ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, May 6, 1996 TAG: 9605070078
SECTION: MONEY PAGE: 6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
For all the talk about the high cost of higher education, middle-class families are gritting their teeth and shelling out. When shopping for ordinary goods, they'll walk the entire length of a mall for a dollar off. But when selecting colleges, they're flocking to the higher-cost schools.
Instead of trading down as tuitions escalate, families have been trading up.
As Exhibit A, I give you young freshmen from families earning $30,000 to $100,000. They're attending private colleges and universities in slightly higher proportions than they did 15 years ago, even though those schools charge considerably more than do public institutions. That's according to an analysis of enrollment data by economists Morton Schapiro of the University of Southern California and Michael McPherson of Williams College.
Students at public institutions are increasingly choosing four-year schools over two-year community colleges.
Wealthy kids are trading up, too. They used to choose a mix of big-name national institutions and well-regarded regional ones. Now they're leaving the regionals behind.
Rich kids are clustering in two types of institutions. First, the famous universities: Stanford, Duke, the Ivies and the ``public Ivies,'' such as the University of Michigan and University of Virginia. And second, the first-rank private colleges with national reputations.
``It's the Mercedes syndrome,'' Schapiro says. The most competitive kids want degrees from well-known schools with networks of graduates working everywhere in the world.
That leaves the second-rank private colleges struggling for a higher quality student body. They're targeting brainy middle-class kids and offering them big scholarships.
Some 1,300 colleges - public institutions as well as private ones-now give ``merit scholarships,'' without regard for financial need, says student-aid expert Joseph Re. He is author of a guide to college aid: ``Don't Miss Out.'' It is available from Octameron Associates, P.O. Box 2748, Alexandria, Va. 22301.
Schapiro estimates that, on average, it takes $10,000 a year to lure a bright kid away from a top college to a school in the second tier.
If they don't get merit scholarships (which the top schools generally don't offer), how does the middle class pay? Chiefly, with a lot of loans.
Students can borrow up to $2,625 from the federal government for their freshman year, and higher amounts thereafter. If you're classed as financially needy, Uncle Sam pays the interest while you're in school. Otherwise, you pay - although no repayments are due until your studies are behind you. Current variable interest rate on student loans: 8.25 percent (that's the cap; the rate can't go higher, by law).
What makes you ``needy''? You qualify if the cost of your college comes to more than you and your family are expected to pay. Your ``expected contribution'' derives from a federal formula that considers such things as income, assets, age, family size and each earner's need for a retirement fund.
Since 1992, the formula for federal aid has excluded the value of your home. So middle-class kids look poorer on paper than they really are. This typically gets them more aid at public institutions but not at private ones. Private colleges usually count part or all of your home equity when awarding their own scholarship funds.
After student loans come federally insured loans for creditworthy parents. They can borrow up to the college's full cost, minus other aid received. You pay a variable interest rate, currently 8.98 percent (capped at 9 percent). To qualify for the maximum loan, pay off your consumer debts, says Jean Eddy, a vice provost at Northeastern University in Boston. You want to show the cleanest possible credit report.
Colleges offer tuition discounts, especially to students they particularly want. Applicants for early admission may get less favorable aid packages, because the school knows it has you. You might do better by applying to several schools. Your first-choice college might increase your tuition discount, if you can show it a better offer from a competitor.
And what has happened to low-income students? Their grants and loans haven't kept up with college costs and their parents can't pick up the slack. Since 1980, they're the only group to have traded down educationally, Schapiro says.
Fewer of the poor now attend private colleges. More enter two-year community courses. Community colleges are excellent institutions, but four-year schools lead to better jobs. The gap between rich and poor starts here.
LENGTH: Medium: 85 linesby CNB