Keep a laser-like focus on costs

By Rajkamal Rao  

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Primer on US College Costs

US college costs can be broken down mainly into the following categories:  application fees, tuition, books, test fees (SAT/GRE/TOEFL), test preparation fees, other administrative fees, housing, visa fees, food, health insurance and transportation (both to get to the US and local transportation costs once in the US).  Many of these fees are start up expenditures and are neither trivial nor refundable.  Good examples here are the application fee, your test fees or the US visa fee.  Here's a four year graphic for Texas A & M in College Station, Texas.

 As you can see, the two largest components of US college education are tuition fees and living expenses (housing and food).  

Credit Hours and Tuition Fees

A credit hour simply represents one hour of class per week for one term or semester.  Most US schools break up an academic year into semesters (Fall, Spring, Summer) and each semester generally is 16 weeks long.  For example, the Fall semester typically starts the last week of August and runs through the third week of December.

Let's say you sign up for a class that awards you 3 Semester Credit Hours (SCH).  What this means is that for the next 16 weeks, you will meet your professor in class (lecture or lab) for 3 hours a week.  Perhaps you meet twice a week for a 1 hour 20 minute class; or you meet for a full long 3-hour class in the evening (with two 10-minute breaks included).  The idea is that you will receive 16 x 3 = 48 hours of instruction for that class throughout the semester.  If your semester is shorter (as in the Summer when there are fewer weeks in the calendar), you will simply end up meeting for more classes during the week.

Colleges charge their fees based on credit hours.  If the out-of-state tuition costs for a semester hour are $400, it means that you will pay $1,200 to sign up for this 3 SCH class.  Note that at US Public universities, residents who live in the state are provided huge discounts in tuition costs of up to 50%, sometimes more.  That is, for the same class, your friend who sits next to you and has lived in the state with his family for many years may only pay $200 per credit hour for a total cost of only $600.  This differential pricing is annoying but unfortunately a fact of US academic life.

Most states require people to have paid taxes for at least one year before they can qualify for in-state fees.  Private schools do not discriminate in their fees - all students, resident, non-resident or international pay the same fees.

We now know how much tuition you will pay to complete a single class.  But how much will you spend to earn a full degree? A typical four-year BA/BS degree will require you to complete 120 credit hours. So, at $400 per credit hour, this works out to $48,000 for the entire degree - approximately $12,000 per year.

Some schools do the math for you and publish fees for the semester (or year) assuming that you will complete 15 credit hours per semester/30 credit hours a year.  For example, the University of Texas in Dallas (a Public university) charges in-state tuition of $5,903 for the Fall semester but an out-of-state tuition of $15,189 per year - a discount of 61% for residents.

What if you are interested in Graduate School to earn a MS/ME degree?  Luckily the principle is the same.  You pay by the credit hour.  Each class is typically 3 SCH (some, like a Masters thesis could be 6 SCH).  Most MS degrees are awarded if you complete 36 SCH - that is, 12 Masters level courses if you don't pursue a thesis.  At UT Dallas, an international student pursuing a MS degree would pay $4,138 per course - and nearly $50,000 for a 12-course Masters degree.

Credit Hour Transfers

Most colleges and universities honor credit hours earned at other colleges and universities, with some limitations.  For an MS degree, up to 9 credit hours earned at another US institution could be transferred although some schools limit this to just 6 credit hours.  What this means is that if you attend University A in the Fall semester and sign up for three classes (each with three credit hours), you could potentially transfer to University B for the Spring semester with all those 9 credit hours in tact.  Your new school will recognize those hours but won't assign a grade to them when you receive your degree.

For BA/BS degrees, transfer programs especially from 2-year community colleges are a lot more lenient and well defined.  In other words, you could attend a 2-year community college where tuition rates are much lower and complete up to 60 credit hours - half the needed credit hours to graduate - and transfer all those credits to a 4-year college.

We will now look at ideas to lower your cost of attending college.  A lower starting cost results in lower borrowed amounts and a quicker payback of the loan resulting in higher ROI.

The three most obvious ways to lower how much you pay for college are to somehow negotiate a better deal with a school or obtain a better financial aid package from it or other private sources (scholarships, work-study, etc) or both.  Financial aid for US students is mostly need-based although a few merit-based programs are available.  There are many books that you can consult to maximize your award - in fact, the best person to help you get started would be your high school guidance counselor.

We provide four additional ideas which work well for all students, needy or not.  

1.  Exploiting articulation agreements between two and four-year colleges  

A little known secret, indeed jewel, in the American education system is its two-year community colleges.  This system truly has no parallel in the world.

Community colleges are the next level up from K-12 education and are found just about everywhere, generally, at least one community college per county.  The mission of community colleges has always been the same - to provide education for individuals, many of whom are adults, in its service region.  As the US economy ebbs and flows, as US jobs are outsourced to other nations, as job retraining becomes a critical need - community colleges play a vital role in imparting continuing education to American citizens.  And they get lots of money from the state and federal government to conduct their mission.

The facilities are excellent - though not as good as one would find at a 4-year university - but compellingly impressive for an incoming student.  Community colleges are a great way to test-drive a 4-year college to see if college is indeed the right choice for you.  Professors are not as qualified as at a 4-year university (most community college lecturers have no more than a Masters degree) but their commitment to teaching is generally excellent.  Many teachers have day jobs working full time in industry and return to the community college in the evening to teach.  In fact, many students who attend college are working full time in industry but are catching up on college credits to earn towards a four-year degree.  The focus therefore is not on partying or having fun - but instead on learning and getting home to their families after they are done in class.   

The best kept secret yet is that most good community colleges have articulation agreements with top schools.  An articulation agreement is a legally binding agreement between a 2-year community college and a 4-year college detailing a simplified but guaranteed transfer from one to the other.

The idea of articulation is that you complete a pre-determined set of courses (or lesson plan) at a lower-cost college and transfer to a destination institution without questions asked (as long as you meet all conditions of articulation).

Suppose you are interested to get a degree in Biomedical Sciences at the prestigious Texas A&M University.  What are your chances of getting into Texas A&M as a traditional undergrad?  Even if you rate your chances as high, what would be the cost?

At Austin County Community College (ACCC), an in-district Texas resident pays $255 for a three credit hour course.  The same costs $1,400 at Texas A&M, more than 5 times as much.

Luckily for us, ACCC and Texas A&M have signed a binding agreement.  Accordingly, if a student completes a pre-determined list of courses at ACCC totaling 67 credit hours, obtains at least a 3.6 GPA and doesn't score lower than a B in science and math, this student is automatically guaranteed admission to Texas A&M!

Let us look at the ROI analysis for an in-state student.  For this exercise, we are only considering tuition and fees but omitting all other expenses (living, health insurance, transportation, etc).

Traditional Option:  Complete 67 Credit Hours at Texas A&M
Total Cost: $27,970.36
[$5057.09 for 12 credit hours x 5; plus $2,684.91 for 7 credit hours]

Articulation Option:  Complete 67 hours at Austin CCC
Cost at ACCC: $5,695 ($85 per credit hour x 67 credits)

We calculate that over four years, your savings are $22,275 resulting in at least a 4% uptick in ROI, all other things being equal.  Plus it was probably easier and more structured to get in to TAMU to begin with - without the pressure of taking SATs and other college tests.  You earn an Associate’s degree along the way which you can add to your resume.  And this is a win-win strategy because your 4-year degree will still be stamped by Texas A&M.  Many famous Americans have exploited this route, so you won't be alone.

There is just one issue with this approach, though.  Not every four-year college has articulation agreements with community colleges.  And by definition, articulation agreements are restricted to partners within a state - that is, the community college and the four-year college both are generally present within the same state making transferring across state lines difficult.

Recognizing this gap, Quad Learning, a private company has slowly begun developing a network of community colleges and four-year colleges across the country, called American Honors.  The site's mission statement says: "In collaboration with local community colleges and nationally renowned experts in higher education, we create new pathways for individuals to earn a high-quality bachelor’s degree."

The New York Times reports that at the community colleges participating so far, students in the honors program pay about $2,000 per year more in tuition than their classmates. Quad Learning has long-term revenue-sharing agreements with each college.  “We like to think about the price as being halfway between a community college and a four-year, open-access university,” said Chris Romer, president of the company. “If we can do the first two years of college for $12,000, that’s a game changer for a lot of families.”  Partner schools include Ohio State, Vanderbilt, Stanford, the University of Arizona and Georgetown.

No matter which approach you choose - the in-state articulation method or the American Honors route - the win-win benefits are clear.  You can more easily get into a top quality degree program but at a significant discount.

2.  State merit-based, no-questions-asked financial aid  

In recent years states like Georgia, Tennessee, Florida, New Mexico and West Virginia have begun to offer innovative programs typically based on state lottery revenues which, for qualifying students, can pay 90% of the cost of tuition at a public school for students that graduate from the state.  Unlike most other scholarships which distribute funds from a limited pot of money so that the number of awardees is also limited, these programs make awards to any student who qualifies.  In effect, this is an entitlement.

Georgia's HOPE Scholarship is available to Georgia residents who have demonstrated academic achievement and who wish to study in a college or university in Georgia.  Essentially, a student who wins this scholarship pays nothing in tuition. 

If you happen to live in a Platinum, Gold, Silver or Bronze state that also happens to offer scholarships such as Georgia’s, the ROI will be outstanding.  Not only will you pay very little to attend college, but the state’s economic might will help you start a promising career fairly easily.   

3.  Work-study based colleges  

The College of the Ozarks, a Christian school in Point Lookout, MO has a unique model.  You agree to work while you study and the college doesn’t charge you any tuition at all so that you graduate debt-free.  The work is coordinated by work supervisors on campus.  Students work 15 hours per week, and two 40-hour work-weeks during the academic year.  If students participate in the summer work program, these hours are applied toward room and board charges for the upcoming academic year, so even your cost of attendance is essentially paid off.

Other examples of schools that follow this model are little known institutions such as Berea College or Alice Lloyd College.

4.  Studying Abroad  

Studying abroad is not for everyone but it is definitely an option to place on a college-bound student’s table.  For students who are interested in a foreign language such as German, French, Chinese, Japanese, Portuguese or Spanish, for example - studying abroad is the way to go.  The ability for them to get immersed in the foreign country’s culture, history, and society when studying, living and perhaps working is unsurpassed. 

The desire to learn a foreign language really well is not the only reason to consider studying abroad, however.  In some fields, there really is no better option.  If you are into science, automotive engineering, the environment, heavy machinery or green energy, Japan and Germany are the places to go to.  If you are interested in literature, history or philosophy, consider a university in France.  If art, sculpture and Renaissance-era paintings are what interest you, there’s no better place than Italy.

According to Fox News, the Institute of International Education is working to double the number of US students studying abroad by 2019.  To reach the goal, IIE will focus on recruiting more low-income students and others who have not participated in high numbers. Already, 160 US colleges and universities have committed to participate.  The campaign, dubbed Generation Study Abroad, seeks to have 600,000 U.S. students studying abroad annually in five years in either credit or noncredit programs — compared with the 295,000 students who did so in the 2011-12 school year.

Until about ten years ago, studying in a foreign country meant that you had to learn in that country’s language.  But in recent years foreign universities have recognized the need to offer programs in English as English has slowly taken hold as the international language of choice.  These countries always had generous programs to subsidize tuition or even eliminate it for their own residents.  Seven countries, including Germany, Finland, Norway, Slovenia, Brazil and some regions in France extend this benefit to foreign students as well:  tuition is 100% free or heavily discounted.  The Washington Post has an excellent article about studying in these countries. 

German universities offer what are called “International Programs” in which the medium of instruction is English even for German students.  The German Academic Exchange Service (DAAD) is the largest funding organization in the world supporting the international exchange of students and scholars.  A recent search on the DAAD site revealed that there were more than 1,700 such programs offering undergraduate degrees in every imaginable field. 

Germany’s higher education institutions enjoy an excellent reputation and are divided into Universities (which generally award Ph.Ds) and Universities of Applied Sciences which offer mostly “practice-oriented” degrees (engineering, business administration, social sciences and design).  Germany’s co-op model links industry to academia so that many students have an opportunity to intern at companies and later, even obtain jobs.  Part of the allure of studying abroad is to learn the local language which is why learning German is still highly recommended.  And tuition is free in most cases.  But getting in is not always easy, as the Wall Street Journal reported recently. 

For us, studying abroad by paying very little or no tuition is a great way to improve ROI.  True, living costs in many European cities are higher than their American counterparts but if the costs of attendance can be reduced by 50% or more, this option becomes attractive.

Consider the case of a student who wants to study international business in Germany.  The DAAD site gives us many choices but let’s look at one.
Clicking on the link reveals that living costs (rent for an apartment, utilities, transportation, food, etc.) are estimated to be between 800 EUR and 1,000 EUR per month - about $900 to $1,120 at current exchange rates of 1.12 dollars per Euro.  The course duration is seven semesters (3.5 years) and includes two semesters abroad: one semester at one of the international business (IB) partner universities abroad (approx. 70 worldwide), and one semester at an internship (business placement) in a company operating internationally.  The total cost of attendance is about $47,000, about half of the $96,000 estimate we had at Texas A&M.

Let us use our familiar ROI model with the same assumptions.   Remember that you can get a federal loan to study abroad.  The US Department of Education says, “Whether you plan to study abroad for a semester or get your entire degree outside the United States, you may be able to use federal student aid to pay your expenses. The type of aid you can get—and the process you must follow—will depend on the type of program (study-abroad or full degree) you plan to enter.”

Using our trusted Wells Fargo loan calculator we see that when we keep our monthly payment close to $700 (the amount our TAMU grad paid when graduating in 4 years but whose starting salary is higher, at $55,200, TAMU's stated average), the following loan terms would be applicable:

Total loan amount (principal only): $31,000.00 ($47,000 - $16,000 down payment)
Total interest paid: $4,494.10
Total principal and interest paid: $35,494.10
Monthly loan payment: $739.46

The loan will be paid off in just four years, not the 15 years for the TAMU grad.  The ROI jumps an amazing 8 percentage points.  The point of inflection over the high school grad drops to just 9 years after which the income gap widens substantially.  See below:

There are several creative ways to lower tuition costs - obtaining need-based financial assistance from your target school is not the only way.  Fewer dollars spent on education mean a lower loan burden, quicker payoff and a higher Return on Investment. 

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