Different schools of thought about paying for college

Parents Forum
41

88jm19 said “A big part of the equation is knowing one’s self and perhaps that isn’t easy for an 18 yr old.” So true.

My husband’s niece, who grew up in NY state and was a very good high school student, was accepted to a $70+ a year university with zero merit and zero fin aid. She is the second of four children and her parents couldn’t afford to pay for this school without taking out huge loans. She was accepted to 2 or 3 SUNY’s with excellent merit, but wanted this expensive $70+ per year school. Her father (my husband’s brother) went to his mother and asked if she would loan them the money for the tuition. She said yes. The girl went and graduated in 2014. She majored in comparative literature and worked as an administrative assistant in NYC for two years because she didn’t know what she wanted to do. Well, she discovered yoga and became a full time yoga instructor. Her parents are still helping to support her and paying her rent and she’s walking around without health insurance because the line of work she’s in is tough. Her parents now owe her grandmother over $200k for her education and at this time, are on the verge of bankruptcy due to very bad investments and credit card debt. Yes, this is a true story!

I agree with 88jm19’s point about 18 year olds not always knowing themselves. This is strictly my opinion, but this student should have taken advantage of the merit she was offered at the SUNY’s because she and her parents could not afford the expensive school. Her parents carry much fault as well. They got caught up in the prestige.

42

Would it be likely that the kid in question took after her parents in following their example of poor household financial management?

43

@ucbalumnus very well could be. I guess the point I was trying to make is that this student didn’t know what she wanted to do at 18, and still didn’t know what she wanted to do at 22 when she graduated. There is nothing wrong with that and sometimes it takes many years to figure out what a person wants to do with her/his life. But if this is the case, it’s probably best to go with the less expensive route when attending college if finances are tight or if the expensive school is not affordable.

44

You can go broke owing your local state directional $35K too- it’s not just graduates of expensive private schools who end up teaching yoga, have no health insurance, etc.

These anecdotes (and yes, we all have them) obscure the reality that MOST kids end up paying off their education loans, end up in solid careers (not everyone can be a neurosurgeon or investment banker), and creating a nice life for themselves- and the statistics seem to show that graduating from college (even if you had to take out loans to do so) yields a better long term financial outcome than NOT graduating from college.

But I agree with a lot of folks on here- don’t borrow more than you can handle; don’t spend more for college than you can given your circumstances, health, other limitations, etc, don’t look over your shoulder at what your neighbor is doing.

45

GCs often don’t discuss the finances of colleges with kids and parents. I think sometimes they don’t know much about it, or sometimes they don’t want to make assumptions.

46

We could have afforded any school without loans. My daughter was not initially accepted to her top choice highly selective colleges. But she was accepted to 3 state flagships with nice merit. She then got off the waitlist to one of her top choice selective colleges.

We decided that even though we could afford it, a degree from the selective college was not worth $140k more than any of the state flagships. She would have preferred the selective college due to its size and perceived more elite reputation. But she is now a happy freshman in the Honors College at an out of state flagship.

47

There are several reasons why ROI is a bad primary metric for choosing a school:

  1. It is biased against schools that have many non-Engineering/pre-Professional majors. A school like the Stevens Institute of Technology may have a higher ROI than a school like UC Berkeley or Michigan. However, Stevens is mostly engineers and the like. I guarantee you most of the engineers at Berkeley and Michigan are better off than most of the engineers at Stevens in terms of placements and long-term career, especially after adjusting for location in the case of Michigan.

  2. It fails to account for school advantage that exists far beyond graduation or your first job. People say undergrad school does not matter past the first job, but both my personal experience and, more importantly, empirical data for mid-career salaries and career tracks, say otherwise. This is partially in part due to alumni connections/preference, bias for candidates from top schools (school pedigree is rather well-known and easy to assess), and even giving preferential assignments to certain people in the same role but from different schools. I saw this first hand in two of my past internships - where I got preferential assignments due to me coming from Michigan. Alumni of top schools are also disproportionately represented in Fortune 500 executive roles. Also, when it comes to “sexiest” jobs you can have right after undergrad: the “unicorns”, the well-funded Silicon Valley startups, and the desirable investment banking and management consulting gigs, you will see that the (usually vast) MAJORITY of the people are from top schools, so the disproportionate representation is even more extreme.

However, the more elite schools is not always the right answer, even when it is affordable for the family. There may be a fit mismatch. In some cases, like individuals interested in pre-med or pre-law and 100% set on it, a GPA inflated school might be a better choice (although, to be fair, GPA inflation does not correlate too well with how elite a school is for the top 100 or so schools in the country).

48

We had enough resources so that our ability to pay was never a factor in the college search. That search was all about fit and the qualities of the college programs. We were not rich but we had enough money (savings and current earnings) to take cost of attendance out of the equation. (The grandparents also contributed 20-25% of the needed money.)

Neither kid was looking for prestige itself, but rather at the quality and professional credibility of the academic programs, as well as a good match to the kids’ desired social and intellectual environments. The searches weren’t exhaustive. They satisficed rather than sought perfection. Each kid applied to 6-8 colleges. In one case the list excluded all major universities in our state.

1 found everything he wanted at UChicago. An overnight visit on admitted students day was conclusive: “This will do,” he said the next morning. #2 found her target at Rhode Island School of Design. An overnight visit sealed her decision.

In short, the search process wasn’t exhaustive or exhausting. Yet both kids were very satisfied with their college experiences.

49

Sticking with the same cars for 18 and 16 years can definitively save enough to put a kid through college.

Now let’s do some simple math. 30 years ago an ivy sheepskin was $15k/yr and the starting salary was $30k. These days the nut is $70k/yr and they come out making $70k which is $1k more than the kids are making from our top notch state school that costs $35k/yr. I’ve asked my children to explain what value they are getting for double the price. No takers yet but one had the sense to ask if he could spend the other $35k/yr on grad school ?

50

We could have afforded a “higher ranked,” full pay option for S1, and chose instead to send him go to a school where he received merit aid (and did not allow him to ED where he had legacy out of fear he might get in). And, we aren’t using any savings for vacations or nicer cars. Now that we aren’t funding his account, we are putting more toward our other 2.

We felt our S was not mature enough and did not have the work ethic to be successful at a more demanding, higher ranked school, and we weren’t willing to pay for that. We know people who’ve judged our decision, but we don’t care. We believe (though I admit to bouts of worry at times) that our S can thrive where he is and have a successful life, if he so chooses. (Mind you, he’s still at a very good school, and one that seemed more of a fit for him, though one that is a “safety” for many.)

As someone wisely said on another thread, just going to x school is not the key to success. And I’m sure many posters on this site who are successful did not go to an elite college.

51

@intparent I think they often have no clue or they are on the younger side themselves and paying back 75K is normalized for them so they don’t think it’s a big deal.

52

Bunch of anecdotes here but I can tell you of the following families, all of whom were full-pay CA residents-
a) kid got into both Berkeley and Stanford. Parent felt kind of conflicted as Stanford is a slightly better experience but is it really 2x as good? Not really, and kid ended up at Berkeley.
b) kid got into both Berkeley and Wash U. Parent was a Wash U alum but really wasn’t too excited about paying full price. Kid thankfully was happy to go to Berkeley.
c) kid got into Northwestern, Berkeley, and UCSB. Kid told his parents, “well, I guess I’ll go to Northwestern.” Mom says, "um, at nearly twice the price, you need to have more conviction behind it than “I guess I’ll go…” Kid ultimately ended up at UCSB and is really happy there.

And of course, it also depends on the kid and the major and what your backup choices are. The UCs are a decent option.

53

OP here. Thanks for all the comments. A few thoughts of my own:

The measurement of ROI is going to differ by family, in exactly the same way as some families value experiences differently, or value experiences over things. Even when solely comparing colleges, some will value smaller classes or famous professors or even the weather more than others. So I completely agree that there is no right answer for everyone.

That being said, CC probably does have a higher proportion of people committed to prioritizing education (including spending) than you might find IRL, otherwise they wouldn’t be on a site dedicated to college. And with us being in CA with great public colleges, there’s a better argument that the state flagships are better value for money than in many other states. So I think it’s appropriate to consider that some people can very logically hold the view that no college is worth $70K per year to them.

However, I do think I have changed my views somewhat after going through the process over the last year. At the start I was quite prepared to admit that Berkeley and UCLA were better value than top private schools. But now I’m much more of a fan of full ride scholarships at lesser known institutions, and I think that’s going to turn out to be a better deal even than our state flagships. I’d rather my kids had $100K extra when they are getting started in their careers or if they are considering grad school or law school. And I think the experience of being a big fish in a small pond with special opportunities is going to end up being even better than I thought.

That surprises me, given I went to a tippy top school myself, but I do think it is interesting how merit is often only sought on the grounds of affordability rather than because of the advantages these competitive cohort based merit programs can offer.

54

I wonder how many parents anticipate paying the EFC until a big, perhaps unexpected, scholarship comes in that changes priorities. Seeing the COA/bill accompanying the acceptance letter is pretty powerful.

55

OP- whether or not any college is “worth” 70K per year is ALSO informed by where you live. There are states where their flagship U is likely not “worth” the 35 or 40K per year… at which point, the decision is not 70K vs. Berkeley (sort of a no-brainer in my opinion- Berkeley being one of the top universities in the world) or the differential between your own state U and something else.

My kids did not apply to our state U. They did apply to a neighboring state U; we’d have paid out of state rates so less than 70K but a lot more than what it would cost you to send a kid to Berkeley. When your own state U has had its struggles, prioritizes big time sports (and stadium construction) over investments in faculty and academic facilities, is in a remote part of the state which isn’t close to internship/employment/cultural amenities, AND still costs a bundle, the calculus is quite different. I scratch my head at the number of kids I know who claim you can’t major in XYZ and get out in 8 semesters. I don’t know if that’s true or not… but watching these parents add an extra semester or year onto the “bargain” at State U reduces the differential in my mind.

Here on CC we see parents post frequently that they’re encouraging their kid to “take it easy” first semester by not registering for a full load, getting used to college, etc. How many of them have budgeted for the extra time on the back end? A hidden cost at some u’s.

56

@yikesyikesyikes - “1) It is biased against schools that have many non-Engineering/pre-Professional majors. A school like the Stevens Institute of Technology may have a higher ROI than a school like UC Berkeley or Michigan. However, Stevens is mostly engineers and the like. I guarantee you most of the engineers at Berkeley and Michigan are better off than most of the engineers at Stevens in terms of placements and long-term career, especially after adjusting for location in the case of Michigan.”

You might assume that, but not so.

From Bloomberg Business Week/Payscale’s survey “What’s Your College Degree Worth, 2018”:

https://www.payscale.com/college-salary-report/bachelors

Stevens: Early career/starting salary - $73,600, Mid-career (10 year) salary - $138,900, Rank 14th
UCB: Early career/starting salary - $68,300, Mid career (10 year) salary - $132,300, Rank 28th
UM (Ann Arbor): Early career/starting salary - $62,000, Mid career (10 year) salary - $107,900, Rank 155th

Of course the type of major influences salaries. That isn’t bias, but simply reflects that STEM majors are higher paid than most “soft” majors. Stevens engineers rank seventh of US engineering graduates as also reported in Payscale’s survey (which eliminates the “bias” you claim).

https://www.payscale.com/college-salary-report/best-schools-by-type/bachelors/engineering-schools

ROI by itself shouldn’t the be all and end all of choosing a school, agreed. But, considering the cost of tuition today and the loans many students must take on in order to attend college, it is certainly more than a minor consideration as well.

In my engineering organization we have several UCB, UM, MIT, RPI, Stanford, and Stevens graduates. Their salaries are determined by our corporate scale based upon the particular role and its responsibilities. We do not hire or pay preferentially or promote based upon the school one attends. That is entirely a function of the individual’s performance and contributions, which is independent of where they went to school.

Stevens today by the way is 56% engineering, the remainder are science, business/technological management, and humanities/arts. It isn’t like 40 years ago when I attended there for example when 85% of the students were in engineering.

57

“I’d rather my kids had $100K extra when they are getting started in their careers”

I would be very surprised if parents actually have this money to give their kids if they chose the cheaper option. You can only give someone a finite amount of money without paying gift taxes (14k/yr?).

I addition, there was an example ot choosing a small college with merit and a state flagship. But what if it’s say USC and a film major or UPenn Wartom for a finance major. I think that is where the decision is very difficult for full pay families who can afford 280K over 4 years. Chase merit at a college that is not a top college for your kids major or choose the top 25 college that is #1 in their major. I’m going with the top college every time if I can afford it.

58

Someone mentioned a good point, unexpected expenses cutting in to the ability to be full pay of half pay or whatever. I certainly wouldn’t over extend myself for college or anything. Things can change so you want to be careful about that.

Whatever your situation is, plan on things getting thrown in the mix as life happens. At least it does around here (seems to be frequently).

59

A friend of mine’s D18 got into Princeton and some other highly ranked schools. I believe they would have been full pay or close to it. I think she said they would have had to borrow some money to go to Princeton not a ton. Instead the student went to Purdue probably for close to a full-ride or at least with tuition paid. The student walked in as a Junior due to all the AP and Clep tests. She will be off to grad school in two years. I am sure they are saving a ton of money. BTW, the top companies come to Purdue.

60

Socal- the current tax code allows 15K per year per person as a gift, so a married couple can give 30K per year to anyone they wish. And point of clarification- you CAN give anyone you wish 100K per year and do not need to pay a penny in taxes. You would file a gift tax return (takes five minutes) and down the road, when you are dead, there may be taxes due on that gift if you have exceeded your lifetime exemption.

Just want to be accurate here. Many people believe that the tax is due in the year the gift is given (not true) or that the recipient owes taxes (not true) or that the amount of the tax outweighs the benefit of giving the gift (usually not true) or that “ordinary people” shouldn’t give gifts in excess of the limit (not true unless your estate is in the hundreds of millions of dollars and you have other complicating factors).

There may be reasons NOT to hand your kid 100K at graduation from college, but the tax implications are likely not among them.