Once the admissions decisions start to come in, you’ll face your decision: where should you go? Here are the financial considerations you need to keep in mind.
As the price of a college education continues to rise, many Americans are questioning whether a college degree is still worth it. A college education is an investment of your time and money, and in order to make smarter financial decisions about college, it’s important to be aware of how much you can expect to get out of your investment. In other words, you have to know your
How much are Americans investing in college education?
Calculating the average cost of a college education can be surprisingly difficult. The National Center for Education Statistics estimates the prices for undergraduate tuition, fees, room, and board for the 2015-16 academic year to be at $19,189 at public four-year schools and $43,191 at private nonprofit four-year schools. Based on these numbers, it may be tempting to conclude that the average cost of a college education is around $76,000 at a public four-year school and $172,000 at a private nonprofit four-year school. But thanks to grants and scholarships, many students end up paying significantly less than the sticker price, or the college’s published tuition and fees.
Although the amount a student pays—the net price—is often considerably lower than the sticker price, it can still be a significant financial burden for many students and their families. After all, there’s more to a college budget than tuition and fees. Students pay for room and board, books and supplies, personal expenses, and transportation, and these costs can add up. The average American college graduate carries $37,172 in student loan debt, and this loan burden follows a student long after they’ve graduated. According to a 2017 report by the National Center for Education Statistics, 63 percent of students who began college in the 2003-04 academic year took out federal education loans within 12 years of entering postsecondary education. Of these students, only 23.5 percent paid off their loans or had them forgiven by 2015.
Average lifetime ROI of a college education
So, is a college degree worth this investment? Studies say yes.
A 2014 study by Jaison Abel and Richard Deitz of the Federal Reserve Bank of New York found that since 2000, the average return on investment (ROI) for a bachelor’s degree has remained steady at around 15 percent, “easily surpassing the threshold for a sound investment.” (This ROI was calculated based on the cost of an undergraduate education and the college wage premium—or wages college graduates can expect to earn relative to the wages of high school graduates until the age of retirement, at 65.)
As those with only a high school degree continue to fall behind, getting a college degree may be more important than ever. While we often hear of students saddled with student loan debt, the widening wage gap between college graduates and high school graduates has kept the college wage premium “at an all-time high.” According to Abel and Deitz, college graduates with a bachelor’s degree earn an average of 75 percent more in wages than high school graduates, amounting to over $1 million over a lifetime. A different report from 2011 by the Georgetown University Center on Education and the Workforce puts the lifetime college wage premium at 84 percent, adding up to about $2.8 million on average.
These numbers are promising, but not all college students can expect the same ROI—there are many factors that affect a student’s outcomes. Understanding each of these individual factors is an important and necessary part of making financially smart decisions about college.
Here’s a brief breakdown:
Cost of higher education after grants
Unlike the sticker price of college, the net price can vary considerably depending on the student, and different financial aid packages can dramatically change a school’s ROI. For example, at schools like Yale and Harvard, which promise to meet 100 percent of students’ demonstrated financial need, low-income students may see a higher return on their investment than their peers. For students from high-income families, on the other hand, private universities might be the worse financial decision because their net price of college is much higher. For more information on calculating your ROI, check out Edmit’s article on the topic.
Length of time in school and the likelihood of certificate or degree completion
A startling 40 percent of students fail to earn a bachelor’s degree within 6 years of starting college. “Each additional year in school increases a student’s total cost of attendance and reduces the number of years the student can work in a job that requires a credential,” reports the Urban Institute. In fact, although we often hear about graduates saddled with student loan debt, “the even more damaging outcome is for students who take on debt but never complete their degree,” says the Department of Education, “[and] students' ability to repay their loans depends more strongly on whether they graduate than on how much total debt they take on.” When deciding which college to attend, keep in mind that completion rates are lowest at for-profit schools and highest at public and private nonprofit four-year schools.
Earnings returns from a given level of degree, major, or institution
Your ROI could change dramatically depending on which level of degree you pursue, the major you select, and the institution you attend. In general, more education leads to higher returns, and STEM and business majors have the highest lifetime earnings, but there are important exceptions. Additionally, graduates from selective institutions tend to see higher returns than their peers, but there’s some dispute as to whether this can be attributed to the schools themselves.
>>MORE: What College Majors Make the Most Money?
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The student’s demographic background
“Even when they enroll in the same institution, degree level, and major, students from different demographic backgrounds may experience different earnings returns,” reports the Urban Institute. “The demographic differences in earnings returns can reflect a student’s preferences for work in different sectors or on different schedules, but they can also reflect differences in a student’s access to job opportunities (e.g., the strength of connections to employers or the discrimination of employers against members of certain demographic groups).” Female students, for example, tend to see lower returns than male students even after multiple controls for education.
Local economic conditions
If the economy is bad when you graduate, your ROI will probably take a hit. Research has found that students who graduate into a recession see lower returns than those who graduate into a stronger economy.
Some of these factors, like demographic background and local economic conditions, are outside of your control. Others, however, are based on your decisions. In order to credibly predict your ROI, take as many of these factors into consideration as possible, and continually update your estimate with each bigmajor decision you make.
Finally, let’s look at the word “return.” Although we've focused on financial return, you should know that many advantages of attaining a postsecondary degree have little to do with money. These include self-esteem, knowledge exposure, and other elements of personal value which are important for the formation of personality and character. According to a 2013 report by the College Board, attending college significantly lowers the likelihood of obesity and smoking, raises the probability of civic involvement, and improves overall health, quality of family life, social mobility, and job satisfaction. In other words, the benefits of a college education are not just financial. Students looking to make smart, well-informed decisions about college shouldn’t ignore this side of the college “return.”
How graduate school impacts ROI
College isn’t the end of the ROI story; graduate degrees also make a difference. As a rule, comparing grad school costs and expected payoff, we find that people with more education tend to make more on average. However, having a master’s or a doctorate under one’s belt isn’t always a surefire resume booster. Employability and wage payoff can vary wildly depending on your field of study and occupation. The Bureau of Labor Statistics has compiled a list of 33 occupations that typically require a master’s degree at the entry level. For more information on your major, follow this link to the full Georgetown University Center on Education and the Workforce report.
if you’re considering getting a master’s degree for financial or work-related purposes, ask yourself the following questions. Is a master’s degree required for the job or position you’re pursuing? Do you work in a field that values work experience over a graduate degree? Could a certificate or professional certification help you get that job faster than a master’s degree could? Does your employer offer tuition reimbursement? Remember that there are alternatives to getting a graduate degree—alternatives that may be better suited for your particular interests or goals. If you’re still unsure whether a master’s degree is right for you, the Bureau of Labor Statistics has a lot of helpful resources on the topic.
>>MORE: All About College ROI: How to Calculate the Return on Your Degree
How to Evaluate Your Financial Aid Award Letter
Alongside your acceptance letters from your top-choice colleges, you should be looking forward to your financial aid award letter—the document that tells you how much an individual school will cost you to attend (aka your net price), based on the financial aid you receive.
You may find financial aid award letters confusing because—believe it or not—they’re not standardized. As such, your acceptance letter from UC Berkeley may look very different from Berklee College of Music. Luckily, we’re here to help you make sense of your financial aid award letters. Here is a step-by-step guide to get started.
1 - Am I Getting Free Money in my Financial Aid Package … or Not?
Look at your financial aid award letter. For every line item, ask yourself, “Is this free money?” By doing this, you can compare apples to apples between schools.
First, you’ll want to understand the categories of financial aid packages—need-based versus merit-based.
Need-based aid and merit aid come in a variety of packages and can be called different things. Look for the words “grant,” “aid,” and “scholarship,” as these do not need to be paid back. They are free money, and for now, they are all you want to look at. Deduct these awards from the total tuition and cost of attendance.
2- Get the Full Cost Picture
When you get the summary of college expenses, you won’t just see the cost of tuition—there are fees for room and board, and estimated costs of books and supplies, and other personal or travel expenses. Many schools will give you the estimates, but for others you may have to do some research. (Edmit has all of the information you need on costs.)
We recommend you create a spreadsheet or other visual way to put your net price from each college side by side. The goal is to compare the financial aid award letters from the schools you’ve been accepted to, plus their estimated costs, so you can get a truer picture of what you’ll actually pay for college.
3 - Make up the Difference
Your net cost is the amount you need to contribute on your own, assuming you don’t submit a financial aid appeal letter and then get more financial aid. Once you have your specific net cost, you have to think about how you’re going to pay it. Aside from savings that you might have, here are a couple of ways to cover your net cost of college.
Student Loans
Unlike grants and scholarships, student loans are not free money. No matter the type of loan, they must be paid back in full, with some amount of interest. Federal student loans are sometimes listed in financial aid award letters. Federal loans are subsidized or unsubsidized and come with their own terms. Note: If a PLUS loan is included in your financial aid award letter, this does not automatically mean that you qualify. There is a separate application process for PLUS loans, so be aware of any deadlines and disbursement timelines that may apply.
Federal Work-Study
A work-study program indicates you’ll be able to get a job on campus and earn money. The estimated amount you can earn is usually included in your financial aid award letter. But keep in mind: Being eligible for a work-study job may not be a guarantee that you’ll find a job you want with the right schedule for you. You may still need to search and apply for it. And you may not be using that money for tuition—there’s a chance you’ll want to use your work-study job earnings for other expenses like books or travel. Plus, work-study jobs are usually not guaranteed year to year.
4 - Think Ahead
College is more than a year: it usually takes at least four years to get a bachelor’s degree, and every year has associated tuition and costs. The school tuition can change and is likely to, though some schools freeze tuition or commit to making up the difference in financial aid. (Check your financial aid package or ask the college’s financial aid office about this.) In the case of work-study jobs, the time you have available to work or the work-study jobs available to you can change. Make sure you know what it will it take to maintain your scholarships (e.g., demonstrating your financial need annually or showing satisfactory academic progress by maintaining a certain GPA), and think about changes year to year with inflation.
Most financial aid award letters with a need-based aid component have a clause stating that awards are contingent on further verification (even if you haven't received that request yet). Additionally, you will likely have to apply for re-verification to receive need-based aid in future years. So if there’s anything that has changed in your financial situation as represented in your FAFSA, you’ll want to make sure you think about the impact on your financial aid awards.
Last, don't stay in the dark. Always ask questions if something is not clear. Get in touch with the financial aid office of your specific colleges or speak with a financial aid counselor. You have the right to understand every component of your financial aid award letter!
>>MORE: How to Read and Evaluate Your Financial Aid Award Letter
If your financial aid results are disappointing, don’t despair! You can, and should, request more aid to meet your financial needs. Here, we will cover who is eligible to appeal a financial aid award, how to go about doing so, what to do if your appeal is rejected, and the likelihood of it succeeding.
What Do I Need to Appeal My Financial Aid Award?
Every school has a different process by which parents and students may appeal financial aid offers. In addition, the types of documentation required for an appeal differ based on the underlying reason(s) for the appeal. Many schools, especially larger colleges and universities, publish information online regarding their appeals processes. If you can’t find the information you need, don’t hesitate to call the financial aid office directly. For your appeal to be successful, you must comply with the school’s specific procedures for evaluating appeals, including providing all the necessary documents and information in the formats requested.
As you prepare the documentation for your appeal, it is important to clearly understand why you are submitting an appeal and how much additional aid you are requesting. Be specific: calculate your family’s unmet financial need to determine exactly how much more support you require. (You can keep this number to yourself for the time being.) Be sure to submit all the documentation that is required of you, but do not submit more information than is strictly necessary. The financial aid officer reviewing your appeal does not want extra paperwork.
How Do I Submit a Financial Aid Appeal?
After you have researched your target school’s appeal process and gathered the documentation that you need, it’s time to initiate the appeal process with the school directly. Some schools specify exactly how appeals should be submitted, but unless your school specifically instructs otherwise, we recommend calling the financial aid office to initiate the appeal process. Your goal should be to arrange an in-person meeting with a financial aid officer if you can.
To prepare for the meeting, gather all the necessary documentation, including your acceptance letter and financial aid award letter. During the actual meeting with the financial aid officer, choose your words carefully. Be sure to only “request an appeal” or “obtain a reconsideration” of your financial aid offer. Financial aid administrators are willing to evaluate appeals, but they don’t like to “negotiate” in the traditional sense of the word.
You are unlikely to receive a decision on your appeal during the first meeting, but before the meeting is over, make sure to ask the administrator about the next steps in the process.
When you receive a financial aid letter from a school, you hope that the offered aid covers all of your financial needs. Unfortunately, this isn’t always the case, and you might be asked to foot a bill that you can’t realistically pay without a little extra help. Luckily, there are many ways to fill the gap between your financial aid offer and your ability to pay.
Surprising gap between aid and ability
In some cases, colleges might purposely leave gaps in your aid coverage, meaning that the financial aid they provide does not cover 100% of your attendance costs. Colleges might do this because they do not have enough funds to cover the financial need of all their accepted students, and thus allott their available funds to each student. For example, an extremely high-performing and coveted student might receive 100% coverage, while an average student might receive 90% coverage. The schools expect that many students will be able to find other ways to cover the gap.
>>MORE: How Can I Fill the Gap Between Financial Aid and My Ability to Pay?
If your Expected Family Contribution (EFC) seems unreasonably high compared to your family’s low income and limited assets, look for potential mistakes. Start by logging back into your account and reviewing your answers line by line. If you find an issue on the FAFSA application, you can make changes one of three ways: on the FAFSA website, by mailing in the correction to the U.S. Department of Education, or by contacting your financial aid office directly. For more details, follow the steps on the FAFSA website.If the gap is alarmingly large, there might be a mistake on your FAFSA application or CSS Profile. Each tool asks a lot of questions that directly affect the amount of aid you are eligible for, and there is plenty of room for human error.
Filling gaps through school
Even if there is no more aid available to you through your school, your financial aid office might still be able to help you.
Federal Direct PLUS Loans
The Direct PLUS Loan is another loan available through the federal government. This loan is only available to the parents of undergraduate students, as it is a credit-based loan unlike all other student loans available through the U.S. Department of Education.
Only some schools participate in the Direct Loan Program. Ask your financial aid office if this is an option they offer. Learn more here if you are a parent interested in taking out a Direct PLUS Loan for your student, or read our posts on Direct PLUS Loans.
Repayment plan
Some schools offer repayment plans to help students cover and pay off the remaining cost of attendance. You might be asked to pay this off over a semester or a longer period of time. Call your financial aid office to learn what options are available to you.
Filling gaps outside of school
Once you have done everything available through your school, move on to outside sources to fill the remaining gap. Here are a few of your options:
Scholarships
By the time you receive your financial aid letter, many private scholarship applications will be closed. However, if you dig through Internet searches, you will likely to find ones you are eligible for and that are still open for submission. Start by thinking about your interests, work, or something that defines you, and see if those topics combine with a scholarship.
Pro tip: Apply for any scholarship for which you are eligible, even the small ones. Every dollar of free money towards your education counts.
Get a job
If you have received aid from your school, that package likely already includes work-study, or the amount of money you will be expected to cover through working at the school. This amount is not a cap. Do a budget and estimate how much more you will need to work to cover a significant portion of your aid gap. You might earn additional money through more hours at your college job, off-campus work, and/or paid summer gigs.
Remember that you will have to balance work with your studies. Even if you can physically work a 40-hour week during school, take a step back and asset your work style and situation. Don’t bite off more than you can chew—you might put your education in jeopardy.
Private loans
Before ever considering private loans, it is important to ensure that you are accessing as much federal, state, and school-specific aid as is available to you. Loans through the federal/state government and your institution will have the best repayment plans; the interest tends to be lower than private loans, and the repayment plans are more forgiving and can be deferred, put on forbearance, and even completely forgiven in the right circumstances.
Many private loans do not require payment until after graduation, but they will start accumulating interest upon initial borrowing date. Federal and institutional loans, on the other hand, do not collect interest while the student is still enrolled in school. For a more in depth look at the difference between federal and private loans, check out the FAFSA website.
All of that said, if your heart is set on a specific school, private loans aren’t the end of the world.
>>MORE: Ready to apply to private student loans? Take these steps to get approved.
>>MORE: How Much Student Loan Debt is Too Much?
Regardless, hit the deadline
No matter what path you take, make sure to accept or decline an aid package and have a plan to cover the remaining costs before the decision deadline is up at your favorite school.
