Video: How Much Will College Really Cost and How Am I Supposed to Pay for This?

Presented by Stephanie Mauro, September 28, 2018

Part 1 of 4 in Our College Planning Video Series

Introducing... How to Pay for College Without Going Broke!

As part of our community education initiative, Reby Advisors recently hosted an informational college planning seminar How to Pay for College Without Going Broke, presented by Stephanie Mauro of College Planning 101.

The video below includes data on the cost of college, ranging from community and state colleges to the most expensive private universities. She then discusses different sources of funding for college, as well as some misconceptions that lead people to run out of aid or loan options.

In future videos, you'll discover strategies to reduce out-of-pocket costs, avoid excessive debt that burden the student's (or your) future lifestyle and case studies of successful college planning.

Enjoy the video, and as always, please do not hesitate to call us at (203) 790-4949 for advice on education planning, 529 plans or how to balance these astronomical college costs with your other goals.

Transcript

First, I'd like to thank you all for coming tonight. My name is Stephanie Mauro, I'm the owner and founder of College Planning 101. I started my business in November of '09, and my bio is on the back of the Develop a College Plan, so you can read that at your leisure.

What are we gonna learn today? Well, I always like to start my presentations with today's college costs. It is always an eyeopener for those who have never really looked at the total cost of attendance. Then we're going to talk about what does four years really cost. A lot of families can't get past year one, but I want to bring to your attention that it is at least a four year deal, so we'll look at that.

Then we'll talk about the expected family contribution which I will refer to as the EFC. The two different EFC formulas, there's the FASFA which is the Free Application For Federal Student Aid, and then the CSS profile which about 400 colleges, maybe 500 at this point take. Then we'll talk about the assets that increase your EFC, how it affects the cost of college, and how financial need is determined. Then we'll talk about the aid and types of aid that are available. We'll talk about the merit and need-based aid and how it's determined. Merit is separate from need. Then I have two case studies, and then we'll go through the student loan evaluation.

So 2016, 2017 cost of attendance, NYU, 66. When I talk about cost of attendance, there are actually five parts that you should be aware of. You're going to get billed for tuition, you're going to get billed for room and board. You're not going to get billed for books, that's a whole separate. There are miscellaneous fees like the healthy, and the athletic fee. You say, "Well, my student is not an athlete." Yes, but everybody pays a little bit, and there are fees. Then there are miscellaneous expenses like dorm room stuff, and shampoo, and going out money.

There's a lot to the cost of attendance and some portions are not billed. Fordham University at 65, Quinnipiac, Marist, Manhattan College. Yukon in New York we pay 30, I mean pay 50, in Connecticut you pay 30. I have New York state schools, and you can see you guys would pay 30 in the 30s, we pay in 20s. CUNY Lehman 10 and 20,000, that's actually only their tuition. Their room and board is unique because they don't have housing. Some of the CUNYs do, that's the city universities of New York.

So if your student is interested in the CUNY system, it can be cost-effective even for an out of state resident, but you do have to be aware of the costs associated with rooming. If your student only has one roommate, it's going to be more expensive than if they have three or four roommates. Any surprises?

This is why it's so important that our students graduate in four years, because at the end of four years, the costs are astronomical. Now this is in your packet as well, but it's pretty pretty clear up here. When we're looking at the cost of attendance and we're looking at, in this case a SUNY or a state school, every year, the cost of attendance goes up. I use a 6% increase year over year.

In my nine years of doing this, I have seen the cost of attendance go up at 2 or 3% and as much as 6 to 8%. I feel that when I'm doing the projection, a 6% cost of attendance increase is a sufficient number. I hope I'm wrong too, I hope it's less, but I've seen it go up more than 6%.

With a SUNY at the cost of attendance being 22,000, really merit and need-based aid is not provided to a lot of students. You got to be in the top 10% of the incoming freshmen class, and you've got to be super poor if you will, definitely under 60, 70, 60, $70,000 of income and very little assets in order to see any type of need-based money from a SUNY. Every college actually provides a need at a different level.

I have some SUNYs that actually will provide 80% of need, like the SUNY Potsdam for example, 80%. I'm not sure what UCONN does but I think UCONN is like in the 50% range. You have colleges like Syracuse University that meet on average 96% of need. Of course all the Ivys they only needed 100%. I don't know what NYU does, I'm not sure. They're not very generous. You've probably experienced that.

As you can see year over year at a $22,000 a year cost, at the end of four years it could be as much as $26,000. Today, Binghamton is 25,000, so you know, that's probably going to be closer to 30 at the end of four years. Even at the most cost-effective option in New York or state schools, it's still $96,000 a year to go to college, I mean in over four years to go to college. You're still looking at $100,000 of some type of out of pocket whether you have a five to nine, or you've saved, or you're debting your student up.

The Stafford loan, you'll see this piece here, 55, 65, 75 and 75, that is a very good loan to take and start with if you are going to debt your students up for college. Anybody who's going to go into debt start with the Stafford loan. This year, Stafford loan's interest rate is 5.05% interest. If your expected family contribution is less than the cost of attendance, you get what's called a subsidized Stafford loan. I don't know if that really applies to this audience, but I will explain it anyway.

When your EFC is lower than the cost of attendance, 3,500 of the 5,500 is interest-free, so the government is paying the interest on that portion of the loan. Forty-five of the 65, and 55 of the 75, so all but $2,000 is interest-free. If you started college, if your students started college this year, and you received a subsidized Stafford loan, 5.05% interest is what the current interest rate is for the Stafford loans, and that would only billed on the $2,000 balance. Does that make sense to everybody? Am I explaining that clearly? If I am not explaining things clearly, please do stop me for clarification, okay?

When we get to the private university at $66,000 a year, you may get merit, you may get need, and you can still be out of pocket over $40,000 after taking the Stafford loan and getting ... I hope this was off. Sorry, my dad is in the hospital, so I apologize. When you start putting 6% year over year, at the end of four years a $66,000 college can turn into $78,000.

When I started my business in November of '09, a college would be 58, 59,000 and we'd be like, "Oh, oh my God, that's almost $60,000. That's crazy." Now we're looking at colleges that are over $70,000. The increases have outpaced as we all know, our investment performance, the raises we get. One of the statistics I read was in 2008 when the market crashed, colleges still went up on average 5.8%. They have to though, let's look at it from their perspective. They're running a business.

They've got kids taking five showers a day, they've got a heat, they've got a cool, they've got to provide all the supplies, and the maintenance, and the faculty that have unions and get automatic raises every year no matter what the market's doing. So they do have to pay their bills. For those of you who have visited colleges, they are beautiful, and they're wonderful places for our students to really start their lives.

There's the, "Wow, that's expensive", but then when you start to understand the why behind it, you're like, "Yeah, I get that." NYU just came out with med school for free. They're taking 90 students. If I read the article correctly, I saw 90 students a year, but hey, that's 90 students, but that's going to be the upper echelon, they're not even looking at financials, they're just going to take the creme de la creme 90 students and give them free medical school.

One of my student is applying to dental school, Tufts. He got into Tufts, Yay. Like Yay, 100,000 dollars a year for four years, $400,000 for dental school. Crazy, crazy. Med school is like that too. So we want to be very cognizant of making sure our students graduate in four years, the best way to do that is actually 30 credits a year. A bachelor's is 120 credits.

One of the main reasons why students are not graduating in four years because they're only doing 12 credits a semester, and that's only 24 credits a year. My students, I tell them if you can't ... some majors are very intense like premed, so you really want to maybe do only 12 credits a semester, but then do six credits over the summer. They're like, "Wait, I got to do [inaudible 00:09:31] stuff over the summer?" I'm like, "Yeah, get used to it." When you get into the real world, you don't have summers off, so keep your mind going.

Keep that in mind, a 4-year, a bachelor's degree is 120 credits, and then the students get to their senior year and they're 12 credits shy or whatever, and they have to go for a whole other semester. At the end of four years, what's half that semester? Now we have a fifth year with a possible 6% increase over that. There are natural six year deals, you got your law degree, you have physical therapy, Sienna has a five year MBA program, so you get your master's in business administration in five years instead of six.

There are some really great things out there, and then there are some things that are just going to take six years and you know that going in, but for a marketing degree, and even your premed and any other degree, that's four years, you really want to be cognizant and making sure that the students are doing what they need to do and that their advisors are making sure.

They love that fifth year, there's no FASFA, they're not considered a graduate student so there's no graduate benefits, merit scholarships are no longer because merit scholarships are only for four years. Be cognizant of that in how your student handles their coursework, because at the end of four years, $208,000 is a lot of money to spend for an undergraduate degree.

How am I supposed to pay for this? When we've got your money, your savings, your current income, borrow, children's resources. The only reason why I have the word retirement up there is to remind me to tell you don't do that. That retirement is for you. Unless you have a million dollars and 10 or 15 years more to work, you know you really shouldn't be touching your retirement.

I've had parents take a home equity line of credit out on their house, that's one way, but still, then it's your debt and that payment starts right away. The whole point here is to make good decisions before you get to the fact of having to pay for it, and that can start when your student is a baby, saving in that five to nine plan, and/or making sure that you're not choosing colleges that are so expensive that you are having to debt them up so much.

Another thing that happens is the debt to income ratio for some family starts to squeeze, and we'll look at the end of the presentation at the student loan evaluation. They are very strict about debt to income ratio because they want to make sure you can pay it because so many students are defaulting, $1.3 trillion student loan debt. That's a lot of money and banks are like, "Wait a minute, you keep defaulting." They're very cautious about that, the interest rates are high and they're really looking at the co-signer.

What happens is you get to junior, senior year and you say, "Oh, 40 grand is not bad the first year, did the second year", and then you get to the third year or fourth year, and if your income and debt starts to squeeze because you still have your mortgage, you might have other debt against your income. Then the private loan will say, "We're not going to give you any more money", and you're like, "Wait, what? You've been giving it to me all along." "Mm- hmm, but you don't qualify now."

It actually happened in my girlfriend and she said, "You said it was going to happen. In the fourth year her son could not get ... she could not co-sign the loan, could not do it. Thank God he worked really hard over the summer and he paid for his final year. everybody really be cognizant of that.

My favorite way to pay is other people's money. Gifts from relatives, financial aid, merit aide, educational tax strategies. I do not go through educational tax strategies, I am not CPA. They can change at the swipe of a pen by our government. When your student is in college and you're filing your taxes, please be make your accountant or Turbo tax program aware that you have a student in college, and they will let you know exactly what's available to you based on your income.

I know a lot of the tax benefits, they zero out with income, like they have brackets, if you're under 100,000 you get the full amount, 100 to 150 you gets a portion, and then over 150 gets nothing. There are bracketed amounts that you would qualify for. Definitely, if you're using Turbo tax it'll ask you, do you have a student in college and if you're working with an accountant, let them know as well.

Gifts from relatives are always nice but it's rare. Grandma and grandpa could be saving in the five to nine, that's excellent, that's another way. Financial aid is based on your income and assets, and merit aid is based on the fabulousness of your student.

I have a lot of families who are wealthy and they're like, "Oh yeah, we don't qualify for anything." I'm like, "Well you don't qualify for financial aid." If your student understands the scores they need and and we position them properly for the right college, merit aid is for any student. Admissions looks at the merit, financial aid looks at the financials, and they don't really cross over until the student's file is complete, and then they might start talking.

What they love is they love the student who doesn't qualify for need-based aid. Like, "Oh, we only have to give them merit cut, we'll take this kid", because it saves them money. Now they don't have to fill two buckets. A lot of my families who do qualify for need-based money to get both. I haven't hit the grand slam yet where I had the athletic scholarship, the need-based money and the merit-based money, that's the grand slam I'm waiting for it.

Generally, they do one or the other on athletics. The admissions department, "Hey, you're getting enough on the athletic scholarship." I've had five kids get a full ride, but again, they're real top student, very poor family. That's the sweetness. My brother even said to me, "Yeah, Chris is gonna get a full ride." I said, "Really? In the car?" [inaudible 00:15:47] $200,000 a year. To get a free ride, you have to be poor and have the top student. My brother's like, "Really?" "Well, that's why you hired me, right?" Not that he paid, but anyway. Are we clear on this? Everybody clear? Great.