First came Covid. Then came online college. Then came the lawsuits.

There’s a firm in South Carolina, the Anastopoulo Law Firm, that says it’s suing some 30 higher learning institutions for tuition and board payback (including Columbia, Cornell, Purdue, UMass and UPenn) arguing breach of contract—saying in effect that these institutions charged students for a certain type of college campus experience this year and instead gave them virtual college lite. The lawsuits challenge the notion that Zoom learning lives up to the value of an actual classroom—learning in a community, with your peers, enjoying personal development.

Still, as the coronavirus pandemic continues to test the United States’ anxiety for reopening society, the question of reopening colleges arises, too, and asks—at what cost in people’s health and safety?

For many clients of financial advisors, college education is the single biggest funding need they face after saving for retirement. The questions advisors are asking include: Is your child’s college fully reopening or doing hybrid classes? If the college is reopening, do you really want it to? In one survey of more than 1,800 freshmen and returning students performed by research firm Simpson Scarborough, 43% of students didn’t feel safe returning to a socially distanced classroom.

Professors don’t like the idea either. One CFP licensee and lecturer at Texas A&M with professor clients says many of them flatly refuse to go back. Older people are more at risk, after all.

The confusing messages universities have sent to families about what’s happening have not helped, says Beth V. Walker, creator of the Center for College Solutions, which guides families through college planning.

In following social distancing guidelines, many classrooms would have to keep their students at least six feet apart. That means, as you’re taking notes off a chalkboard in your calculus, French and medieval poetry classes, the seats next to you have to be empty, as do the seats behind you and the seats next to them. Mark Kantrowitz, a consultant who works with families as publisher and vice president of research for Saving for College, says only a quarter of the classrooms would be full.

The alternative is watching your professor on Zoom or some other closed-circuit feed. Is that really worth it to a person paying, say, $45,000 a year for a private university education?

“The Chronicle of Higher Education has been tracking the reopening plans of colleges,” says Kantrowitz. He says that based on 1,200 schools the chronicle polled in mid-summer, a little more than half said they would reopen in person while 34% would do a hybrid approach and the rest of the schools would be online only (though 1% to 3% of the schools were sitting on the fence trying to come up with different solutions.)

Decisions To Make
In March, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, which suspended student loan payments and temporarily paused interest rates on loans at zero. In early August, the program was extended until the end of 2020. The law also said that colleges could roll federal work-study money over into Federal Supplemental Educational Opportunity Grants (FSEOG).

The CARES Act also tried to solve some problems by earmarking $12.5 billion to colleges, half of which they must award in emergency financial aid grants to students to help them pay for online learning, food, course materials, housing, health care and technology. The aid was designed to help colleges with more students in need; 75% of it was allocated to colleges based on how many Pell Grant recipients they had, while 25% of the money went to schools based on their number of full-time non-Pell Grant recipients.

But the funds focused mostly on items related to campus life disruption in the pandemic. Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators, said the universities had flexibility in how they determined which students were going to get the CARES grants, and it might seem arbitrary or unfair to some students who got turned down or found resources depleted quickly. “They could only give grants to students who experienced an expense due to the campus disruption because of Covid-19,” Coval says. “When you unpack that a little bit—and the [Department of Education] was clear about the implementation here—if you think about it, an expense is different from need. If a student came up and said ‘Well, my parents lost their job.’ … That’s not an expense because campus shut down.”

 

The University of California at Berkeley, which says it got a $15.2 million chunk of the emergency financial aid grants, gives students who need more than $500 (and didn’t get more than $1,000 in refunds on campus housing) a grant of $1,300 if the expected family contribution is zero and $500 if the expected family contribution is more than $10,000.

Because of the crisis and its financial and logistical disruption, many students are belatedly swarming the financial aid offices of cheaper state schools closer to home after belatedly giving up on colleges far away. Their financial aid situation has likely changed—there’s a good possibility that their parents have been fired, furloughed or seen their pay cut. Their Free Application for Federal Student Aid (FAFSA) forms, a reflection of a family’s financial status two years ago, no longer reflect reality.

That means schools are fielding an unprecedented number of appeals. The lecturer at Texas A&M, who is familiar with the financial aid office there, says that students have overwhelmed the phone center, and on one day in early August it couldn’t make callback appointments after 10 a.m.

“I’m expecting the number of families who appeal for more college financial aid to double or even triple,” says Kantrowitz. He says colleges he’s familiar with but doesn’t want to name have seen the requests triple.

“Our schools have definitely indicated that they are busier than ever,” says Coval, at the National Association of Student Financial Aid Administrators. “A big part of what they’re hearing from students and families is that right now, when you fill out the FAFSA, you put in two years’ prior income, so there’s many people who are saying ‘Hey, my income from two years ago is not where it is now. It’s not even where it was six months ago before this started.’ So what’s on my FAFSA form and what generates the [expected family contribution] and what aid a student gets is no longer accurate for me. So schools are dealing with going through those” in the form of appeals and adjustments.

Road Trip? Not So Fast
Incoming students during the pandemic likely have a higher interest in gap years than ever before, Kantrowitz says, while returning students likely want to take a leave of absence to wait out the pandemic. But there are a lot of financial and personal land mines here.

“Ten percent of people who take gap years never go back to college,” he says. “Students who do go to college after a gap year are much less likely to ultimately graduate.” He says some students might take the route of community college first and then move to their chosen colleges, but then they are considered transfer students rather than first-year students, “and transfer students get thousands of dollars less in grants to help pay for college than incoming freshmen. So it can cost you more ways than one.”

Taking a leave of absence has its own pitfalls, he says. If you’re a continuing student and you skip the fall semester, you are likely tipping over your six-month grace period for student loan repayments. You might reset in the spring and get your regular loan in-school deferment back, but your six-month grace period would never get restored. “Meaning that when you ultimately graduate, you enter repayment immediately,” Kantrowitz continues. “You don’t have the six months to get settled in your new job with your new apartment. You have to start paying back immediately.”

Walker says that schools won’t be able to accommodate all the requests for formal gap years and still handle all the admission requests for next year. It will have a deleterious cascading effect. She says that if kids are taking time off, it has to be intentional and serious, not just an opportunity to lie low, which would make it more likely students will get off track.

“Unfortunately, 80%-20% rule of life, 80% of families don’t approach the gap year that way,” she says.

Schools Under Water
Covid-19 aside, American higher education was already facing a big crisis—a drop in state funding, a drop in international students (a rich source of income) and kids’ reassessment of college value. Kantrowitz says universities now are going to be under tremendous financial pressure to make up evaporating enrollments (a problem briefly exacerbated by the Trump administration’s short-lived idea of forcing international students to take in-person classes. Harvard and MIT sued, demonstrating that, empathy and ethics aside, international students are dearly important to colleges’ bottom lines).

Many of these colleges have fixed costs and it’s not as easy to simply tap or transfer endowment funds.

 

Higher learning’s future is troubled further by students’ changing attitudes about what they want from it. Simpson Scarborough, the higher education marketing and research firm, surveyed a mix of incoming freshmen and returning students in late July and made a number of troubling discoveries: 40% of incoming freshmen say it’s either likely or very likely they’ll change their minds about the school they picked. Only 17% of students want to go back in person full time. In fact, 40% of incoming freshmen said it’s likely they won’t go back to school at all this fall. (Kantrowitz calls the accepted or enrolled students who don’t actually attend part of the “summer melt.”)

Lower birth rates mean that colleges were already going to run into unhappy demographic shifts in their enrollments in the next couple of years, Walker says. The Covid crisis accelerated that problem.

EDMIT, a college advice site, did some data analysis that put 350 colleges at risk of closing. Even before the Covid crisis began, the Chronicle of Higher Education said in 2019 that 1,200 colleges had closed in the previous five years.

Kantrowitz says the EDMIT number of at-risk schools is exaggerated, but says the number of closings could still go into the double or triple digits. “It remains to be seen what Congress does to provide financial assistance to the colleges to help them with reopening costs and to help them defray all the other expenses that are related to the disruption. The money that they gave from the CARES Act wasn’t all that much. And it mostly went to the students, not to the colleges.”

The upshot to all this is that tuition is going up in the future, he says.

At public colleges there’s a feast to famine cycle, he says: Typically, toward the end of recessions, the states have to balance their budgets. Right now, their tax revenue, whether it’s income taxes or sales taxes, both are down significantly. “They have to make up that money somehow, and the first place they cut is support for post-secondary education, and when the public colleges suffer state appropriation declines, one of the main tools they have available is to [raise] tuition,” Kantrowitz explains.

They would normally try to milk this money out of international or out-of-state students—the very people now inclined to stay home in the epidemic era. “Maybe two years from now, assuming there’s a safe and effective vaccine, that’s when I would expect public college tuition to go up at double-digit rates,” he predicts.

The financial strain is going to force institutions to make hard decisions. “In most cases, except for the wealthiest colleges, they are going to reopen, not because the students want it, even though they do; it’s because the college needs money,” Kantrowitz continues. “Their pecuniary interests are dominating things. Any college that was at a financial precipice before the pandemic could possibly be pushed over the edge into permanent closure by the pandemic.” A 10% to 20% enrollment decline is enough to force closure of some of these institutions, he maintains.

Walker adds, “Whether they want to use this language or not, colleges are a business. Those that [can adapt] will figure out how to run more efficiently and survive, and those that don’t, won’t. It’s going to be brutal.”

What’s The Value?
Walker says that when the U.S. comes out the other side of the pandemic, college education won’t look like what it did before. People will now be asking what the return on their investment is—what are the value proposition and cost benefits, exactly? Would you want to spend $150,000 on an education and go into debt and then become an elementary educator or do social work? Might a cheaper associate’s degree or state college education give you a better value?

There are amusing internet arguments about whether plumbers actually make more in lifetime earnings than medical doctors (the argument being that plumbers aren’t saddled with debt and they get started earning earlier, though experts disagree on that). Regardless, not everybody needs an expensive education, Walker says. That’s the real argument Covid-19 has laid bare. The most important thing is to be smart about how you go about it.

“Why wouldn’t we knock out prerequisites and get an associate’s degree and then transfer to an expensive school at a fraction of the price?” she asks. “I think we really need to put our consumer hat on and think this through. I’m very clear about an associate’s degree. Not a couple of classes, not some credits. Not something that the big school can turn down.”

 

If the social part of college—meeting people and developing—is gone, then so is some of the value. But that’s not to say that college is not worth it, she adds.

If families looked at the true interest rates on direct student loans, Walker says, “it’s 2.75% for $5,500, $6,500, $7,500. … for $27,000 in an undergraduate career. That is pretty low-cost financing, and parents should be entertaining it.”

The point is that parents and students now have to see what they are getting out of their education.

“I don’t think parents in America have been good consumers of higher education to begin with,” Walker says. “So there’s a huge opportunity to be smarter about paying for college across the board.” And that also means asking the students why they want to go to college. “They don’t even know what they want to accomplish. There’s no sense of purpose.” And getting an overly expensive education for its own sake is not worthwhile. “These are people who said I’m in the mood to buy a Mercedes and I’m going to go buy one and finance it. And I don’t even have a job to make the payments.” 

SIDEBAR: The Puzzle Advisors And Clients Face
The problems have given financial advisors a big puzzle to work out. Jack Furlong, a 25-year-old advisor with Ameriprise in Hibbing, Minn., says that for parents saving for college, cash flow is a problem, especially if they’ve been furloughed or had their hours reduced. 

Both he and Beth Walker suggest that it’s a misplaced priority to suck out your own retirement money for your kid’s education. There are no such things as loans, scholarships and grants to fund retirement, Walker says.

“The mantra I’m constantly promoting with my families,” says Walker, “is finance their future, meaning the students, and fund yours, meaning the parents’ retirement.”

“In most situations,” says Furlong, “sending their children to college takes a back seat to what my clients have planned for retirement, and that’s OK.”

He shows his clients what they would have to sacrifice: They would have to work longer and spend less on travel or scrap plans to move into a dream home. “It’s important to remind them that they aren’t being selfish by focusing on their retirement. They can’t work forever, and there are still quite a few options on the table for their children, such as grants, scholarships, and student loans.” 

For those out of college, Furlong says that the current pause on loan payments until December will give borrowers some advantages.

“The question that I’ve been asked the most has been, ‘What should I do with the money that I don’t have to pay on my student loans?’ My answer has been, almost exclusively, to double down on the debt (as long as their emergency fund has been adequately stocked up, but that goes without saying).” 

Furlong has been encouraging his clients “to go after their federal student loans with both hands, with everything they’ve got, for six months. I’ve even gone so far as to encourage them to live like the frugal college student they once were.” After all, those dollars repaid will go to principal and not interest. “This is a gift unlike anything we’ve seen before in student loan repayment, and to not take full advantage would be a shame.”