Coronavirus has changed a lot of things in our lives:
- Vocabulary—introducing new phrases such as social distancing, personal protective equipment (PPE), contact tracing and disease detectives
- Eating at home—getting really tired of that!
- Wearing (and making) masks—with no trick or treaters in sight!
- Bad hair and chipped nails
- A growing need to see and chat with real, live people!
But in all seriousness, the global economy is not in peak form. Many industries are suffering. Certainly, we will have a lot fewer restaurants and entertainment venues to choose from once this pandemic plays out.
Here in Tennessee, where I live, Dollywood has not yet opened for the season, and several long-term restaurants have announced that their doors are closing permanently. The tourist trade has suffered greatly. And bricks-and-mortar retail shopping will likely not recover for quite some time. But, the stock market is making some headway back after a brutal couple of months and that’s good news!
And there’s more room for optimism. There are pockets of the economy that are booming. Of course, online sales of books, dog food, and clothing—just about anything you can think of—are on fire. Online grocery sales in April surged 37%. Amazon, Walmart, Chewy and many others who have been making a big push into online sales— before coronavirus—are now reaping the benefits of that wise decision.
Streaming communication technologies such as Zoom video and Go to Meeting are in great demand. Here at Financial Freedom Federation, we’ve been streaming meetings with our staff and offering live webinars to our subscribers for years.
And while entertainment streaming services such as HULU, Roku, Disney+, Amazon Prime, and Netflix have been gaining viewers for the past decade, they are expected to add 47 million more subscribers this year, becoming significant beneficiaries of the pandemic.
Online Education is Booming!
Another industry that is soaring is online education—for all ages. It’s estimated that 1.2 billion children in 186 countries have seen their schools close due to the pandemic. And many of them are learning online right now. Come this fall—depending on the path of the pandemic—some forms of online school for K-12 may continue. Perhaps a hybrid version might be adopted.
Make no mistake, even before coronavirus, global educational technology (edtech) was a growing phenomenon. Last year, the sector saw investments totaling $18.66 billion, for a total marketplace of $187.88 billion. Online adult educational classes have been steadily rising for years, offering languages, art, history, and music classes, fitness programs, and, of course, college degree studies. More than a million students every year are enrolled in college graduate level programs online. Now, forecasts see that market growing at an annual rate of 9.23%, to reach $319.167 billion by 2025.
Sure, we’ve seen a big spike in online education due to the stay-at-home orders. I’ve watched cooking classes, a ton of marketing and sales videos for my real estate business, and even learned how to build a website! And now I’m in the process of creating training videos myself.
And while plenty of the surge in online education is due to coronavirus, most industry experts believe that this is not just a tempest in a teapot. Online learning is here to stay.
Certainly, brick and mortar schools aren’t all going to disappear, although Governor Andrew Cuomo of New York—in a controversial speech—set the education industry agog as he questioned “why school buildings still exist”, announcing that he and Microsoft founder Bill Gates are joining together to “reimagine education,” driven by technology.
Time to Reimagine Education for better Results
But reimagining education is not a bad idea. Face it, our educational system is no longer the best in the world. We’re using the same system that has been in place for more than 200 years. We graduate 93% of our seniors, but as you can see in the following chart, we lag eight other developed countries in graduation rates, as well as PISA (Program for International Student Assessment).
Soaring Prices Putting Education out of Range for Many
Since last year, the average price for in-state tuition and out-of-state public schools rose by 4%, and tuition was up by 3% at private colleges.
And, as you can see from the following graph, those numbers are clearly on the rise.
A college education is becoming unattainable for a lot of students—poor, as well as middle-class. More than two-thirds of college students in the U.S. graduate with debt, which now tops $1.4 trillion, says Experian. Only 50% of federally managed student loans are currently in the repayment process, and 12% are never are paid back.
And it’s no surprise that those numbers are on the rise. The U.S. is the second most expensive country in the world in which to go to college, behind only the tiny country of Luxembourg, as you can see here.
The cost of our education is going up, up, up, yet, we rank 19th in graduation rates among 28 countries, according to the OECD.
Consequently, I think we can all agree something has to change. And that’s where online education can help.
Distance Learning—the next Disrupter?
Throughout history, there have been several specific disruptions that have significantly changed the world.
- From the 14th to the 17th century, the Renaissance was an era with architecture, visual art, literature, and music undergoing significant innovation and invention.
- The Industrial Revolution from 1760-`840 brought tremendous changes in manufacturing, moving from hand tooling to machine processes, which brought fantastic opportunities to commerce and the labor force.
- In the scientific progress from the late 1800’s to the 1920’s, cars, airplanes, radio, telephone, transport, atomic physics, and quantum physics were invented.
- WWII ushered women into the workplace, particularly in manufacturing to do jobs that had previously been held only by men.
- The 60’s counterculture changed our notions about sex and war, and saw the women’s movement gain significant ground.
And since the late 1990’s, technological innovation has changed virtually every industry. Recent innovations have brought us to this age of the joining of communication and technology that is bringing us an ever more connected world.
Now, perhaps that technological innovation is going to make online education the next big disruption in our society. The coronavirus outbreak is leading to serious thought about the future of education, including:
Is the experience of a 4-year degree while living on campus really needed?
Experts are pondering, which parts of this in-person model can be discarded; what needs to be retained; and which portions can be replaced or complemented by digital technologies. Current thinking includes bringing lectures and commoditized courses online, and leaving career guidance, group assignments, global learning experiences, and faculty office hours to remain in-person activities. In effect, a hybrid model.
How much improvement to technology—and at what cost—is necessary?
As I’ve said, I’ve been doing a lot of online learning. Some is streamed; some is video recorded. And you and I both know that the technology is not perfect just yet. Buffering remains a problem, as well as consistent connectivity. I had a social gathering on Zoom video last night, and two of the participants had to log off and on a couple of times to continue our event.
As well, problems exist in bringing large gatherings together online, such as 1,000 student classrooms, which are not unheard of in today’s universities. However, the advent and adoption of 5G technology, should be a game changer here. 5G began rolling out last year, in an estimated 12 million devices. By the end of next year, that number is forecasted and to reach 170 million. And the growth in 5G network devices is projected to rise from two million units to 10 million. With its faster speeds and less latency, 5G should vastly improve streaming.
What additional training will instructors and students require to become comfortable with the technology?
The ladies who had issues with our gathering last night were older, and just getting them into the session was pretty challenging. Of course, the younger students won’t have those issues, but, as online education progresses, I’m betting that there will be many older folks who will also enjoy learning new things from the comfort of their own homes.
How do we address the behavioral changes required by online education?
I remember my college days (barely!), when sitting through a boring lecture was almost painful. Well, when you’re locked in your desk chair watching on a small computer screen, the distraction quota goes up enormously. Our attention span wanders; it’s a lot easier to check your email and text message your friends, or even surf the internet, if you don’t have to worry about the professor giving you the stink eye.
However, especially in small classes, that can be resolved. I took an online class the other day, for credit. The instructor was a sly fox, asking us participants direct questions throughout, just to make sure we were paying attention. And our camera had to remain on at all times, so the instructor and her aides could scan the gallery to make sure we remained in place.
What role do public-private partnerships play in the future of education?
STEM programs have been one successful result of such partnerships, bringing business experts and their experiences together with budding students in science, technology, engineering, and math, to create terrific learning programs. Here in my small town in Tennessee, there’s a robust vocational school, which trains young people for trades needed in local businesses.
These programs are largely funded by state, local, and federal grants and offer mechanical, electrical, automotive, carpentry, plumbing, and other “shop” training skills, as well as nursing and other healthcare fields. But their programs have been expanding, and many now provide instruction in culinary arts, music production, broadcasting, graphic design, computer programming, fashion design, cosmetology, and filmmaking. But as public funding has been declining, businesses have been increasing their contributions to the effort. These programs have been hugely successful, but are really just in their infancy.
Does it make sense to expand high school/college combination programs, internships, and service projects?
Right now, many schools are allowing high school students to get dual credit for certain advanced placement high school and college courses. The lines are becoming blurred between the two entities. Is it possible to reduce the credit hours required to finish high school, allowing students to begin taking college courses sooner? Should we offer more internships or project-based learnings so students can get a leg up on their after-college careers? Where do civic engagement and community-based service come into play—those experiences that play a huge role in a long career?
Experts agree that any changes in education should include the following qualities:
- A learning, learning and outcomes focus
No doubt, the genius minds in education and business can sort out these issues, in due time. Right now, and we are just beginning to see a sea-change in education that will result in the creation of another very disruptive era worldwide.
Now, we’ve been talking about the hybrid version of online learning—meaning students still go to a university, but do some portion of their education online.
Let’s turn our thoughts now to completing an education entirely online.
Vetting an Online College
There are plenty of scams with online education, such as ‘diploma mills’, which give out fake degrees. You’ll want to make sure that the school is accredited by an organization recognized by either the U.S. Department of Education or the Council for Higher Education Accreditation—at both the institutional level (the entire school) and your program level. You should be able to find this information on a school or program’s website. It’s important, as future employers will look more favorably on you with a degree from an accredited school.
There are also For-Profit and Not-for Profit Online colleges. For-Profit higher education took a hit in the late 1990s, as many of the students they accepted were not prepared for college, resulting in low graduation rates and high debt, and a not-so-good reputation. That has gotten better, but experts say admissions for for-profit schools continue to be less selective. As well, most for-profit schools have national rather than regional accreditation. Local employers generally prefer regional accreditation. Alternatively, the not-for-profit schools are typically more selective in admissions, and also offer more student support.
Online Education—Half the Cost
Here’s an example, which is by no means even an average, but just a simple comparison of prices in Florida, for an online college vs. and on-campus experience.
Online College Prices vs. On-Campus Prices
“The cost of attending college varies depending on whether students attend in person or online. Therefore, a good way to determine whether one route is cheaper than the other is to look at the figures side-by-side. The below illustrates the estimated annual costs for an actual school in Florida that offers both on-campus and online programs.”
You can easily see the cost benefit of online education. But if you want to do your own study, this website offers a calculator for comparison:
Ranking Online Education
In a recent article, U.S. News & World Report ranked 353 online colleges. Here are their top 10:
|Tuition per credit
#1 in Bachelor’s Programs
Daytona Beach, FL
#2 in Bachelor’s Programs
#3 in Bachelor’s Programs
#4 in Bachelor’s Programs
#5 in Bachelor’s Programs
#6 in Bachelor’s Programs
#7 in Bachelor’s Programs
#8 in Bachelor’s Programs (tie)
University Park, PA
#8 in Bachelor’s Programs (tie)
#8 in Bachelor’s Programs (tie)
You’ll notice state universities are well-represented in this list. And I hope you’ll allow me a little license here, as I give a shout out to #1, Ohio State, my alma mater—go Buckeyes!
Thank you. Now, please note a nice feature here. The Compare column gives you the ability to select a few of the colleges and compare them in more detail on the U.S. News & World Report website: usnews.com/education/online-education/bachelors/rankings?mode=table
Any way you put it; an education doesn’t come cheap. So, the next question for most parents is, how are we going to pay for it?
3 Ways to Pay for Education
Every year, students receive more than 1.7 million private scholarships and fellowships, worth more than $7.4 billion. Besides merit, there are endless categories for scholarships. Some of the strangest I’ve seen include:
- Prom Guide’s Cutest Couple Contest
- Clowns of America, International Scholarship
- Create-A-Greeting-Card Scholarship Contest
- Doodle 4 Google Scholarship
- Tall Clubs International Scholarship
- Wholesale Halloween Costumes Scholarship
- Zombie Apocalypse Scholarship
- National Marbles Tournament Scholarship
- Pokemon World Championship Scholarship
- The Frederick and Mary F. Beckley Left Handed Scholarship
- Gamers Helping Gamers Scholarship
- The Asparagus Club Scholarship
I attended a neighbor’s graduation recently, and one person was awarded a $500 scholarship for having red hair!
You may laugh, but most of these range between $500-$3,000, and some are much higher. And while, in today’s world, your student is going to need much more than these kinds of scholarships to make it through college, anything is a help, right?
In reality, only 1 in 8 students who receive a bachelor’s degree get any kind of a scholarship and only 1.5% of those get a ‘free ride’, or all expenses paid.
1. The financial aid office at a college or career school
2. a high school counselor
3. The U.S. Department of Labor’s scholarship search tool: careeronestop.org/Toolkit/Training/find-scholarships.aspx
4. Federal agencies, studentaid.gov/understand-aid/types/scholarships
5. Your state grant agency
6. Your library’s reference section
7. Foundations, religious or community organizations, local businesses, or civic groups. In my community, the Rotary Club and Kiwanis Club both offer scholarships.
8. Organizations (including professional associations) related to your field of interest
9. Ethnicity-based organizations
10. Local employers
11. Online searches: There are lots of scholarship databases. Here are a couple that may be useful for you:
Loans and Grants
In addition to scholarships, students may find assistance in the form of grants and loans. They can be general grants or awarded for a specific field of study, if you are a veteran, woman, a particular ethnicity, etc. You don’t have to pay grants back, and they are available through the federal government, as well as colleges and professional organizations.
Here are a couple of web sites for your search:
We hear about student loans in default all the time, but face it, loans are here to stay. With college tuitions rising so quickly, loans are often the only way that students can complete their education.
In a recent article, U.S. News & World Report published this report on “The Best Private Student Loans of 2020”: loans.usnews.com/student-loans. Each lender was reviewed on product offerings, customer service ratings, eligibility, cost, and additional features.
Private Student Loan Resources
- Citizens Bank: Best Lender for Multi Year Approval
- College Ave: Best Lender for Exclusively Offering Student Loans
- Discover: Best Lender for No Application, Origination Or Late Fees
- Earnest: Best Lender for Borrowers With a FICO Credit Score As Low As 650
- Education Loan Finance: Best Lender With a Referral Bonus Available
- MPower Financing: Best Lender With No Credit History Required
- SoFi: Online Student Loans
Additionally, federal loans are available here: salliemae.com/student-loans/
Tuition for free
And many states and colleges have programs that allow residents age 65 and older to take courses tuition-free. Here in Tennessee, a state law allows this at any state-supported college. Additionally, we have a Tennessee Reconnect Grant—a last-dollar grant that pays the remaining balance of tuition and mandatory fees after other state and federal financial aid have been applied.
So, check with your local and state government—don’t leave any money on the table!
A Unique Idea—Saving for College
Lastly, let’s talk about a specific, government-given plan to maximize your education savings. That’s a 529 Plan.
Born in the 1980s as a vehicle to save for college tuition, the plan became part of Section 529 of the Internal Revenue Code in 1996. A big advantage is that there are no income restrictions to establish a 529 plan. The plan was extended to K-12 tuition by the Tax Cuts and Jobs Act of 2017, which allows families to use up to $10,000 per year of 529 plan savings to pay these tuition expenses.
The assets of the plan are not counted as part of the donor’s gross estate for estate tax purposes. As well, funds are not limited to paying tuition. They may also be used for fees, room, and board, books, supplies and equipment.
The 529 really took off when the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made qualified distributions exempt from federal income tax. Additional elements of the Act enlarged the definition of family members to whom a 529 beneficiary might be changed, and also allowed colleges, or a consortium of colleges, to sponsor 529 plans. Today, distributions of 529 plans may be used at any college, university, vocational school, or other post-secondary institute recognized by the Department of Education.
There are many advantages to the 529 plan:
First, although contributions are not deductible from the donor’s federal income tax liability, many states provide state income tax benefits for all or part of the contributions of the donor. Beyond the potential state income tax deduction possibilities, a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary’s college costs are exempt from tax.
Many states give the account owner a full or partial state income tax deduction or tax credit for their contributions to their home state’s section 529 plans. So far, a total of 29 states and the District of Columbia offer such a deduction. And currently these states offer a state income tax benefit for contributions to any 529 plan: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania.
And although funds can be reclaimed by the donor (subject to income tax and the 10% additional penalty on any gains), the assets are not counted as part of the donor’s gross estate for estate tax purposes. Thus 529 plans can be used as an estate planning tool to move assets outside of the estate while still retaining some measure of control if the money is needed in the future. A beneficiary must be designated, and the income tax savings are still only obtained if the money is eventually spent for education, though in some cases estate taxes can be reduced without spending the money on education.
The donor maintains control of the account. With few exceptions, the named beneficiary has no rights to the funds. Most plans allow donors to reclaim the funds at any time for their own use. However, if a “non-qualified” withdrawal is made, the earnings portion will be subject to income tax and an additional 10% penalty tax.
A 529 plan can provide a convenient, hands-off way to save for college. Having selected which 529 plan to use, the donor completes a simple enrollment form and makes a contribution (or signs up for automatic deposits). The ongoing investment of the account is handled by the plan, not by the donor. Plan assets are professionally managed either by the state treasurer’s office or by an outside investment company hired as the program manager. The donor will not receive a Form 1099 to report taxable or nontaxable earnings until the year of the withdrawals.
If an investment switch is desired, donors may change to a different option in a 529 savings program once or twice every year (program permitting) or the account may be rolled over to a different state’s program provided no such rollover for the beneficiary has occurred in the prior 12 months. 529 plans generally have very low minimum start-up and contribution requirements. The fees, compared with other investment vehicles, are low, although this depends on the state administering the plan.
Everyone is eligible to take advantage of a 529 plan, and the amounts that can be put in are substantial (over $380,000 per beneficiary in many state plans). Generally, there are no income limitations or age restrictions. However, that amount would make you subject to gift tax consequences, as federal law allows single taxpayers to contribute up to $14,000 in one year or make a lump-sum contribution of $70,000 to cover five years. Married couples may contribute as much as $28,000 per year or $140,000 as a lump sum.
Additionally, since the College Cost Reduction and Access Act of 2007, 529 college savings plans and prepaid tuition plans are now treated as an asset of the account owner (typically the parent), so they shouldn’t impact a student’s eligibility for financial aid. And under the SECURE Act of 2019, up to $10,000 of funds from a 529 plan can be used towards student loan expenses.
Lastly, 529 Plans allow you to transfer unused amounts to other qualified members of the beneficiary’s family without incurring any tax penalty. These qualified members include:
- Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them
- Brother, sister, stepbrother, or stepsister
- Father or mother or ancestor of either
- Stepfather or stepmother
- Son or daughter of a brother or sister
- Brother or sister of father or mother
- Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
- The spouse of any individual listed above
- First cousin
529 Plans are operated by the individual states to assist families with savings for future college costs. It is each state’s decision as to whether it will offer a plan and what benefits and options the plan will contain. Every state has at least one 529 plan available. Some states have multiple plans. Some states don’t offer any tax benefit; others do.
The following 22 states don’t care which state’s plan you use, so if you live in one of them, you are free to choose a 529 plan sponsored by any state in the country.
You can search for 529 plans for your state here: savingforcollege.com/529_plan_details/?page=plans_by_state
529’s come in two flavors:
Prepaid plans are offered by states and/or educational institutions, many only to state residents. Investors purchase tuition credits in prepaid plans—quarters, semesters, or years of tuition, that are then guaranteed for the future—regardless of whatever tuition hikes occur between time of purchase and time of use. Prepaid plans generally cover in-state tuitions, but many will allow transferal of the contract to out-of-state schools, although you may not receive full value.
The performance of prepaid plans is based on tuition inflation, not investment performance, making them ‘safer’ and attractive to conservative investors.
Prepaid plans are on the way out. Right now, only 11 states still offer them, and just 10 of them provide a prepaid tuition plan that is accepting new applicants. Those states include Florida, Illinois, Maryland, Massachusetts, Michigan, Nevada, Pennsylvania, Texas, Virginia, and Washington.
529 Savings Plans are sponsored by the individual states, but not by educational institutions. Most have no state residency requirements.
The growth of 529 Savings Plans is based upon the market performance of the underlying investments in the plan. They may include stock mutual funds, bond mutual funds, money market funds, and certificates of deposit. Most plans will offer a range of age-based asset allocation portfolios, becoming more conservative as your child nears college age.
They may also offer risk-based asset allocations, keeping a fixed percentage in fixed-income versus equity regardless of the beneficiary’s age. Others are designed with a stable value or guaranteed option whose goal is to protect the account principal while offering some investment growth.
Savings plans can generally be used at any U.S. college or university and some foreign institutions. They are not guaranteed by the states and are not federally-insured. Switching among investment options is usually limited, often to once a year.
These plans may charge enrollment fees, sales loads (broker commissions), annual maintenance fees, annual distribution fees (similar to the 12b-1 fees at mutual funds, and average between .25% and 1.0% of your investment) and asset management fees (which may be waived or reduced, depending on size of the account or if contributions are automatic).
There are some disadvantages to 529 Plans. The IRS allows only a maximum of two exchanges or reallocation of assets per year in a 529 plan. If you withdraw money and don’t use it for eligible expenses, you will be hit with a 10% federal tax penalty (in addition to any income taxes owed). Lastly, expense ratios vary from plan to plan, and your state may assess higher fees than others, but you often don’t have a choice. Also, the fees are frequently not disclosed in the marketing materials. Read the fine print!
To ensure that you are maximizing your contributions and minimizing your taxes, please consult your personal financial advisor for help in creating and structuring your own 529 plan.
Here are links to one of the best sites I found for information on 529 plans. This site also includes ratings of individual plans as well as lists of eligible institutions:
The College Savings Plan Network created by the National Association of State Treasurers has links to most 529 plan websites.
Deciding Which 529 Plan is Right for You
Once you’ve researched the plans, here are some questions that may help you determine which plan is right for you:
Is the plan available directly from the state or plan sponsor? What are the fees? How much commission is the broker paid? How can I reduce or waive certain fees?
What are the restrictions on withdrawals? What college expenses are covered? Which colleges and universities participate in the plan?
What investment options are offered? How long are contributions held before being invested?
Does the plan offer special benefits or tax advantages for state residents? If it charges higher fees than another states’ plan, do the tax advantages or other benefits offered by my state outweigh the benefits of investing in a less expensive plan in another state?
What are the limitations of the plan? When can I change investment options, beneficiaries, or transfer ownership of the account?
What is the past performance of the plan? Who is the program manager and when does his current management contract expire?
For additional information, you will want to review the offering circular or disclosure statements for the 529 plan. This document provides detailed information about the plan’s tax benefits, fees, expenses, investment options, financial aid, limitations, and risks. As well, you might wish to consult the prospectus of the underlying mutual funds in the plan. Prospectus information can be found at: http://www.sec.gov/edgar.shtml
And lastly, the SEC has reams of helpful information on the following link:
As a vehicle for easy college savings, 529 plans can’t be beat. But with so many plans available, it would be to your benefit to carefully compare them prior to investing, and to consult your personal financial advisor to ensure that your plan will suit your individual needs.
The world, it is a changin’, and the historical way we have viewed and conducted educating ourselves is about to take a huge leap. Stay tuned; we’ll keep you posted.