospects and/or net costs for schools on their list, please feel free to send me an email (email@example.com) or call our office at 954-659-1234.
And, if you are interested in getting more just-in-time and regular updates about what’s happening in higher ed, please go to our new YouTube Channel and subscribe. There are already videos posted for you to view right away (topics ranging from How to Estimate the Cost of College to the Impact of COVID-19 on College Admissions). And, going forward, we’ll be sharing important dates, deadlines, analysis and more through this channel.
I welcome your feedback!