Editor’s note: Annual sticker prices are approaching $90,000 at some of the nation’s elite schools — well above the 2021 median family income of $70,784 (the latest figure from the U.S. Census Bureau). For some answers on what families need to know about President Biden’s loan forgiveness plan, why college has gotten so expensive, and how to rein in college costs in a rising interest rate environment, Rethinking65 caught up with Mark Kantrowitz. He is a nationally-recognized expert on student financial aid, scholarships, student loans, college savings plans and education tax benefits.
Jerilyn Klein: It seems everyone is well aware of the huge debt that many students have taken on to go to college, but there’s also huge disagreement on what to do about it. What is your opinion of President Biden’s plan to cancel up to $20,000 in student loans for many borrowers? Is it likely the Supreme Court will let it stand?
Mark Kantrowitz: The President’s student loan forgiveness plan is not well targeted at borrowers who are struggling financially. Some borrowers will get forgiveness, despite being capable of repaying their loans. Other borrowers will get some forgiveness, but not enough to pay off their debt in full, despite struggling to make any payment.
For example, a third of borrowers age 65 and older and half of borrowers age 75 and older are in default on their federal student loans. Many of these borrowers are on fixed income, depending on Social Security to live. Yet, their Social Security benefit payments are offset to repay the defaulted student loans. The federal government gives with one hand while taking back with the other. Why not just forgive the student loans of senior citizens? That would cost less than $60 billion. [There is currently more than $1.76 trillion in outstanding student loan debt in the U.S.]
The financial challenges faced by many borrowers who will qualify for forgiveness under the President’s plan are not really related to the pandemic. The pandemic is just an excuse to use the waiver authority under the Heroes Act of 2003.
Solicitor General Prelogar [the lawyer who in March represented the Biden Administration on its loan forgiveness plan before the nine justices] was very well prepared for the U.S. Supreme Court hearing. She may have convinced one or even two justices.
There are two aspects to the cases. One is whether the plaintiffs have demonstrated legal standing to bring the lawsuits. The other is an evaluation of the cases on the merits. If neither plaintiff has legal standing, the U.S. Department of Education will win the lawsuits and forgiveness will occur. If either plaintiff has legal standing, the U.S. Department of Education might lose the case on the merits, 50/50 odds.
Overall, the U.S. Supreme Court is likely to have a 5/4 split decision. As to whether it is favorable or unfavorable to the U.S. Department of Education remains to be seen.
JK: Recently nearly 500,000 students were approved for federal student-loan forgiveness under a one-time waiver program for public sector jobs. What is your opinion of that effort?
Kantrowitz: President Biden has forgiven more federal student loans through existing student loan forgiveness programs than any previous president. In addition to the one-time waiver, there are also changes to make some disability discharges automatic, the borrower defense to repayment and closed school discharges.
Public Service Loan Forgiveness (PSLF) is a complicated program. I warned that the complexity would be a problem when it was enacted. But, Congress insisted on the complicated requirements to reduce the cost of the program. The Biden administration has done a lot to simplify and streamline the program, significantly increasing the number of borrowers who qualify for forgiveness. But, it is still a complicated program.
JK: What is your take on the recent heated debate over college rankings, particularly the influential U.S. News & World Report rankings?
Kantrowitz: The U.S. News & World Report rankings are more about perpetuating a college’s reputation than evaluating institutional quality. To a large extent, a college’s graduation rate depends on the students who enroll at the institution. U.S. News & World Report does not normalize the outputs based on the inputs. It is very easy to be generous to low-income students if you don’t have many of them. The below-average enrollment of Pell Grant recipients also contributes to the colleges’ above-average graduation rates.
Another problem with the U.S. News & World Report rankings is they are not personalized to the individual student. They are not based on the criteria that are important to the student.
JK: Annual college sticker (published) prices for the 2023-24 academic school year are approaching $90,000 at some of the Ivy League universities and have surpassed $80,000 at a number of the nation’s other elite schools. What factors have been most responsible for driving up costs in recent years? How much has general inflation entered into the picture this year?
Kantrowitz: College costs depend on the salaries and benefits of faculty and staff, facility costs, equipment costs and energy costs, all of which go up faster than inflation. In addition, the awarding of financial aid, whether based on financial need or merit, introduces a multiplier effect. So, the sticker price is about double the net price.
College affordability has been decreasing because government grants have not kept pace with increases in college costs. This shifts the burden of paying for college from the government to the families. The families must either shift enrollment to lower-cost colleges (e.g., from private to public and from four-year to two-year) or borrow more. This drives up student and parent loan debt at graduation.
JK: What percentage of families actually pay sticker prices, and is there a typical profile (income and net worth) for those who do?
Kantrowitz: A quarter of college freshmen and 38% of all undergraduate students pay the full sticker price for their college education, based on an analysis of data from the 2015 Integrated Postsecondary Education Data System (IPEDS). The figures in this table are still mostly valid.
In general, students are more likely to pay full price at public colleges, Ivy League colleges and the most selective colleges. They’re less likely to pay full price at southern colleges, small colleges, Historically Black Colleges and Universities (HBCUs) and less selective colleges. Higher-income students (from families with adjusted gross income exceeding $100,000 per year) are more likely to pay full price.
College students are about twice as likely to pay full price at a public four-year college as they are at a private, non-profit four-year college (28% and 13% of freshmen, respectively). Undergraduate students are much less likely to receive institutional grants at public, four-year colleges than at private, non-profit four-year colleges. However, the cost of attendance at a public four-year college tends to be lower than a private, non-profit four-year college, even with institutional grants reducing the net price.
JK: What should families consider when comparing schools at different price points? There’s a lot of data in the College Board report “Trends in Student Pricing.” Which costs or figures should they be looking at or budgeting for?
Kantrowitz: There are two sets of figures that students should consider.
There is the full sticker price (sometimes referred to as a “student budget”), which includes tuition, fees, room, board, books, supplies, equipment, transportation and miscellaneous personal expenses. The figures for full-time undergraduate students for the 2022-23 academic year, from the “Trends” report, are $27,940 for an in-state public four-year college, $45,240 for an out-of-state public four-year college, and $57,570 for a private four-year college.
Then there’s the net price, which is the sticker price minus gift aid. Gift aid is grants, scholarships and other money that does not need to be repaid. The net price is more important when considering how much the college will really cost you. Personalized net price figures are available from the college’s net price calculator. Average net prices for specific colleges are available through [the National Center for College Statistics’] College Navigator. I’m reluctant to provide overall average net price figures since they vary a lot by college.
The net price is more important when considering how much the college will really cost you.
You can get a high-quality college education at most in-state public colleges, but at a quarter to half of the cost of a private college.
JK: For elite students who don’t qualify for need-based aid at the Ivy League schools, what are some less expensive colleges and universities that are worth exploring for an Ivy-like education and opportunities?
Kantrowitz: There are many high-qualify public colleges, such as UC Berkeley, UCSD, UCLA, UMass Amherst, University of Texas at Austin, University of Virginia and Georgia Tech, among many others.
There are also about 400 international universities that can provide a prestigious college education at lower cost than a U.S. private college. Some of these countries do not charge tuition for international students, although the living expenses and transportation costs can be high.
The international colleges that are eligible for U.S. federal student aid have a federal school code. You can search for them using the tool provided by the U.S. Department of Education. Set the State to Canada, Mexico or Foreign Country to find the 400 international universities.
JK: What factors might make students from wealthier families eligible for some need-based student aid? How can families negotiate aid awards?
Kantrowitz: Currently, the financial aid formula divides the parent contribution portion of the EFC [expected family contribution] by the number of children enrolled in college at the same time. Increasing the number of children in college from one to two is almost like dividing the parent income in half. When two or more children overlap in college, even a family with a six-figure income may qualify for grants. This loophole, however, will be eliminated starting with the 2024-25 FAFSA [Free Application for Federal Student Aid].
Financial aid is based on financial need, which is the difference between the cost of attendance and the EFC. There are two ways to increase financial need. One is to have a lower EFC. But, the other is to increase the cost of attendance. A wealthy student might not qualify for financial aid at an in-state public college, but may qualify for some financial aid at a higher-cost college.
Most “negotiation” is really a professional judgment review in disguise. When a family’s ability to pay is affected by special circumstances, they may qualify for more financial aid by submitting an appeal to the college financial aid office.
Special circumstances include changes in financial circumstances from the base year to the present, such as job loss or pay cuts. They also include financial circumstances that differentiate the family from the typical family. This can include high unreimbursed medical and dental expenses, high dependent-care costs for a special needs child or elderly parent, and disability-related expenses.
All students should compare colleges based on the net price. This will let you consider the financial fit in addition to the academic fit and social/environmental fit.
JK: How can students maximize their chances of qualifying for merit aid and scholarships?
Kantrowitz: Students should search for scholarships on free scholarship-matching websites, such as Fastweb.com and the College Board’s Big Future. Answer all the optional questions in addition to the required questions for about twice as many matches.
Students should apply for every scholarship for which they are eligible. Winning a scholarship is partly a matter of luck, not just skill. So, applying for more scholarships increases your odds of winning one.
If you have trouble writing essays, try recording yourself as you answer the question out loud. Then transcribe the recording. Add an outline and reorganize it to add structure. Most people think and speak at about 200 words per minute, but write or type at about 30-60 words per minute. So, the act of writing interferes with the flow of thought. Answering the question out loud will yield a more fluid, personal and powerful essay. It also takes just a minute and a half to write a 300-word essay.
A similar technique works for proofreading. Print out the essay so that it looks different than on the screen. Read it out loud. Anywhere you stumble, mark an X on the essay. Then, review the disfluencies. These are often a sign of a grammar, lexical, structural or logical error. Correct the problems and repeat the proofreading process.
JK: Rates on federal student loans and federal PLUS loans have recently increased. What do families need to know about this and take into consideration when borrowing money?
Kantrowitz: Interest rates on federal student loans are likely to increase by another 2 full percentage points on July 1, 2023, compared with last year’s interest rates.
Focus on free money first. Grants and scholarships do not have to be repaid, while student loans are repaid, usually with interest.
Live like a student while you’re in school, so you don’t need to live like a student after you graduate.
Aim to borrow no more for your entire education than your expected annual starting salary after graduation. If your total student loan debt at graduation is less than your annual income, you should be able to repay your student loans in ten years or less.
If you do need to borrow, borrow federal first, because federal student loans are cheaper, more available and have better repayment terms.
If you have extra money after making the required payments on your student loans, make extra payments on the loans with the highest interest rates. This might be a credit card instead of a student loan. This approach to accelerating repayment of your loans will save you the most money.
JK: Thanks, Mark, for sharing all this helpful information.
Jerilyn Klein is editorial director of Rethinking65.