McKee Financial

McKee's Weekly Newsletter: 8-10-2020 College Disrupted: Students Face High Costs

“I learned law so well, the day I graduated I sued the college, won the case, and got my tuition back.” -Fred Allen 

I think we can all find humor in comedian Fred Allen’s college experience, even if it is just a great one liner. 


College Disrupted: Students Face High Costs and Pandemic Impact


Even in normal times, it can be challenging for families to cover college expenses without borrowing money and/or risking their own retirement security. For the 2019–2020 academic year, the cost of in-state tuition, fees, room, and board at a four-year public college averaged $21,950, and the total for a private college approached $50,000.1

Sadly, the college world is not immune from the health fears and financial pain inflicted by the coronavirus pandemic. More students might choose schools that are less expensive and/or closer to home, take a year off, or forgo college altogether. The American Council on Education predicted a 15% decline in college enrollment nationwide for the next academic year.2

With the financial futures of students and supportive parents at stake, it is more important than ever for families to make informed college decisions.


Reopening Plans

As of July 30, 2020, about 28% of the nearly 3,000 institutions tracked by The Chronicle of Higher Education had announced plans for an online fall semester, 23.5% were planning to hold classes primarily or fully in person, 16% were proposing various hybrid models of in-person classes and remote learning, and the remainder were still undecided.3

To reduce campus density and make room for social distancing in classrooms and residence halls, many colleges are inviting 40% to 60% of students back to campus (prioritizing freshman or seniors, certain majors, programs with clinical requirements, and students with unsafe home situations, for example) while expanding and improving remote teaching capabilities for students studying at home.4 Some colleges have backtracked on earlier plans to reopen due to a surge of the virus, and more could follow suit as events unfold.5


A New Landscape

Students who live on campus or attend classes in person are likely to find strict rules and restrictions regarding safety practices (physical distancing, face coverings, virus testing) and changes in many facets of campus life, including living situations, food options, class settings, social gatherings, and popular extracurricular programs such as arts and athletics.

Acknowledging that students are not getting the college experience they wanted and are now more price sensitive, many schools are freezing tuition, and others are offering discounts, increasing scholarships, or allowing students to defer payments.6 In anticipation of $23 billion in revenue losses, colleges nationwide have also had to lay off employees, reduce salaries, eliminate programs, and make other budget cuts.7–8

In mid-March, Moody’s Investors Service downgraded the outlook for higher education from stable to negative, citing reduced enrollment. Institutions with large endowments and/or strong cash flow are better positioned to withstand the crisis, but lost tuition poses a bigger threat to smaller colleges.9


Shopping for Schools

High school students who are involved in the planning and application process might be lucky to enter college after the worst of the health crisis is over. Still, more economic hardship means that cost could play a greater role in school selection.

Many students don’t pay published tuition prices, and financial aid packages differ from school to school. After identifying schools that might be a fit, families can use net price calculators to compare how generous different colleges might be, based on the household’s financial situation and the student’s academic profile.

Before choosing a school, students should understand how much they might have to borrow and what the monthly payment would be after college. It’s also important to take a hard look at earning potential when choosing an academic program. Those who plan to enter lower-paying fields may fare better if they keep costs down and borrowing to a minimum.


Seeking Financial Aid

To receive grants and/or loans, students must complete the Department of Education’s Free Application for Federal Student Aid (FAFSA) and apply for aid according to the college’s instructions as early as possible. Higher-earning families should also fill out the FAFSA because they may qualify for more need-based aid than they might expect, and some schools may require a completed FAFSA for merit-based scholarships.

College students with parents who have lost a job or earned less income than normal this year due to COVID-19 may want to appeal for a revised aid package, if not for fall then for spring. The financial aid administrator may be able to reduce the loan component of a student’s aid package and/or increase the scholarship, grant, or work-study component.


Will College Pay Off?

The average college graduate earns $78,000 per year, compared with about $45,000 for the average worker with a high school diploma. The wages of workers without a college degree tend to fall more during recessions, and they are more likely to be unemployed, as seen during the pandemic.10

A 2019 Federal Reserve analysis of the cost (four years of tuition and lost wages) and the benefits (higher lifetime earnings) concluded that a college degree is a sound investment for most people; the average rate of return for a bachelor’s degree is about 14%.11

When Fed economists adjusted this analysis to account for the 2020 pandemic, the return on a college degree rose to 17% (under the assumption that many workers with a high school diploma would be unemployed for a year). For a student who takes a gap year, the estimated return dropped to 13%. The $90,000 cost of a delay includes one year’s worth of post-graduation earnings and slower growth in wages over a lifetime.12

Remote learning may not be a perfect substitute for in-person interactions and relationships, especially for students enrolled at expensive institutions. Still, motivated students can grow intellectually and work toward a degree that could be valuable in terms of future earnings and social mobility.

Many colleges may be able to utilize their investments in technology and online curriculums long after the pandemic passes, providing future undergraduates with more opportunities to earn an affordable college degree remotely.

1) College Board, 2019
2, 7) American Council on Education, 2020
3) The Chronicle of Higher Education, July 30, 2020
4, 9) The New York Times, July 7, 2020, and May 12, 2020
5), July 22, 2020
6, 8) Inside Higher Ed, April 27, 2020, and June 29, 2020
10–12) Federal Reserve Bank of New York, 2019–2020

This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.




Interesting Economic Facts


COUNTING ALL OF THEM - After peaking at $36.1 trillion on 2/19/20, the total market capitalization of all US equities fell $12.7 trillion to $23.4 trillion as of 3/23/20 but has since added back $12.4 trillion to close last Friday 8/07/20 at $35.8 trillion (source: Wilshire).


RECORD LOW - The yield on the 10-year Treasury note closed at 0.514% last Tuesday 8/04/20, w ithin 0.013 percentage points of its all-time record low close of 0.501% from 3/09/20 (source: Treasury Department).


REDUCING YOUR MONTHLY COST - 64% of mortgage applications filed during the w eek ending Friday 7/31/20 were current homeowners refinancing existing mortgage debt as opposed to new home purchases (source: Mortgage Bankers Association).


HOTELS AND RESTAURANTS - The number of American workers in “leisure and hospitality” was 16.9 million as of 2/29/20, dropped to 8.5 million as of 4/30/20, and now has rebounded to 12.5 million as of 7/31/20 (source: Department of Labor).


GET IT AND SPEND IT - 74% of Americans spent their $1,200 per person stimulus payment from the 3/27/20 CARES Act within 4 weeks of receipt. 159 million Americans received the one-time nontaxable cash payment (source: Money/Morning Consult survey).


MIGHT AS WELL STAY - Only 7% of workers “auto-enrolled” in an employer’s 401(k) plan elect to “opt-out” of the plan, i.e., 93% of all employees remain in the plan (source: Vanguard Research).


BEING CAUTIOUS - The personal savings rate in the United States was a record 33.5% in April 2020 as Americans reacted to the COVID-19 pandemic outbreak. The personal savings rate in the United States was 7.5% in April 2019 or just 1 year earlier. The personal savings rate is defined as “savings” (i.e., after-tax income less consumption spending) divided by after tax income (source: Department of Commerce).


GET YOUR ACT TOGETHER - Fitch Ratings confirmed the AAA-rating of US debt securities on Friday 7/31/20, but reduced its “outlook” for US debt from “stable” to “negative.” Fitch indicated the “outlook” downgrade on US sovereign debt was a function of the increase in our country’s national debt and projected fiscal deficits. It was 9-years ago last w eek (8/05/11) that the rating agency S&P downgraded the debt issued by the USA from its top credit rating (Aaa), a ranking that had been held for 70 years (source: Fitch Ratings).


DEATHS - The first American death from the COVID-19 pandemic occurred on 2/06/20. As of 9am ET on 8/06/20, i.e., 6 months later, 159,398 Americans had died from the pandemic. 55% of the American death total has occurred in the last 3 months, i.e., since 5/06/20 (source: NBC News, Meet the Press: First Read).


HIGH DENSITY CITIES - As of Monday 8/03/20, only 30 counties in the US (or just under 1% of the 3,142 counties nationw ide) that make up 17% of our 330 million population have accounted for 46% of all COVID-19 deaths in the country (source:


SCARY NOTION - Dr. Michael Osterholm, an infectious disease expert at the University of Minnesota, predicted on Sunday 5/10/20, i.e., 3 months ago today, that “we’re going to see 60 to 70% of Americans ultimately infected with this virus” (source: NBC News “Meet the Press” show).


VIRUS COST - California is considering implementing an income tax surcharge effective in 2020 that would levy an extra tax of 1% to as much as 3.5% on incomes in excess of $1 million. The extra revenue would offset the state’s additional expenses incurred in response to the COVID-19 pandemic (source: Calif. Assembly Bill 1243).


TOUGH YEAR - The number of operating oil rigs in the USA (both on land and offshore) as of last Friday 8/07/20 was 247, down 69% from 805 operating oil rigs as of 12/31/19 (source: Baker Hughes).


FRIDAY NIGHTS - As of 8/04/20, 28 states have delayed the start of the 2020 high school football season, including 10 states that will begin play in the spring of 2021. However, 4 of the 6 classes of athletic teams in Texas will begin their regular season on 8/27/20 (source: High School Football America).


...and for the History Lovers... This Week in History


August 10, 1846

The Smithsonian Institution is established in Washington through the bequest of James Smithson.


August 11, 1929

Babe Ruth hits his 500th major league home run against the Cleveland Indians.


August 12, 1981

Computer giant IBM introduces its first personal computer.


August 13, 1993

US Court of Appeals rules Congress must save all emails.


August 14, 1987

Mark McGwire hits his 49th home run of the season, setting the major league home run record for a rookie.


August 15, 1969

Over 400,000 young people attend a weekend of rock music at Woodstock, New York.


August 16, 1858

U.S. President James Buchanan and Britain's Queen Victoria exchange messages inaugurating the first transatlantic telegraph line.



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