Here’s some news for anyone who’s in high school and applying to college. By way of this CNN Money article, a new startup called Raise.me lets you automatically earn small “micro-scholarships” from many different participating colleges simultaneously based on your individual achievements like:

• Taking specific courses and getting good grades.
• Participating in sports or other extracurricular activities like Yearbook club.
• Community Service
• Good standardized test scores on SAT, ACT, or AP exams.
• Other honors like National Honor Society, Eagle Scout or Golden Eagle award, or National Merit Scholar.
• Attending an event at a participating college.

For example, if you get an A in your English class this year, you can receive scholarships from dozens of colleges on raise.me all at once, including $1,000 from Tulane University, $500 from the University of Central Florida, and more. […]

When a college awards you scholarship money on raise.me, they are guaranteeing that they will include that scholarship money in your financial aid package if you apply for admission and are admitted. […] Each college on Raise.me has their own minimum GPA requirement.

Any US high school student in 9th through 12th grade is eligible, and you can enter your achievements retroactively. The money for the program is paid by charitable foundations including the Bill & Melinda Gates Foundation, colleges, and other funders like Facebook.

So far there are 76 participating colleges including Penn State, Loyola Marymount, Lewis & Clark, Michigan State, Temple, and University of Central Florida.

More thoughts:

• This is ideal for smaller, lesser-known colleges to link up with good students that would never have considered them otherwise. The Harvards and Stanfords of the world don’t need this service.
• By linking up small, achievable goals with measurable rewards, you can motivate high school students to work harder. I applied for a few college scholarships back in the day, but I hated that it felt like you were writing a long essay in exchange for a lottery ticket. This approach, if scaled successfully, might allow merit-based aid to be distributed more evenly.
• Doesn’t is seem like the “gamification” of college scholarships? Like power-ups in video games, students can increase their scholarship “scores” gradually. You don’t want to make the entire high school experience a checklist, but hopefully it will be a net positive.
• I’d worry that this approach could be gamed by the colleges as well due to their “sticker price” model where they post some astronomical tuition that nobody really pays. In reality, they alter what they charge you based on your desirability to them. I’ve written about this phenomenon here, here, and here. In other words, most admitted applicants already get $20,000 or more in “grants” anyway.

If you have a child in high school, I don’t see why you wouldn’t encourage them to at least check this website out.

Update 2015. The Tennessee Promise program has welcomed 15,000 students in their first year of offering free community college tuition. The number of students attending community college full-time straight from high school grew 14%. This Boston.com article includes an interesting quote:

“The reason Tennessee can afford Tennessee Promise is that 56 percent of our state’s community college students already have a federal Pell grant, which averages $3,300, to help pay for the average $3,800-per-year tuition,” said Tennessee State Sen. Lamar Alexander in a statement. “The state pays the difference–$500 on average. Nationally, in 16 states, the average Pell grant pays for the typical student’s entire community college tuition.”

Oregon has also recently passed their own free community college bill.

Original post from April 2014:

Tennessee lawmakers recently approved a program that would cover tuition and fees at two-year colleges for any high school graduate. The “Tennessee Promise plan” is the first of its kind in the U.S., although reportedly Florida, Mississippi, and Oregon are considering similar plans. It will be interesting to see if it succeeds in making higher education more affordable.

Participants will have to maintain a 2.0 grade point average, attend mandatory meetings, work with a mentor, and perform community service. The program is also “last money in” after other scholarships and grants. I hope that they will also make sure that any credits earned will transfer over to 4-year universities and that the courses are rigorous enough that the students don’t arrive at a significant disadvantage. If successful, this could essentially halve the cost of a in-state Bachelor’s degree, as most students will be able to live at home for the first 2 years as well.

I went to a well-respected public university, and while there got to know several community college transfer students as both an undergrad and graduate student instructor. As a whole, I found them to be much more hard-working and excited about their studies. I don’t have hard numbers but I’d be willing to bet that the junior transfers actually got better grades than those of us who entered as freshman. (Obviously those who got accepted as transfers were a selected group, not representative of all community college students. They also tend to be older, which can help with maturity.)

Free community college may also reduce the significant number of people who enroll at a 4-year university, rack up student loan debt, and don’t finish. According to this Slate article, 20% of those who enroll full-time at a 4-year program don’t finish within 6 years. Community colleges can also have low completion rates, but it is especially awful to have no degree and a big pile of debt.

Also related: We know student loan debt is growing, but now delinquency rates are increasing as well.

Soon high school seniors will start receiving their college acceptance letters. This week’s issue of The Economist has an article discussing the results of a PayScale study of the relationship between the financial return on investment (ROI) of a college degree with the selectivity of the college itself. Via NextDraft.

The two trendlines above support the conclusion that what you study matters far more than where you study it. The flatness of the lines show that selectively doesn’t improve ROI much for degrees of the same major, while the gap between them shows that the type of major has a significant effect on average future salary.

Engineers and computer scientists do best, earning an impressive 20-year annualised return of 12% on their college fees (the S&P 500 yielded just 7.8%). Engineering graduates from run-of-the-mill colleges do only slightly worse than those from highly selective ones. Business and economics degrees also pay well, delivering a solid 8.7% average return. Courses in the arts or the humanities offer vast spiritual rewards, of course, but less impressive material ones. Some yield negative returns. An arts degree from the Maryland Institute College of Art had a hefty 20-year net negative return of $92,000, for example.

You can also play around with the PayScale ROI rankings here.

Take from this data what you will, but perhaps it will soothe the pain of rejections and help relieve the societal pressure to get a “brand name” degree.

During the most recent State of the Union address, the President’s proposal includes removing one of the current key tax advantages for 529 college savings plans. It is important to remember that this is only a proposal and is unlikely to pass a Congress with a Republican-majority. But it does serve as a reminder that the features of all tax-advantaged accounts are subject to future change.

Section 529 plans currently offer excellent tax advantages for college savings. You put in after-tax money, and that money is allows to grow on a tax-deferred basis, and as long as future withdrawals are used for qualified education expenses, there are no taxes on the back-end either.

The proposed changes are to now tax withdrawals (capital gains only) as ordinary income, leaving only the ongoing tax-deferral aspect. In exchange, the annual limits of educational tax credits would be increased along with other changes.

A quick history lesson on 529 plans. Per Wikipedia, Section 529 plans have only been around since 1996, and started out with withdrawals taxed as ordinary income. Tax-free withdrawals for qualified educational expenses were only added in 2001 on a temporary basis (scheduled to expire in 2010) but then in 2006 they were made “permanent” (not scheduled to expire). That is why this is referred to as a “roll back”.

The concern now is that the tax advantages only benefit a small group of people (read: rich folks). From CNN Money:

An analysis by the Government Accountability Office found that in 2010 less than 3% of families saved in a 529 plan. The GAO estimated that families who saved in 529s had a “median financial asset value” that was 25 times that of families without a 529.

But the College Savings Foundation, citing an investment industry analysis, noted that in 2014, over 70% of 529 plans were owned by households with income below $150,000.

The lesson here is that not all tax benefits are considered “sacred”, especially if they can be spun as rich vs. poor. For example, in my opinion the ability to inherit IRAs (“Stretch IRAs”) in order to give your children decades more of tax-free growth probably won’t last forever. But the idea of taxing Roth IRA withdrawals would be very hard sell as it would broadly affect people across various income levels.

I don’t think I would have minded if this was for a newly-designed plan, but I dislike the idea of penalizing the many families (like myself) who have placed their money in a 529 due primarily to the promised tax benefit (which can’t be withdrawn early without penalties). (Edit: The proposal language actually only refers to “new” contributions, so existing contributions should be grandfathered. Might make for some confusing accounting.) Still, as the parent of two kids under 3, I have to decide whether to keep putting money into these things without knowing what the rules will be in the future.

More: WhiteHouse.gov, WSJ

The new fall semester is underway, which means more college articles! Morgan Housel of Fool.com recently talked about how the increasing cost of college is exaggerated (emphasis mine):

According to the College Board, the annual sticker price of attending a private four-year college increased from $17,040 in 1992 to $29,060 in 2012, adjusted for overall inflation. But grants and scholarships more than doubled during that period. On net, the median annual cost of attending private college went from $10,010 in 1992 to $13,380 in 2012, meaning the amount students actually paid grew half as fast as the sticker price suggests.

Ditto for public four-year schools. The sticker price of tuition was $3,810 in 1992, and $8,660 by 2012, adjusted for overall inflation. That’s a gain of 4.2% per year. But the actual amount students paid went from $1,920 to $2,910, or an annualized gain of 2%. Adjusted for grants, the inflation-adjusted cost of two-year college has actually declined over the last 20 years.

Why would schools balloon the sticker price but make it up with scholarships? A lot of it is marketing. If I say, “Billy, tuition is $20,000 a year,” it sounds high. If I say, “Billy, tuition is $40,000 a year, but we’ll give you a scholarship to bring it down to $20,000,” it’s an offer he can’t refuse. There’s also a rich student, Jimmy, whose parents will pay $40,000 without batting an eye. Jimmy is actually making Billy’s scholarship possible.

By those numbers, the cost of 4-year public college grew at 2% annually above inflation over that 20 year period, while the cost of 4-year private college grew at 1.5% annually above inflation.

The average student debt is roughly $30,000, about the price of the average new car. As Jim of the FreeBy50 blog points out, only a tiny 0.3% of graduates end up with over $100,000 of student loan debt. Any media piece about a struggling student with a six-figure student loan is an outlier.

Now, I’m not saying there aren’t problems. For one, the wages of new graduates are stagnant. But the sky is not falling.

Increasingly, parents should look at listed tuition prices like the sticker price of a car. It’s just a starting point for negotiations. Colleges, especially private colleges, can easily adjust what they actually charge per student based on two variables:

• Their financial situation, using need-based aid.
• Their desirability as an applicant, using merit-based aid.

Universities have all sorts of financial aid tricks to adjust actual out-of-pocket costs… various grants and scholarship funds that they can draw from, work-study guarantees, comped room & board, and so on. You can even negotiate your aid package with them further after getting your acceptance letter.

In fact, the industry term is tuition discount rate, which measures the upfront tuition discount given directly from private universities, thus excluding outside scholarships, tax breaks, or subsidies. The NACUBO tuition discount rate for 2013 was 45% and had risen every year for the previous 7 years.

If Billy is a somewhat borderline applicant and his parents have a high income, he’ll may get accepted but must pay full sticker price. If Billy is a very strong applicant, he may get accepted with a partial or full scholarship regardless of income.

This is why parent shouldn’t automatically just tell their kid to go to a state public school. If your child finds the right fit, they could go to private school for close to or less than the cost of public. Many households with modest income and financial assets will be offered substantial grants. Of course, you have to be ready to say “no” if your kid gets in without any aid, meaning the total cost is more than a house (my personal fear!).