There has been a great deal of news about the rising cost of college tuition. However, discounts at private colleges and universities are actually on the rise.
Private colleges are offering students larger grants relative to tuition prices than ever before, according to a new analysis by the National Association of College and University Business Officers.
Grants and scholarships are often called “gift aid” because they are free money — financial aid that doesn’t have to be repaid. Grants are often need-based, while scholarships are usually merit-based.
The average school’s discount rate for full-time freshmen students reached 50% in the 2017-2018 academic year, up from 39% in 2007-2008, NACUBO found. (It surveyed more than 400 private colleges.)
The average college grant will jump to $20,255 in 2018, up from $10,586 in 2008.
The findings underscore the importance of looking beyond a school’s “sticker price,” which is expected to average $38,301 for tuition and fees at private colleges in the 2018-2019 academic year for first-time, full-time freshmen.
In reality, the typical family will pay closer to $18,400, school officials say.
“Families should ignore the listed price for a school and apply for financial aid, ” said , senior director of policy analysis and research at NACUBO.
Nearly 90% of first-time, full-time freshmen students received grants in 2017-2018.
Redd points to a couple of reasons to explain why colleges are stepping up their discounts.
Despite the economic recovery, many families still can’t come up with the money needed to cover four years at a private college today, he said. The median household income, after accounting for inflation, was $59,039 in 2016, little different than it was in 2000 ($58,544).
Meanwhile, colleges are competing for new students. More than 40% of schools NACUBO looked at reported a decline in freshmen enrollment between 2015 and 2018, with the majority of colleges citing “price sensitivity” among students as the culprit.
To be sure, even with the discounts, families continue to pay more for college, said Mark Kantrowitz, publisher of SavingforCollege.com.
Families also have to consider the price of room and board, which is also on the rise.
I know what you may be thinking if you are at the later stage of the game. You would need to save 40 percent of your income to reach the equivalent of what you would have had, had you started saving just 10 percent of your income in your 20s.
“[But] don’t get discouraged or use the fact that you don’t have anything saved as an excuse not to start,” says O’Shea.
One popular solution is to work longer, and many Americans plan to. However it’s not necessarily a reliable solution, says O’Shea.
After all, there may be health issues (3 out of 4 Americans aged 65 and over have multiple chronic conditions, according to the CDC) or a financial hardship. Or you may just be pushed out of the job against your wishes, and trying to find a comparable salary in your 50s and 60s is challenging.
The only thing you can control is how much you save. That requires a strategy. And discipline.
Of the many things you can do to play catch up, here are three of the most effective, according to financial planning experts.
Max out tax-advantaged accounts
One of the most straightforward ways to catch up on retirement savings is to contribute the most you can to tax-advantaged accounts. That means maxing out the 401(k)s, individual retirement accounts or Roth IRAs.
If you’re self-employed, look into options such as a Simple IRA plan, a SEP plan or a solo 401(k). Those aged 50 or older are allowed to make additional, “catch up” contributions to these plans.
“Anyone who has the extra cash or has an unexpected windfall should make these contributions and stash it away,” says O’Shea.
Over the long term, it can make a big difference in the size of your next egg. For example, if you invested an extra $1,000 annually in an IRA starting at age 50, you’d have an extra $20,800 in catch-up contributions (plus $5,800 in earnings) saved by age 65, assuming a hypothetical 4 percent return.
Look to your home equity
If you’ve got equity in your home, you may be able to tap it in different ways. One option is to downsize.
Have your kids moved out of the house? Don’t really need the extra two or three bedrooms? Then moving may make perfect sense for you, says Beatrice de Jong, consumer trends expert at Opendoor.
“We accumulate a lot of stuff, and the sad truth is that when we get older, we have too much. Moving into a smaller space makes it easier to keep track of things and keep things clean and tidy,” says de Jong.
You’re not only going to feel freer and lighter – emotionally and spiritually – but it’s going to make a big difference financially, says de Jong.
Rather stay in your home as you enter retirement? Consider a reverse mortgage. These government-backed loans allow older homeowners (62 years or older) to convert some of their home equity into cash.
The bank makes payments to you and you can use the tax-free funds however you would like. Unlike other kinds of loans, you don’t have to pay back the debt immediately. Rather, the balance must be repaid when the last surviving borrower dies, sells the home or moves out.
Sound complex? It is.
“The reverse mortgage is certainly not without risks, either,” says Keith Gumbinger, vice president at hsh.com. But unlike years past, it is no longer the loan of last resort for cash-strapped homeowners in retirement.
“It’s now being used as part of an overall financial strategy now that the product has become more respectful,” he says.
Be strategic about Social Security
While you may be tempted to start collecting Social Security benefits as soon as you qualify, try to resist this temptation, says O’Shea. After all, waiting can pay off — big time.
Consider this: Between the ages of 62 and 70, your benefits rise about 7 or 8 percent for each year you defer taking them. Where else can you get such a high return (guaranteed!) in today’s environment?