The High Cost of a Cheap College

President Obama called for colleges to rein in their costs during his State of the Union address Tuesday night. But new data shows those who attend schools with lower tuition often end up paying in other ways.

Students who go to the most affordable four-year public colleges are more likely to drop out and to fall behind on their student-loan payments, according to the “College Scorecard” that was released by the U.S. Department of Education today. The tool, first announced by Obama last night, breaks down colleges’ net costs (what families pay after factoring in grants and scholarships), graduation rates and student loan debt, and compares the figures nationally. All 10 of the four-year public colleges with the lowest net prices have a graduation rate that’s below the 58% national average. And student borrowers from half of these schools have a higher federal loan default rate than the 13.4% national average.

At a time when more families are becoming cost conscious about the college they choose, the findings suggest that cheaper isn’t always better. “Part of it is, you get what you pay for,” says Mark Kantrowitz, publisher of FinAid.org, which tracks financial aid and student debt.

In-state families at these schools pay average net prices ranging from roughly $1,400 to $4,000, according to Education Department data for the 2009-10 academic year, the latest available. Yet many of their students still fall behind on loan payments. Of the 10 schools on this list, Dalton State College, in Dalton, Ga., has the biggest default rate: 21.3 % of its student borrowers defaulted on federal student loans before Sept. 30, 2011, within three years of entering repayment, according to data from the College Scorecard. The school is tied with Indian River State College, in Fort Pierce, Fla., and followed by Edison State College in Fort Myers, Fla., at 20.1%.

Carol Jones, financial aid director at Dalton State College, says its borrowers have fallen behind on payments because the local economy has shed many jobs since the recession, making it harder for even its college graduates to find work. She adds that the school accepted most students who applied, and has recently raised its admissions standards. Indian River State and Edison State colleges didn’t immediately respond to requests for comment.

Some college experts say that the dismal figures are also due to the quality of education at lower-cost colleges. These schools are less likely to have the large support staff, including counselors and tutors, who can help students overcome academic or financial setbacks, says Kantrowitz. They’re also less likely to have as many full-time professors or other academics available on campus for students.

With fewer resources, there’s an increased chance of students dropping out. After Dalton State, California State University at Dominquez Hills has the second lowest graduation rate on the list of most affordable colleges, at 24.4%. (The data, which comes from the National Center for Education Statistics, looks at the number of first-time, full-time students beginning college in the fall of 2005, and assesses how many of them had graduated by 2011, six years later.) Susan Borrego, vice president for enrollment management and student affairs at CSU Dominguez Hills, says that to improve graduation rates, the school has been providing more support to students, including more academic advising and summer programs designed to improve study skills. But she says the school’s students — most of whom come from lower-income families — also impact its graduation rates.

In general, colleges with lower net costs tend to attract more lower-income students who are also more at risk for leaving school before graduation if their families suffer a financial setback. (According to FinAid.org, about a quarter of students at public colleges receive the Pell grant, a need-based federal grant, compared with roughly 10% of students at Ivy League schools — where graduation rates are near 100% and loan default rates are in the low single digits.) From there, a domino effect ensues: Dropouts are less likely to have the means to keep up with student loan payments, which in turn leads to a higher default rate for that institution.

For families, the College Scorecard data suggests that finding a middle ground may be the way to go. Families should review the financial aid packages they receive from colleges to pinpoint the ones that will require the least out-of-pocket costs and should then use this tool to see how those institutions’ students fare. They should also do legwork of their own, including visiting the campus and inquiring about their job placement rates. Last year, SmartMoney pinpointed the colleges that help their graduates to get the best salaries. (The Education Department is working on adding employment information in the Scorecard.)

Separately, advisers suggest families shouldn’t be quick to dismiss private colleges with higher sticker prices. Many have large endowments and bigger revenue streams than public colleges that they use to provide more services on campus and more free aid to students.

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Tips for Winning College Scholarship Money

Now is the time for incoming college freshmen to start applying for scholarships to help pay for growing tuition costs.

According to higher education database BrainTrack, more than $3 billion in private scholarships are awarded to college students each year, with the average award amounting to $2000 to $3000 a year. 

But “free money” doesn’t necessarily mean easy money--students must make it their job to put in the time and effort required to maximize their chances of winning award money, says Jon Small, vice president of College Prep at Veritas Prep.

“Preparing scholarship applications should become a part of students’ ‘homework,’ including filling out forms, writing scholarship essays, requesting transcripts from the school registrar, asking teachers for recommendation letters, and visiting the post office to mail out applications on time,” he says.

To get a leg up on the competition, here are five insider tricks for students to max out award money and find opportunities to help pay for college.

Tip No. 1: Cast a Wide, but Selective Net

Students should apply to as many scholarships as possible to increase their odds of scoring aid.

“If students apply for a few large scholarships and wait to see if they win them before applying for others, they can miss out on other scholarship opportunities,” says Marianne Ragins, publisher of Scholarshipworkshop.com. “If students prepare an application package that includes two compelling essays and a student resume, they should be well-prepared to apply for every legitimate scholarship they find.”

Small cautions against applying without abandon, as students can end up wasting their time working hard on an application they don’t qualify for. 

“Students applying for ‘need-based’ scholarships should make sure they truly are eligible for such awards before submitting an application,” he says.

Tip No. 2: Search Local

Students should search for local organizations and businesses in their community or state that offer award money to residents to increase their probability of winning in a smaller pool.

“Even though local and regionally based scholarships may be for smaller amounts, they can add up, and ultimately wipe out a textbook bill or more,” says Ragins. “Some of these scholarships may be easier to win since the number of applicants is often fewer. “

The best places to find possible scholarships are online search engines, scholarship book directories, and the high school guidance counselor’s office, according to Small.

Tip No. 3: Apply to the Right Opportunities

Students should thoroughly research organizations and sponsors offering scholarships as well as the previous winners to tailor their essay or interview to be more appealing, says Ragins.

“If the scholarship has an interview process, they should find out who the interviewer is, their background, and their connection to the scholarship program and/or the college or university--it may help to establish an early rapport in the interview and shows that the student cares enough to do their homework.”

While students want to stand out from other applicants, they need to avoid being overzealous and pushy when it comes to contacting the scholarship committee, warns Chanel Greene, manager of financial aid at Peirce College.

“The reason why most businesses or organizations create the application is so that everyone has the same chance to express themselves in the same manner,” she says. “Should the committee have questions, they will reach out to the student.”

Tip No. 4: Get Creative with Responses/Essays

Students should use their essays to tell their stories in an interesting narrative way and not repeat the information already provided in their resume, suggests Small.

“Students should focus on the emotions they felt or the personal impact an experience had on them or others in order to better illustrate the meaning of those experiences and to keep the essay readers engaged,” he says.

As long as the student is answering the question the scholarship application is requiring, a little creativity shouldn’t hurt, Greene says.

“The student should always be mindful of his/her audience and use appropriate language when completing the application.”

Tip No. 5: Go Back and Edit

Experts say many applicants automatically disqualify themselves from winning because of spelling and grammar mistakes. It’s also a good idea to review responses to make sure they are concise, clear and accurate.

“I normally advise students to edit and proofread a printed copy at least three times, particularly if the application includes an essay or series of essays,” says Ragins. “They should also let someone else who is proficient at reading and writing essays review their completed application as well.”

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College May Not Be the Best Choice for Your Education Dollar

The traditional route to career success follows a pretty straight academic line: hard work in elementary school, followed by hard work in high school, followed by hard work at the best college you can afford. Vocational education, on the other hand, is often treated as a consolation prize -- the second-best option for the second-best kids. But for a new generation facing rising college tuitions and high post-graduate unemployment, old-fashioned vocational studies might offer the best chance at a solid career and a lifetime free of debt.

According to a recent survey, 50% of recent college graduates are unemployed or underemployed; many, in fact, are resorting to the kinds of entry-level jobs that they went to college to avoid. In a recent Chronicle of Higher Education article, economist Richard Vedder tried to explain why: He sees America as facing a glut of college graduates, as the supply of people with high priced degrees exceeds the demand for them. Noting the large number of college grads occupying manual labor positions, he argued that their average wages -- which dropped by 4.17% between 2008 and 2010 -- were likely to continue to fall.

A Better Option

Meanwhile, things are looking up for skilled workers, demand for whom remains strong. As a recent CareerBuilder survey reported, 40% of employers complained that they were unable to find sufficient skilled workers to fill their available positions. This is particularly striking in manufacturing, where employers are heavily targeting foreign workers and military veterans to fill open positions. For students who can get into the programs that prepare them for such jobs, the employment future could be promising.

Not surprisingly, the demand for skilled workers has driven up their wages. According to a 2012 study by Georgetown University's Center for Education and the Workforce, 39% of men with an educational certificate earn more than men with an associate's degree, and 24% earn more than men with a bachelor's degree. For people in a STEM field -- science, technology, engineering or mathematics -- things are even better. According to another study by the Center, 63% of STEM workers with associate's degrees make more money than the average person with a bachelor's degree in the humanities or social sciences. Similar discrepancies exist across all levels of educational attainment, suggesting that what a student studies may ultimately matter a lot more than how long he or she studies it.

Finding a Good Vocational School

As demand for skilled workers has risen, so has enrollment at vocational schools ... and the tuition of many programs. Even so, trade schools and community colleges can be a bargain when compared to traditional four-year colleges. According to the Department of Education, the average cost of a year's tuition, room and board at a four-year college is $20,986; at a two-year school, it's only $8,451. Added to this, it takes a lot less time to complete a program at a trade school or community college, so the full cost of a program of study, on average, is $67,482 less at a two-year school.

But the value of a vocational program varies greatly. Many private companies have jumped into the market, hoping to tap into the rich river of federal student aid money flowing into the trade school market. Unfortunately, many of their programs are overpriced, unaccredited, or lack strong placement programs, which means that students who enroll in these for-profit schools' programs can easily find themselves graduating with a lot of debt and few job prospects.

Luckily, there are several ways vocational students can protect themselves from choosing a bad program. The first step is ensuring that the program they're considering is accredited: The Department of Education has an easy-to-use accreditation database.

Having checked to see that the program carries a U.S. government seal of approval, the next step is ensuring that its benefits are worth its cost. Companies like Glassdoor and Salary.com can give a good idea of the likely salaries that graduates of a particular program will garner. Depending on this, students can calculate the amount of money that they can reasonably expect to borrow. A general rule of thumb is that your loans shouldn't exceed one year's post-graduation salary.

Another great resource is Department of Education's default rate database, which reports on the percentage of students who default on their loans. Schools with high default rates may be charging too much for a particular certification.

Bumps on the Road to a Vocation

One of the problems facing vocational students is a lack of government leadership when it comes to funding. Despite President Obama's outspoken support of post-secondary vocational training, there has been a distinct gap between the his rhetoric and his administration's policies. In its 2012 budget request, the Department of Education cut funding for career and technical education by $263.8 million, more than 20%.

On the other hand, the Obama administration was far more generous toward traditional college education. In the same year that it slashed spending on vocational training, it increased financial aid to college students by 29% and added a 35% increase to its tax breaks for college students.

Put another way, the federal government spends over $166 billion on student aid and over $14 billion on tax benefits for college students, but only $1 billion on vocational education.

Yet, government lassitude aside, the demand for skilled workers is continuing to rise, bringing higher salaries in its wake. In other words, for students who are willing to do the necessary research and planning, community college and trade school, once the neglected children of the American educational system, are starting to look like really good bets.

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When Is an 'Affordable' College Is 'Not Affordable' at All?

It's easy to imagine that the well-worn path from high school to college to gainful employment has always been the norm, but you don't have to look too far back into the past to find a time when that wasn't the case. Only after the GI Bill took hold following World War II did Americans start going off to colleges en masse. In fact, we only recently surpassed the milestone of 30% of U.S. adults holding a bachelor's degree.

That being said, Americans' drive to get an education is growing at an accelerating rate. Enrollment in degree-granting schools rose 38% between 1999 and 2009, an astounding jump considering the same metric grew by just 9% in the preceding decade.

And that growth isn't just happening at four-year colleges and universities. In 2011, a record 43% of students were enrolled in community colleges. And what was once a small niche -- for-profit education -- has burst outward, climbing from 366,000 students in 2000 to 1.5 million by 2009.

As these for-profit schools become more and more commonplace, it's worth investigating whether they are worth the price of admission.

Dollars and Cents

Other than health care, no expense for American families has increased as much over the past 10 years as college education, so students should weigh their options -- both public and private -- carefully.

Of course, not every school costs as much as, say, Sarah Lawrence, which -- when tuition and room and board are considered -- adds up to $59,170 annually. But based on broad averages, for-profit institutions generally sit in the middle of the pack.

If you're after a four-year degree, it's almost twice as expensive to attend a for-profit school as it is to go to an in-state public university. If, however, you're strongly considering going out of state or to private school, there are considerable price advantages to picking a for-profit school.

Price is one thing; what about quality?

There are several ways to address the quality of schooling, and no method will ever be universally agreed upon. In the end, the student is the real judge of the quality of education he or she received.

But there are governing bodies in place that monitor how well schools meet national quality standards. In the past couple of weeks, stock in Bridgepoint Education (BPI), a prominent for-profit school, plunged 61% on news that it failed to meet the standards set by the Higher Learning Commission and the Western Association of Schools and Colleges. Bridgepoint, however, is just one company, and isn't necessarily indicative of the for-profit education industry as a whole.

If, however, you were to use graduation rates as your measure of a quality educational institution -- and after all, what are you studying for if not to get your degree? -- then for-profit options fail badly. Over four-, five-, and six-year periods, for-profit schools have abysmally low graduation rates when compared to both private and public nonprofit schools.

The crucial thing to notice here is that public institutions -- which, if you pick an in-state school, cost half as much as for-profit schools -- have a graduation rate two-and-a-half times that of for-profits schools. After six years, fewer than one in four students at a for-profit school has earned the bachelor's degree they were aiming for. With numbers that poor, it's reasonable to wonder why anyone would enroll at a for-profit school in the first place.

It's All About Flexibility

Beyond the cost advantage versus out-of-state and private institutions, for-profit education also has the added benefit of providing the kind of flexibility most students can't find anywhere else. As most FPE schools have online courses, necessary work can be completed whenever works best for the student.

That's in stark contrast to the historically rigid schedules most students expect when attending a traditional university. This may help explain why twice as many for-profit education students are over 24 years old, and are married or have dependents. They are also more likely to be working day jobs.

Though that flexibility may sound enticing, based on the completion rates, clearly, many people who thought they could balance work, family and school weren't able to, and dropped out before graduating.

It's likely that traditional colleges and universities will soon catch up to for-profit education and start offering the same flexibility. But that doesn't help students who want to start working on a degree right now. For-profit schools should only be considered after the costs, quality, and potential outcomes are weighed. For far too many, for-profit education hasn't lived up to its promises; but if you go in with eyes wide open, there's a chance it could work for you.

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