A 2023 survey revealed a notable shift in public opinion over the past decade about the value of a higher education degree: 56% of Americans think a four-year college degree isn’t worth the cost due to students graduating with significant debt and a lack of specific job skills vs. 42% who believe college is worth it. The survey numbers have almost reversed from ten years ago, while college enrollment has declined by about 15% over the same period.1-2
A big reason many Americans are foregoing college is the cost. For the 2022-2023 year (most recent data available), the average one-year cost for tuition, fees, room, and board was $23,250 for in-state students at a four-year public college, $40,550 for out-of-state students, and $53,430 at a four-year private college.3 But many schools, especially “elite” private colleges, cost substantially more, with some over the $80,000 mark.4
Causes and consequences
Public misgivings about college intensified during the pandemic, when academic instruction moved online, and students had to pay large tuition bills despite missing out on the positive aspects of campus life. During the 2022-2023 school year, 62% of high school graduates enrolled in college, down from 66.2% in 2019-2020.5
Sky-high costs and growing skepticism are not the only factors playing into enrollment declines. A hot job market and higher earnings for less-educated workers have made it easier for high school graduates to justify skipping higher education and heading straight into the workforce. At the same time, alternative forms of job training, such as apprenticeships and certificate programs, have become more prevalent and are increasingly seen as viable educational paths toward a good job.6
There has been a surge of interest in public colleges, particularly state flagship universities, many of which offer robust academic and student life opportunities comparable to their private counterparts at a lower cost. Conversely, lower student enrollment puts financial pressure on many small schools and forces some to close their doors.7
FAFSA changes coming soon
The Free Application for Federal Student Aid (FAFSA)typically opens every year on October 1 for high school seniors planning to attend college in the following year and for returning college students. However, due to an extensive redesign of the FAFSA, the filing season for the 2024-2025 school year will be delayed until December.
The simplified FAFSA will have fewer questions — 46 compared to 108 previously — and the direct transfer of financial information from the IRS to the FAFSA will now be mandatory. A new student aid index (SAI) will replace the current expected family contribution (EFC) terminology, and a raft of changes to the formula could impact the amount of need-based aid offered to students.
For example, the simplified FAFSA will expand Pell Grants to more low-income students and will link eligibility to family size and the federal poverty level. The income protection allowance for parents will increase by 20%, and the income protection allowance for most students will increase by 35%, shielding more income from the needs analysis formula.
The new FAFSA will no longer provide an advantage to parents with multiple children in college simultaneously. The current FAFSA divides the EFC by the number of children in college, but the new FAFSA does not. This could decrease aid eligibility significantly for middle- and high-income students.
Cash support and other money paid on a student’s behalf by grandparents or other relatives will not need to be reported on the new FAFSA, so they can help with college expenses without affecting the student’s eligibility for financial aid based on the FAFSA. (Grandparent gifts will likely continue to be counted by the CSS Profile, an additional aid application typically used by private colleges when distributing their institutional aid.)
The specter of student loans
Even with a discount on the sticker price, many students must take out federal and sometimes private loans to cover college expenses. About 54% of the class of 2021 graduated with student debt averaging $29,100.8
Federal student loan interest rates are based on the 10-year U.S. Treasury note rate and reset each year. For the 2023-2024 school year, rates have increased again and are now the highest in a decade.
In August 2022, an executive order canceled up to $10,000 in federal student loans ($20,000 for Pell Grant recipients) for borrowers with incomes below certain limits, but the U.S. SupremeCourt struck down the order in June 2023.9
Nine repayment pauses have been in effect since the pandemic began in March 2020. Still, payments will soon start again in October — a sobering reality for millions of borrowers after three-and-a-half years of reprieve.
Will higher education pay off?
Many go to college to pursue a lucrative career and qualify for a specific occupation requiring a bachelor’s degree or higher. One innovative approach is to treat college choices like any other business decision — by considering the potential return on investment (ROI).
A Georgetown University analysis of public data from the U.S. Department of Education’s College Scorecard found a wide disparity in lifetime earnings among college graduates. The average difference between a high school and college graduate’s lifetime wages is about $1 million, but the difference between the lowest- and the highest-paying majors is $3.4 million. Science, technology, engineering, and mathematics (STEM) degrees had the highest ROI, followed by business and health majors.10
Whether a student aspires to be an engineer or a teacher, it’s essential to look hard at earning potential when assessing the value of any academic program. Students who plan to enter lower-paying fields may fare better if they can keep their costs down and hold borrowing to a minimum.
Tips for managing costs
To help avoid overborrowing, here are some ways for students to reduce college costs: pick a college with a lower net price (use the net price calculator on every college’s website); focus on in-state colleges and attend community college for one or two years and then transfer to a four-year college; aggressively seek out need-based and merit aid; live at home or become a resident assistant to get free housing; work part-time throughout college and budget earnings wisely; and if possible, use college credits earned in high school to graduate from college early.
1-2, 5-6) The Wall Street Journal, March 31, 2023, and March 29, 2023
3, 8) The College Board, 2022
4) Harvard University, 2023; Stanford University, 2023
7) CNBC, June 17, 2023
9) The New York Times, June 30, 2023
10) Georgetown University, 2015 (most current data)
Broadridge Investor Communication Solutions, Inc. prepared this material for use by Scarlet Oak Financial Services.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Scarlet Oak Financial Services provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.