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It Still Takes Smarts To Pick Cost-Effective College, But New Law Helps

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By JOHN F. WASIK

Bloomberg News

Published: August 26, 2008

Better tools to help you find the best college values are coming, but you will have to supply the mental muscle to make them work.

A revised version of the Higher Education Act became law Aug. 14. Although it will make colleges more accountable for tuition and fee increases, it will do little to lower college costs for the majority of U.S. families.

Among an array of changes, the law will streamline financial aid forms, attack corruption in the student loan business and make college costs more transparent.

In theory, the frustrating task of comparing colleges side by side will become easier. The law calls for the creation of a user-friendly Web site that will provide cost estimators and data on tuition prices, graduation rates and popular majors.

Most of this information is available on several sites now. The government's site probably will make it easier to compare the information in a meaningful way.

It would be desirable to be able to compare similar colleges to determine the best education for the price, which is often the most difficult part of college selection. Although universities cannot be rated like cars and appliances, there are some considerations that are often overlooked and may not be included in the government data.

Doing The Comparison

Two often-neglected figures are the rate of fee increases and the total cost. Both should be staples of college financial planning.

Massachusetts, for example, charges almost $15,000 annually for state schools, compared with a national average of about $13,000, according to 1693 Analytics of Williamsburg, Va., which tracks national trends in tuition and room-and-board costs.

Equally important is that during the past five years, average bills at the Massachusetts schools have climbed about 10 percent, compared with about 7 percent nationally. Washington state schools, which charge about the same as those in Massachusetts, kept their rate of increase at about the national average during the same span.
State colleges in Florida are a comparative bargain, averaging a little more than $10,000 annually for the 2006-07 academic year. Better yet, during the past five years, the schools raised their tuition, room and board by only 2.7 percent.

Florida is a bargain relative to New Jersey state universities, which average more than $18,000 a year and raised fees at more than twice the rate of Florida colleges.

To put New Jersey in perspective, state-college expenses are roughly twice what you would pay in Arkansas, Idaho, Louisiana, Mississippi, South Dakota, Utah and Wyoming.

Brand Obsession

Why are there such disparities among the states?

"The reality is that national averages don't help college savers predict future costs with any real accuracy since costs are local in nature," says Burton Baker, president of 1693 Analytics.

Then there's the "higher price equals quality" belief. Aren't top-tier schools worth the price in terms of post-graduate opportunities and the value of their degrees?

No Financial Plan

With a college education, reputation has a powerful sway, and we frequently confuse price with quality. In many cases, you will pay for a top-notch education, with tuition, room and board at private colleges averaging more than $40,000 a year.

Is perception reality? Not even the best college will make you successful or entrepreneurial or help you survive the corporate maelstrom. Bill Gates, Microsoft Corp.'s chairman, dropped out of Harvard University and did fine.

"People are so caught up in branding," says John Pearson, a certified college planning specialist in Norwalk, Conn. "They don't care what it costs. I'm currently working with a family who has a son with a 3.9 grade-point average who's also a top-ranked athlete. They're willing to pay an education consultant $11,000, but won't spend $2,500 on a financial plan."

Public service workers gain the most in the new legislation, which offers up to $10,000 in loan forgiveness for students who enter jobs such as public defender, prosecutor, firefighter, military employee, law enforcement officer, educator, nurse and "others serving in the public interest."

Another small plum is the "unbundling" of textbooks, giving students more flexibility to buy only the materials they need. Books have become inordinately expensive, with some students spending $1,000 or more annually.

If you're a lower-income household, Pell Grants are being increased to $6,000 next year from $4,800 in 2008-09. They will rise to $8,000 in 2014.

Looking Beyond Price

Congress also made it easier for low-income families to apply for financial aid through a streamlined, two-page FAFSA-EZ form.

Shopping for college is more than getting a good fit for the student and vetting the "sticker price." It's essential to project what total costs will be, based on the specific college's rate of fee increases.

Dovetail that process with comprehensive financial planning to see what resources will be available in the future.

You might consider using a fee-only financial planner who doesn't work on commission or a certified college-planning specialist.

In any case, it makes sense to craft a long-term financial plan. Although you may be able to borrow to pay for college, that won't work for retirement.

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