While it remains clear that investing in a college education pays off, families should be more strategic in how they choose which college to attend and how to pay for it, according to a new paper from PricewaterhouseCoopers’ (PwC) Consumer Finance Group.
The paper is the first in a four-part series titled “Dimensions of the Student Loan Crisis,” in which PwC student lending and higher education specialists examine the key factors that are contributing to the crisis. The first part of the series specifically focuses on the elements of higher education that are more emotional, such as selecting an institution and the financial choices students and families must make.
Using behavioral economic theory, research shows that many higher education decisions are being made “less on anticipated economic outcome and more on emotional choice of the student and parent,” according to PwC. Things like the friendliness of admissions counselors and campus tours can be used to create an emotional connection between prospective students and the institution, which can increase the likelihood of a student applying or enrolling. Many families also use “tuition discounts” in the form of institutional scholarships to justify the value of pursuing a more expensive institution rather than an institution that is more affordable, such as a public institution.
“If the decision was based solely on return on investment, students might begin their higher education at a local community college (often the least cost option) and transfer to a four-year institution later, saving tens of thousands of dollars on tuition and expenses,” PwC states in the paper.
While many factors in choosing higher education are considered emotional in nature, the growing costs of attending college are causing financial aid to become a more important piece of the puzzle for families. According to a recent survey by Junior Achievement in partnership with PwC, financial aid is considered a deciding factor in school choice for 60 percent of millennials, who consider a college education to be a “life requirement” despite the debt they will incur.
In the paper, PwC also examines the “student loan crisis” that is often reported in the media, which many compare to the 2008 mortgage crisis and “the bubble” that came shortly after. Data from a 2015 report from Sallie Mae cited by PwC shows that among families with student loan debt, 83 percent of families include students who borrowed and 28 percent of families include parents who borrowed. Eleven percent of families have both students and parents who borrowed, and students signed for nearly 75 percent of the total dollars borrowed.
“With so many millennials making life choices based on student loan debt, the downstream effects of delaying a home purchase or starting a family could continue to impact the economy,” according to PwC. “While the bubble may not be poised for a dramatic burst, the debt does have a lingering effect on students and parents who will be paying these loans for decades.”
Despite the growing concern surrounding student debt, a college education is “more valuable than ever” and will continue to be for years to come, according to PwC. However, students and families “should approach the process of selecting a college in the same way they would in making any other large investment or purchase,” PwC states. “The key to ensuring success is to make rational college choices, complete one’s degree in a timely manner, and repay student debt in an efficient way.”
Publication Date: 5/24/2016