The Board of Regents of the University of Maryland recently raised undergraduate tuition for the 2003-04 school year by as much as 21 percent over last fall's rates after a contentious debate over how to respond to Gov. Robert L. Erlich Jr.'s order for another round of budget cuts. Virginia public colleges also imposed significant increases this year -- their third in 12 months. School administrators say it is the only way to contend with state reductions to education funding that have totaled more than $120 million at the University of Maryland. Jobs are being eliminated.
How can the average person afford to get a college education?
Timothy Hayes, executive director of the National Institute of Certified College Planners and independent financial planner, will be online Tuesday, July 22 at 2 p.m. ET, to talk about the challenges people are facing with rising tuition costs and to offer practical suggestions on how to deal with the problem.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
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washingtonpost.com:
Timothy Hayes, welcome to washingtonpost.com. With tuition rates increasing so rapidly and and in such high increments, how can the average person afford to go to college?
Timothy Hayes: I think it's difficult for the average person to afford to go to college and they should consider perhaps some alternatives that they may not have considered in the past. For example, state college as opposed to private. Thta will lesson the costs dramatically. Furthermore, they might consider spending the first couple of years to a community college, tranferring to a public or private four-year college to complete their studies.
Parents have to start saving sooner, saving more if possible, and just generally look for ways to economize on the cost wherever possible.
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Amherst, Mass.:
Is it better to take out loans or pay in cash for tuition? We can pay outright, but that leaves us kind of cash poor.
Timothy Hayes: Depending on the parents' income level, loans, in part, may be a good alternative because a portion of the interest may be deductible so that could make the cost of taking out the loan lower and more attractive relative to paying from assets available now.
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Washington, D.C.:
Hi, I was wondering if there was a single source that a parent can go to and look at trends in tuition increases across the nation, so I can get a better idea of what the rates are like at other colleges?
Timothy Hayes: They can go to the College Board Web site which is www.collegeboard.com. College Board is the source of these statistics so you can get the information from their site.
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Chapel Hill, N.C.:
I am a graduate student with a small amount of money (relative to my tuition) in an IRA from a former employer. Should I use this money to supplement by educational expenses? I also have a small amount in savings. Should I use this also?
Timothy Hayes: If you have to use this money, yes. Preferably savings first, IRA last. You're going to need the money for retirement and there are tax consequences to spending the IRA money, so any amount that you take out will be reduced by the taxes you must pay on the distribution. It's an expensive place to get your college money from.
You certainly don't want to run your savings down but if that's the only place you can get the money from, better that it comes from there than the IRA.
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Indiananpolis, Ind.:
I think small state colleges are SOOOO(!!) under appreciated. I wasn't until my son got entered one that I really came to appreciate it. The price is at least tolerable, the classes are small and his social life is much more stable than his friends at larger schools. I'd appreicate your comments about smaller schools like these. Thanks.
Timothy Hayes: Personally, I attended a small private college by choice because I wanted smaller class sizes and I wanted to be taught by the professors -- not by teaching assistants which, I think, is typical of a lot of the larger colleges. So I agree with you but some students pefer the larger school, the larger campus. If someone wants the film school at UCLA then they have to be prepared for a large campus.
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Germantown, Md.:
Does it help to lock in a rate at this year's costs for state tuition for a child who is 4 years away from college?
Timothy Hayes: It certainly does to the extent you can do that safely without putting your investment at risk. Many pre-paid tuition programs are underfunded so there's a risk there. If instead you have an arrangement with the college that isn't based on a pre-paid tuitiion plan, that's much safer and is a wise thing to do so long as you're not locked into an arrangement that you can't get out of without a penalty if your child doesn't complete their studies at that school.
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State College, Pa.:
I opened 529 plans for my two kids in Pennsylvania, choosing the prepaid tuition option rather than the market return option. Given the 10 percent annual tuition hikes we seem to be seeing each and every year, how will these prepaid tuition plans work if investment returns don't cover this sort of increase?
Also, why are college costs rising at a rate that is more than triple the rate of inflation? Do they exercise absolutely no fiscal restraint?
Timothy Hayes: The short answer is you could be forced to cover the difference. Pennsylvania's plan does not guarantee that the pre-paid tuition will cover the full cost. They're not required to make up shortfalls.
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Herndon, Va.:
Tim,
Where do we look for a Certified College Planner?
Thanks.
Timothy Hayes: You can go to the NICCP (National Institute of Certified College Planners) Web site at www.niccp.com and look under "CCPS Listing." If you put in the abbreviation for your state you'll get the Certified College Planners in your area.
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Washington, D.C.:
What are your thoughts on the proliferation of these so called "College Service Centers" that claim to identify the ideal school, file the proper paper work and locate aid for parents?
Timothy Hayes: Like any professional service, there are some that are good and others that are not and it can be difficult sometimes knowing the good ones from the bad ones. There's no particular license or credential required for somebody to offer that service so your best bet may be to start by looking for a certified college planning specialist in your area.
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Orlando, Fla.:
What happens if a pre-paid tuition program is underfunded? I have purchased a pre-paid tuition for my son and am concerned about how the state may back out of the agreement.
Timothy Hayes: Florida's plan does provide a "full faith and credit" guarantee that requires the state to make up any shortfalls. So you should be okay with Florida's plan.
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Peoria, Ill.:
In Illinois, we have the option of a regular 529 savings plan or we can "buy" semesters worth of college. Obviously, the prior has the risk of me losing what we put into the 529. The latter's risk is that I may not earn as much on my investment since the plan gets all of the earnings. Does one of the options stick out as being better than the other? (I'm at the point where I'm going to just flip a coin.)
Timothy Hayes: The Illinois 529 savings plan has several very conservative investment choices that should help to minimize the risk of losses; however, Illinois's pre-paid plan has a weak guarantee unlike Florida's and is not backed by the full faith and credit of the state to make up shortfalls. I would favor the 529 savings plan with a conservative investment choice to avoid the risk of losses.
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Timothy Hayes: A 529 plan is a college savings plan that enjoys special tax treatment. Earnings in a 529 plan are free of federal and state income taxes if spent for qualified higher education expenses.
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Newport, R.I.:
Does Congress plan on stopping the "sunset" provision for the 529 plans?
Timothy Hayes: No one knows but I suspect that Congress will renew the exemption for 529 plans. The growth in 529 plans has been tremendous over the past several years and I think Congress recognizes the importance of tax laws that encourage saving for college.
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Capitol Heights, Md.:
Hello Tim, I have a 19-month-old. Who knows how much college will cost by the time she's 16 or 17. Should I start saving now, how much, and in what type of account?
Timothy Hayes: Yes, you should start saving immediately. I can't answer how much you should save because we'd have to make some assumptions about future cost of college and what you could expect to earn on your investment over the next 16 to 17 years. I would suggest that you consider Maryland's 529 savings plan. Contributions of up to $2500 can be deducted from your state income tax. So this gives you an added tax benefit that other investments don't.
You might also want to consider a Coverdell Education Savings Account. This is a second type of tax-favored college savings vehicle. You can contribute up to $2000 per year and you can invest the money anyway you like.
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Timothy Hayes: For those people who would like general information about their state 529 plans and would like to evaluate their state plans, they can go to www.savingforcollege.com. This is an excellent site with comprehensive data on every state's plan and an objective evaluation of the characteristics of all of those plans. It's a great resource and there's no charge.
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