Who pays for college education? Not Mom and Dad

 Published: Tuesday, 23 Jul 2013 | 2:38 PM ET

 

By: Sharon Epperson | CNBC Senior Commodities Correspondent and Personal Finance Correspondent

 

 

Mark Gall | Washington Post | Getty Images

A new study finds parents are footing a smaller portion of the college tuition bill as families become more cost-conscious. The burden is shifting to the student, who now has to depend on money from other sources to pay for rising college costs—and many are also finding "free money" to pay for a large chunk of the tab.

According to a report released Tuesday by Sallie Mae, scholarships and grants have trumped parental contributions as the No. 1 source of paying for college for the first time in four years.
Scholarships and grants paid for about 30 percent of college costs in the 2012-2013 academic year, up from 25 percent in 2008-2009, the Sallie Mae study found. Meanwhile, contributions from parental income and savings dropped from 36 percent four years ago to 27 percent today. Student borrowing has risen 4 percent in that time and now covers 18 percent of college costs.

"Student borrowing has leveled off in the past few years, but parent income and savings has come down considerably," said Sarah Ducich, senior vice president for public policy at Sallie Mae. Parents are "just as willing to stretch to pay for college," she says, "but they don't have the money they had prerecession."

Meanwhile, as parental contributions have declined, "college and universities are stepping up," Ducich said. That may also be another factor that has changed who pays for education costs. "The majority of students getting scholarships are getting them from universities and colleges," she says.
Eric Charity got a free ride from Penn State University and he didn't hesitate to take it—even though the school was not his first choice. Charity had dreamed of following in the footsteps of his older brother and cousins, who graduated from Princeton University. But he changed his mind after being offered a full academic scholarship to Penn State.
"When it was my time, my parents really needed some help financially for me to attend school," he says. If he had gone to Princeton or the University of Virginia, his other top choice, Charity says he "would have been in severe debt."
With the university scholarship as well as private scholarship from a local nonprofit, Charity paid for tuition, room and board, fees and other expenses (including a new computer and school supplies) for four years with scholarships. He graduated from Penn State in 2010 and earlier this year got his law degree from William & Mary, which he chose in large part because of cost.

Students and their families are increasingly following Charity's path. "We've seen parents bring their spending down. They're eliminating schools more frequently as they go through the [college selection] process, so that by the end about two-thirds of families have eliminated a school due to cost," Ducich said, referring to Sallie Mae's new report on "How America Pays for College."
As incoming students and their families see recent graduates facing a tough job market, they are also more reticent to spend or borrow great sums of money for college, financial advisors say.
"If your college-educated kids make less money, then you spend less money on their degree," said Ivory Johnson, founder of Delancey Wealth Management. "If you hear stories about degreed friends who are burdened by student loans, then you borrow less money."
Using that lens, more families are choosing colleges and universities based on cost. It's an encouraging trend, Ducich says. "Making the choice that's affordable not just for the first year but the fourth year as well is so important."

Parents pay less of college costs

 

A new study by Sallie Mae digs into just where the funding for college is coming from. CNBC's Hampton Pearson offers insight. 

 

Tips for finding free money for college

• Sallie Mae, the nation's largest private student loan provider, offers these tips to help students find more scholarships:
• Start searching for scholarships as early as possible. You can begin as early as ninth or 10th grade, as scholarships for younger students sometimes have less competition. The key is to start early and renew efforts year after year to take advantage of additional opportunities.
• Sign up for a free online scholarship search service. Sallie Mae's free database lists more than 3 million scholarships worth over $16 billion.
• Expand your search. Not all scholarships will be found online: check with local clubs, religious organizations, employers and your guidance counselor. Local scholarships tend to be less competitive. Also, corporations often award scholarships to their customers or children of employees.
• Don't be intimidated by the competition. Scholarship judges look for other qualities such as leadership and volunteerism, and many don't ask for GPA or standardized test scores. Make sure to showcase commitment and depth with involvement in campus clubs or organizations.
• Don't overlook unusual opportunities. Some organizations offer scholarships to highlight interesting career opportunities, hobbies or products. In fact, there are scholarships such as the Scholar Athlete Milk Mustache of the Year Award and the Stuck at Prom Duck Brand Duck Tape Scholarship Contest.
• Search year-round. There are many scholarships available all year long, and scholarships due in the winter can have less competition. Treat scholarship searching and applying like a part-time job, as many opportunities come up throughout the year.
• Watch out for scholarship scams. Scholarship searches should be simple and free to use.

20 Things The Rich Do Every Day

So what do the rich do every day that the poor don’t do?
Tom Corley, on his website RichHabits.net, outlines a few of the differences between the habits of the rich and the poor:

1. 70% of wealthy eat less than 300 junk food calories per day. 97% of poor people eat more than 300 junk food calories per day. 23% of wealthy gamble. 52% of poor people gamble.

2. 80% of wealthy are focused on accomplishing some single goal. Only 12% of the poor do this.

3. 76% of wealthy exercise aerobically 4 days a week. 23% of poor do this.

4. 63% of wealthy listen to audio books during commute to work vs. 5% for poor people.

5. 81% of wealthy maintain a to-do list vs. 19% for poor.

6. 63% of wealthy parents make their children read 2 or more non-fiction books a month vs. 3% for poor.

7. 70% of wealthy parents make their children volunteer 10 hours or more a month vs. 3% for poor.

8. 80% of wealthy make hbd calls vs. 11% of poor

9. 67% of wealthy write down their goals vs. 17% for poor

10. 88% of wealthy read 30 minutes or more each day for education or career reasons vs 2% for poor.

11. 6% of wealthy say what’s on their mind vs. 69% for poor.

12. 79% of wealthy network 5 hours or more each month vs. 16% for poor.

13. 67% of wealthy watch 1 hour or less of TV. every day vs. 23% for poor

14. 6% of wealthy watch reality TV vs. 78% for poor.

15. 44% of wealthy wake up 3 hours before work starts vs.3% for poor.

16. 74% of wealthy teach good daily success habits to their children vs. 1% for poor.

17. 84% of wealthy believe good habits create opportunity luck vs. 4% for poor.

18. 76% of wealthy believe bad habits create detrimental luck vs. 9% for poor.

19. 86% of wealthy believe in life-long educational self-improvement vs. 5% for poor.

20. 86% of wealthy love to read vs. 26% for poor.

Why Underemployment May Be Worse Than It Looks

 Published: Monday, 8 Jul 2013 | 12:21 PM ET

 

By: Jeff Cox | CNBC.com Senior Writer

Getty Images

 

Job seekers wait in line to meet with employers at the 25th Annual CUNY big Apple Job and Internship Fair at the Jacob Javits Convention Center

The level of underemployed workers looks bad on its face but even worse when it's not the government doing the counting.

When the Labor Department released its monthly nonfarm jobs report Friday, it was all sunshine and roses except for one glaring weakness: A big jump in the underemployment rate that includes those who have quit working as well as those who have had to take part-time jobs even though they'd rather work full-time.

That rate, which economists call the U-6, jumped from 13.8 percent in May to 14.3 percent in June—a 3.6 percent increase and indicative that the 195,000 new jobs created in the month weren't exactly of the highest caliber.


But what often doesn't get as much attention is the monthly labor count that the experts at Gallup conduct.

'Wake Up and Smell the Taper': Economist

 

Michael Feroli, JPMorgan Bank, explains why he believes June's employment report will likely lead to the Fed slowing its asset-buying program in September.

According to the pollster's results, the underemployment situation is even worse.
Gallup reports that 17.2 percent of the workforce is underemployed, a startling number compounded by its divergence from the government's count. While the rate is down from the 20.3 percent peak in March 2010, it has remained maddeningly high over the past three years even as economists tout the strength of the U.S. economic recovery.

From a broader perspective, the Gallup measure actually has increased from its 15.9 percent multi-year low in October 2012.

The potential significance of the recent trough is that it came a month before the Federal Reserve launched the third round of quantitative easing, the $85 billion a month bond-buying program that is supposed to help the central bank achieve its dual objectives of price stability—and full employment.
Amid questions of whether QE3 is about to come to end, and if it has been as effective as its predecessors, the underemployment rate will be one important metric to watch.

Aside from the Gallup numbers, the government's report was discouraging in its own right: A jump from 28.5 percent to 29.3 percent for the percentage of those working part-time for economic reasons in the labor force, and a year-over-year surge of 25.1 percent—1.027 million total—for those "discouraged workers" who have quit searching for jobs.
"It's a big deal. The labor market is far from healthy, so I don't want to minimize the fact" that underemployment is on the rise, said Joe LaVorgna, chief U.S. economist at Deutsche Bank.

"To me, it's something that bears watching," he added. "Given the month it occurred, we have tremendous exit and entry into the workforce—teachers and students. You really need to reserve judgment. You need another month or two to see if it's a new trend."
Indeed, some of the other Gallup metrics point to a bit brighter labor picture.
The firm's adjusted unemployment rate, which in the past has diverged substantially from the BLS count, stood at 7.6 percent in June, directly in line with the government's numbers and down substantially from May's 8.2 percent reading.

Also, its payroll-to-population gage was at 44.8 percent, a 2013 high though below the 45.7 percent in late 2012.
But the labor market faces clear pressure ahead, particularly from government sequestration spending cuts and uncertainty over the looming Obamacare implementation.

"We expect labor market pressure from the spending sequester in Washington to spread from reduced hours to job cuts," Ethan Harris, global economist at Bank of America Merrill Lynch, said in a report for clients.

For now, though, LaVorgna said he is attributing the data point discrepancies to an unusual jobs climate that will out the kinks in the months ahead.
"The labor market is so far from normal that it wouldn't surprise me that all these metrics are not necessarily moving in the same direction," he said. "There's going to be some incongruity between these two series. When things normalize, you would expect these things to rectify themselves."
—By CNBC's Jeff Cox. Follow him

@JeffCoxCNBCcom

on Twitter.

Despite Fed, Cost of Consumer Borrowing Could Rise

 Published: Thursday, 20 Jun 2013 | 12:47 PM ET

 

By: Kelli B. Grant

For consumers, Wednesday's Federal Reserve announcement is a mixed bag.

Chairman Ben Bernanke said the Fed would leave the federal funds rate untouched at 0.25 percent. The committee will also continue its program of purchasing $85 billion in Treasury bonds and mortgage-backed securities each month, although Bernanke said it could taper off that purchase later this year.

Much of the banking and borrowing consumers do is tied to that federal funds rate, which means rates aren't rising anytime soon.

"The Fed would actually have to boost short-term rates, which they're unlikely to do until 2015," said Greg McBride, senior analyst for Bankrate.com.

The notable exception: Mortgage rates, which are tied to 10-year Treasury yields, have risen over the past month as those yields have, on the hints of Fed tapering. According to Freddie Mac, rates on a 30-year-fixed mortgage were 3.98 percent in early June, up from 3.35 percent a month earlier.
Still, even as the Fed maintains the status quo, consumers are seeing some shifts in offers that could affect their rates:

Credit Cards
 
Competition for customers with good or excellent credit has actually pushed rates on new credit cards down in recent months, said Odysseas Papadimitriou, chief executive of CardHub.com. The average rate for borrowers with excellent credit was 12.79 percent during the first quarter of 2013, down from 13.01 percent in the last quarter of 2012, according to the site. Rates also dropped slightly for business credit cards and student credit cards.

Continued economic improvement, combined with low rates, also makes lenders more willing to dangle zero-percent introductory offers. CardHub.com reports the average terms for no-interest balance transfer and purchase offers are both slightly more generous than a few months ago, with most cardholders getting a little more than 10 months' reprieve.

And if you're paying down a balance? Most cards do have variable rates, but they aren't going anywhere until that prime rate rises, he said. Federal law prohibits issuers from raising rates on existing balances unless the cardholder is more than 60 days delinquent.

Mortgages
 
House hunters and would-be refinancers may have missed their window of opportunity. Rates are likely to keep trending higher. Borrowers could see the rate for a 30-year fixed-rate mortgage hit 4.25 percent by next week, said Keith Gumbinger, vice president at HSH.com.

Consumers who are partway through the process have some ability to halt hikes. "If you've got a deal that works at 4, 4.25 percent, lock it in," he said. Ask about so-called float-down options, which, if rates drop, allows for that locked in rate to fall too. That can add several hundred dollars to the cost of the loan, but may work in borrowers' favor, he said.

Home Equity Loans and Lines of Credit
Rates aren't likely to budge much, because they're tied to the prime lending rate. But the recovering real estate market may help borrowers here. "Rising home prices has rebuilt equity," he said, and that makes it easier for some homeowners to get a home equity loan or line of credit.

Auto Loans
Summer car sales are in full force, including a wave of zero percent and other low-rate financing offers. There's no need to rush to the dealership, though—those offers aren't likely to disappear. "A lot of that is tied to better loan performance," said McBride. As the economy improves, fewer borrowers tend to default, which makes lenders more comfortable extending credit. Plus, overall rates are tied to that prime lending rate.


Student Loans
 
"The student loan issue is really up in the air," said Joseph Hurley, a certified public accountant and chief executive of Savingforcollege.com. It's not a Fed trickledown: In 2007, Congress passed legislation offering a five-year rate reprieve that allowed students to take out loans at 3.4 percent instead of 6.8 percent, with a one-year extension approved in 2012. On July 1, those rates will reset unless Congress takes action.

Several proposals have been put forth that would extend the lower loan rate, or tie loan rates to Treasury or market rates, effectively pushing them higher. There's not much that borrowers can do but pay attention, Hurley said. "For this upcoming school year, the loan year starts on July 1," he said—loans can't be taken out earlier to skirt any rate change.

Other types of student loans are usually pegged to the federal funds rate or the Libor, meaning they're also unlikely to rise in the short term. That is, unless Congress passes new legislation that changes rates on more than Stafford loans, as some proposals have suggested.

Checking and Savings Accounts
 
Sorry, savers—no good news here. Rates on CDs, savings accounts and checking accounts aren't likely to move until the Fed raises interest rates, said McBride. A one-year CD yields 0.62 percent, while an interest checking account yields 0.50 percent.

But there are still opportunities to eke out a slightly higher return for emergency funds and other liquid savings. A recent Bankrate.com report found 56 high-yield accounts across the country offering an average 1.64 percent.

—By CNBC.com's Kelli B. Grant. Follow her on Twitter @KelliGrant.