Our colleague and college specialist Donna Cournoyer contributed the following update for college planning, as a follow-up to her April article, Shifting the “Dream School” Mindset
There are many factors that shape the philosophies, policies, and practices of colleges throughout the US. However, the overarching key factor is this: colleges are businesses that need revenue to exist.
Most of this revenue comes in the form of tuition and housing fees that families pay each year. And of course, fundraising and building upon existing endowments are significant contributors, too.
Endowments are permanent funds, used as a self-sustaining funding source for the school’s mission, including funding for scholarships and grants for students.
However, endowments are invested funds and only a small portion is consumed each year. In many cases most universities spend only the interest that accrues annually from the investments.
The need for colleges and universities to enroll a certain number of students each year, in order to stay within their operating budgets, drives institutional goals and determines how the schools market to students they want to attract.
The Enrollment Cliff
Another factor driving the enrollment policies of universities is the significant decline in the number of college-bound students expected in the years ahead.
This drop in predicted enrollment is a function of a declining birth rate; fewer high school graduates choosing to go to college (related to price and value perception, among other reasons); and predicted lower high school graduation rates.
This puts a lot of pressure on colleges and universities to meet their enrollment goals each year, in an environment where it’s getting harder and harder to do.
How Colleges Entice Students
Marketing is a large expense at many colleges and universities. Schools want to entice students by creating beautiful grounds, building new dorms, providing the latest technology in classrooms, and guiding families on tours where they aim to make an emotional connection with the student.
Schools market to all students and families on the tours – even the ones who cannot afford to attend.
Think about this: as has been a common practice for decades, many families create a list of schools based on perceived elite status, reputation, location, aesthetics, amenities, and, of course, academic programs. Sometimes, price is considered before visiting. But often it isn’t.
Then families visit their chosen schools, where tour guides aim to make that highly charged emotional connection with the student (and the student’s family). They are often very successful. When you come down to it, this is the process of the sale, and tour guides are selling the school to the student.
What happens next?
The student makes a snap decision to attend one of the visited schools based on feeling and emotion (I have seen this many times in my experience working at a university) and ultimately the family agrees.
Cost might not even have factored into the decision, and this can have far-reaching financial implications for the student and parents.
Consider this: the four-year sticker price for many schools now totals nearly $400,000, which is very close to the current median price for existing-home sales in the US, according to the National Association of Realtors.
In a Bloomberg article from September 26, columnist Charlie Wells said something that resonates with me as a college planner and financial advisor:
“Financial advisers say having a budget and setting expectations is crucial to avoiding disappointment — or mountains of debt — later. (Just think: Would you let your 16-year-old decide which house you were going to buy after one walk-through? School choice is not so different.)”
Looking at a family’s plan to pay for college is intertwined with many factors including the ways in which colleges aim to attract and solidify commitments from students to attend their school.
When planning your strategy for choosing and paying for college, remember these key points:
- Rankings: Some of the factors that have been touted for years about U.S. News and World rankings, for example, are starting to take a back seat as many people no longer believe they are relevant to deciding on a college.
- Elite Status: Studies have shown that WHERE a student goes to college is not a significant factor in their success.
- Apply to Competing Schools: This may give you a chance to leverage offers from one school to gain additional funds from another, as many schools will “match offers” to get a student to commit.
- Set Financial Expectations: Have a Financial Plan and start early. Discuss together as a family what are the realistic and agreed upon financial strategies: How much are parent(s) willing and able to contribute? Will anyone need to borrow? What is the student’s responsibility? Do this BEFORE visiting and applying to schools.
- Merit Scholarships and Financial Aid: Research the financial health of the school, along with their policy and average amounts of aid and merit scholarships. This is not always transparent so call the Admissions staff to ask for average, if necessary.
- Appeals: While not everyone’s favorite process, often students may benefit from appealing their offer. Remember, schools need to make their enrollment, so offering additional incentives is a way in which they aim to do so.
One of my goals as a college financial planner is to help shift how parents perceive “what is the best school for my student”.
I’ve observed that families with well-planned strategies that consider the current landscape of college admissions are more likely to conclude their college search confidently, and are more successful in ensuring that, in the end, their college dollars are well-spent.
-DC