Reassessing College Amid a Pandemic

As colleges and universities announce their plans for the upcoming semester, many families are worried about footing the bill for a significantly different experience. Is it worth it to shell out tens of thousands of dollars, or to go into debt, for virtual learning that may not fit the style of the student? A few colleges are extending discounts for the arrangement, but many more are not, some are even charging more, even as millions find themselves in a far worse financial condition than they were when financial aid was granted.

Let’s start with the basics: a college degree pays off financially over the long term. According to analysis from the Georgetown University Center on Education and the Workforce, “median lifetime earnings rise steadily for workers with increasing educational attainment.” 

Over the past two decades, the premium on college education has grown to 84 percent, while the penalty for not finishing high school is steep, almost $9,000 a year. The paper emphasizes that while the degree is valuable, the monetary pay off varies “depending on the degree type, age, gender, race/ethnicity, and occupation of an individual.” (Georgetown has a separate analysis, which ranks 4,500 colleges and universities by return on investment, which is eye opening.)

PAYING FOR THE PRIVILEGE: Presuming that you buy the concept of college attendance, there’s the thorny issue of paying for it. With many universities extending their deadlines to accept offers, now is the time to renegotiate your deal. If you have seen a reduction of income due to Covid-19, you need to communicate with the school immediately and try to increase the amount of financial aid that you will receive. Remember that each college uses slightly different terminology, so be sure to clarify how much of the package is free money and how much is a loan or work-study.

Perhaps the only bright spot of the crisis as it pertains to higher education is that the federal government’s interest rates for student loans have dropped to historically low levels. For new federal loans disbursed between July 1, 2020 and June 30, 2021, the rates are:

• Undergraduate = 2.75%

• Graduate = 4.3%

• Grad PLUS and Parent PLUS loans = 5.30%

Undergraduate loans come in two flavors: Direct Subsidized Loans and Direct Unsubsidized Loans (aka “Stafford Loans”). Direct loans have slightly better terms, but students can only borrow up to $5,500 per year, while unsubsidized loans allow borrowing up to $20,500 (less any subsidized amounts received for the same period) depending on grade level and dependency status. PLUS loans, the category that gets a lot of families into trouble, is capped at the cost of attendance (determined by the school) minus any other financial aid the student receives.

The new federal rates are fixed for the life of the loans, but only impact money borrowed for the upcoming academic year. That means you have to live with the higher rates associated with any loans that were previously disbursed, unless you choose to refinance those federal loans into private ones. Doing so could reduce your interest rate, but it will also mean that you forego the federal government’s various payment options, including deferment, forbearance, which current borrowers are entitled to until September 30th, and income-based repayment options.

No conversation about college would be complete without a warning: a college degree may be worth it, but only if you earn it with a reasonable amount of debt. College funding expert Mark Kantrowitz recommends borrowing less than a graduate’s first-year salary. For parents, it is important NOT to risk your own financial security by borrowing too much.  Kantrowitz tells parents not to “borrow more for all your children than your annual income. This includes cosigned loans, a cosigner is a co-borrower, equally obligated to repay the debt. This assumes that retirement is 10 or more years away.” If you are less than a decade away from retirement, you need to borrow less.