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Planning for the Soaring Costs of College During the Pandemic Era

Airline tickets and hotels may be cheaper than we can recall in our lifetimes, but one high ticket item that is not on sale is a college education. The good news for parents is that time is on your side. You’ve no doubt heard the advice that the sooner you start saving, the better off you will be, which, of course, is true. But, today, amidst a global pandemic, increasing school costs, and less financial aid, parents hoping to help their kids through college need more than savings, they need a strategy.

 

J.P. Morgan recently released a paper titled, COVID & College: Taking Control of College Investment Plans. The authors paint a sobering picture with soaring tuition costs and withering financial aid. They also explain how parents can take on the challenge head-first by implementing a smart financial plan, as evidenced in their research.

 

SOARING COSTS, WITHERING AID

College costs are at an all-time high. Historically, tuition has been increasing at 6% per year, and even under the current climate and with remote learning taking place on most campuses, this figure is expected to hold steady. At the same time, there is less available financial aid despite greater need, with 64% of current and incoming college students saying that COVID-19 has increased financial aid need, according to Scholarships America.

 

Enrollment is down and non-tuition revenue sources have dried up

Due to virtual learning and social distancing practices coupled with job loss across the country and restrictions on foreign student entry, it’s no surprise that college enrollment is expected to drop by 15% this year, according to J.P. Morgan., resulting in a $23 billion revenue loss. In addition, colleges are facing the prospect of lost government aid, fundraising dollars, and sporting event revenue, which accounts for 70-80% of their total revenue, according to the National Center for Education Statistics.

 

What does all of this mean for you as the paying family? It means that tuition could spike even higher than it is today as colleges and universities pass on their costs.

 

Less money to lend from college institutions to corporations to private donors

Like much of the havoc that COVID-19 has unleased upon the economy, the bleak financial aid picture for college students is no exception. With colleges facing major revenue losses, their ability to lend to students has withered. Similarly, the federal and state governments have less money to hand out, and corporations, which were once major sources of scholarship money, find themselves in a less giving position as they face an uncertain market. Philanthropic giving has also dried up as alumni and donors similarly fall into conservation mode. The final piece of bad news is that student study work programs are few and far between as many students across the country remain on lock-down.

 

But of course, the money is not just drying up on the corporate end. Parents are facing job loss, furloughs, and pay freezes causing more families to apply for financial aid. It’s a classic problem of supply and demand and doesn’t bode well for the borrower. And, if you’re banking on a scholarship to help out with the cost of college, remember that only 3% of students get a full ride. The silver lining, if there is one, is that interest rates are at record lows.

 

DEVELOPING A COLLEGE PLAN

Despite the bleak college picture, there is good news. Families who have a college savings plan in place save 3x more than those without., according to J.P. Morgan. Even during the global pandemic as financial aid requests have spiked and corporations, institutions, and governments have tightened their belts, 529 contributions have increased. According to ISS Market Intelligence, “investors have contributed $800 million more into 529 plans during the first half of 2020 vs. 2019, despite COVID-19.”

 

529 plans are popular because your money grows tax-sheltered over a period of time and you can withdraw the money tax-free for a qualified educational payment. 529 plans can be opened for children, grandchildren or even yourself for professional education coursework.

 

Families are juggling so much right now and thinking about college expenses can be overwhelming. With interest rates at record lows, savings alone are not enough to cover the cost of college. Stocks and other long-term investments offer more growth potential and can help you meet the steep cost of college tuition. Yet, in a volatile, unpredictable market, during a global pandemic, knowing how to allocate and diversify your investments is more important than ever. A wealth advisor can help you think through your options so that you can meet your college savings goals. As a financial ally focused on working with women, I am here to help you navigate the days, weeks, months and years ahead as we all adjust to the “new normal” in the age of COVID-19.

 

Kathleen McQuiggan
Kathleen McQuiggan
Kathleen McQuiggan is a Wealth Advisor at Artemis Financial Advisors where she works with clients to create sustainable financial plans and investment portfolios.

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