Monthly Archives: April 2016

Costs rising faster than financial aid

Colleges are putting the brakes on hefty price increases, but tuition and fees are still rising at a faster rate than the financial aid and family income needed to cover costs, according to two reports released Wednesday by the College Board.

“Despite the moderate increases in average published prices, there were considerable increases in net tuition and fees over the past few years,” said Jennifer Ma, policy research scientist at the College Board and co-author of the reports. “These increases, combined with stagnant incomes for many families, raise concerns about ensuring educational opportunities for low- and moderate-income students.”

Sticker price increases have hovered around 3 percent for the last three years, the reports showed, keeping in line with historical trends and the reversal of the soaring costs that marked the recession. But net prices for a college education are rising.

Published tuition and fees for four-year public colleges and universities this fall average $9,650 for in-state students, a 2.4 percent annual increase after inflation. After taking grants, scholarships and tax credits into account, tuition and fees for local students at public universities average about $3,770. That so-called net price, though, climbs to an average $14,210 when room and board are added. Net prices continue to grow because sticker price increases have surpassed the grant aid that students receive.

Meanwhile at private, nonprofit colleges, average net tuition and fees this fall was $14,220, up from an inflation-adjusted $13,340 last year. Including room and board, the net price rose from $24,980 to $26,100. Published tuition and fees at private schools crept up 3.6 percent, to $33,480 after inflation.

Wages are trending up, but not enough to keep pace with the cost of college. Median family income grew at an average rate of 0.4 percent a year after inflation between 2005 and 2015, while incomes rose 0.8 percent between 1996 and 2006, according to the report.

The positive news is that families are taking on less debt to cover the cost of higher education as the economy improves. Students and parents borrowed $106 billion in 2015-2016 to pay for college, down 14 percent from the peak of $124 billion in 2010-2011. Undergraduates last year borrowed 18 percent less than in 2010-2011. During the same period, graduate students took on 6 percent less debt — though over the past academic year, per-student borrowing among that group went up by $550.

candy sales a sign of economic strength

“Overall, real consumer spending has been relatively strong since last Halloween due to modest consumer price inflation, low gasoline prices, better employment opportunities, and improved household finances,” Chris Christopher, IHS Global Insights’ director of consumer economics, points out.

In fact, the team expects spending on Halloween candy to experience the strongest increase since 2011, rising 5.5 and hitting $3.8 billion. In 2014 and 2015, spending on Halloween candy was up 5 percent and 1.7 percent, respectively. The report defined spending on Halloween candy as estimated October personal consumption expenditures, seasonally adjusted, on candy and chewing gum.

The additional spending isn’t due to an increase in the prices of Halloween candy, either, as prices are expected to decline for the first time since 2013.

Since last Halloween, unemployment has stayed near 5 percent, wages have been rising at a faster clip, and gasoline prices are up a mere 3 cents. “Many households have been using their pump price relief to pay down debt, save a little bit more, and dine out,” Christopher adds. Looks like buying more Halloween candy is another popular place to spend some of the extra cash.

Financial sees 3Q income increase

Northern States Financial Corp., the holding company of NorStates Bank, reported third quarter 2016 net income of $483,000 as compared with $354,000 for the second quarter 2016 and $514,000 for the third quarter of 2015.

Per share book value at Sept. 30 was 65 cents.

Pretax income for the third quarter of 2016 was $612,000 as compared with pretax income of $564,000 for the same quarter of 2015, an increase of 8.5 percent. Income tax expense for the third quarter of 2016 was $129,000 as compared with $50,000 for the same quarter of 2015 due to the effect of the company’s application of deferred tax assets in the third quarter of 2015. For the nine months ended Sept. 30, pretax income was $1.7 million as compared with pretax income of $1.15 million for the first nine months of 2015, an increase of 47.7 percent.

“We continue to make progress regarding profitability and credit quality,” said Scott Yelvington, President and Chief Executive Officer of the Company and Bank. “Our focus will remain on the reduction of NPAs, cost reduction and the profitable deployment of liquidity.”

So on average we all expect a 5 percent return; the report tells us we should start getting used to disappointment. To show how a mainstream stock and bond portfolio would do under Research Affiliates’ 10-year model, the report looks at the typical balanced portfolio of 60 percent stocks and 40 percent bonds.

An example would be the $29.6 billion Vanguard Balanced Index Fund (VBINX). For the decade ended Sept. 30, VBINX had an average annual performance of 6.6 percent, and that’s before inflation. Over the next decade, according to the report, “the ubiquitous 60/40 U.S. portfolio has a 0 percent probability of achieving a 5 percent or greater annualized real return.”

One message that John West, head of client strategies at Research Affiliates and a co-author of the report, hopes people will take away is that the high returns of the past came with a price: lower returns in the future.

“If the retirement calculators say we’ll make 6 percent or 7 percent, and people saved based on that but only make 3 percent, they’re going to have a massive shortfall,” he said. “They’ll have to work longer or retire with a substantially different standard of living than they thought they would have.”