Salaries are often not stable. People change jobs for higher pay, and the higher salaries often come with higher bonus potential. So a higher pay grade and salary may come with a higher bonus %, which can also vary quite significantly from one year to the next. Am speaking of salaried positions, but self employed folks’ and commission based income numbers can change notably too, and certainly both can be affected by job loss. Those at the top salary ranges, if they lose their job, may have to re-enter at a lower salary.
There is a perception that because a student is full pay that the family just whips out the check book and pays the bill. Look at the amount of parent plus loans that exist. The fact that these loans are approved up to COA (whatever the college determines that is) should tell you something. Its no different than the easy credit mortgage business driving up home values. If the “buyer” cant get easy financing there is less money in the market, and then demand drops just like the housing market did.
From the original paper by Chetty and colleagues (Mobility Report Cards: The Role of Colleges in Intergenerational Mobility), the parental income being discussed here is not just salary (i.e., earned income), but “total pre-tax income at the household level”. “In years where a parent files a tax return, we define family income as Adjusted Gross Income (as reported on the 1040 tax return). In years where a parent does not file a tax return, we defined family income as the sum of wage earnings (reported on form W-2) and unemployment benefits (reported on form 1099-G). In years where parents have no tax return and no information returns, family income is coded as zero.” Furthermore, “we average parents’ family income over the five years when the child is aged 15-19 to smooth transitory fluctuations.”
Therefore, the $630,000 figure for the top 1% includes not just salary, but also unearned income, such as dividends, capital gains, employee stock options, business income, and so on. In fact, small businesses generally report their company income on their owners’ individual tax returns.
Note, also, that this top 1% calculation is based on the cohort of parents with children 15-19, and not the entire population, so the parents generally have had time to advance in their careers.
The paper (on page 14), refers to the 99th percentile from the 1980-1982 as being $512,000, in 2015 dollars. I haven’t read the paper carefully enough to see where the $630,000 figure is coming from.
@jym626, yes, there’s fairly high variance, but if you’re already above 630K, the chances are good that you’ll end up in another six-figure position (and likely at least a mid-six-figure position) fairly soon because it’s quite likely that you have some skillset or experience that few have. Generally, people won’t go from high six figures or seven figures to 5 figures. In large part because those folks would have already saved up a fair amount, so they’re not taking a 5 figure job. And yes, a lot of small business owners among them. Lots of variance, but again, if you’re bringing in high 6 (or 7 or 8) figures one year, the chances are good that you’d have already amassed a good amount.
How long have you been in the workforce @PurpleTitan ?
@jym626: 20+ years. Lived through two crashes that devastated the industry I was in at the time. Been through startups that have closed, hedge funds that have closed. You name it, I’ve seen it.
The Equality of Opportunity Project at Stanford University has the top 1% income at $512K in 2015 dollars. At that top percentile the difference in household income between the 99 percentile and 99.1 percentile is huge. Someone else stated there are over 125 million households. Therefore, approximately, there are over 1 million households with a household income of over $600K. Those households can afford to pay $75K per year in tuition, room and board for their children or grandchildren.
Then you should be familiar with the potential for notable income swings, @PurpleTitan.
@foobar- where was it that “someone else stated?” Maybe it is paying for the grandkids. There are certainly people who can pay full pay (at incomes much lower than $630K), but there are also people who mismanage large incomes. Just sayin’
However, wouldn’t someone with a high but volatile income set his/her spending level at the lower part of the range so that income in the lower part of the range would not be a personal finance emergency? Over time, the average will then result in substantial savings in most years.
@jym626, yes I am, and as I’ve noted, there may be a lot of volatility, but pretty much all of the folks who reached the high-6/7/8 level
- Have already amassed a lot.
- Didn’t have too much trouble getting on their feet again (if they wanted to; some decide to dial it back or call it quits)
Are we actually arguing that people with 650K incomes might not be able to afford full pay?
Not to belabor this, @ucbalumnus and @PurpleTitan , but yes, hopefully most of those in that income bracket have wisely diversified and invested/saved wisely, but sadly, at all income levels, there are those who live above their means.
No, @gallentjill - the initial discussion was simply asking how many of those uber wealthy have kids in college, as it doesnt reflect the majority of the full pays, but it morphed into other issues. Moving on…
Hello all, I would like to clear up a LOT of stuff right now.
At post #5, @doschicos linked the NYT article that discusses the differing economic backgrounds of the student population at each university.
I HIGHLY, HIGHLY, HIGHLY recommend everyone who hasn’t checked out the article to do so now, because many of the numbers are extremely compelling. I linked the article for you guys below:
The value of $630K came from this article; it’s in small print on the second chart.
I posted my question at #26, and ever since, our discussion has highly digressed… I apologize to the Moderators; I should’ve started a new thread bc as we can see now, everything is super jumbled. I’m sorry, I’m still a new member! L-) Haha
Hope this helped! 
Yes, I highly recommend that New York Times article too. It’s a real eye-opener. Using the list of colleges in the New York Times article and “College Navigator” it appears that there are some wealthy colleges where 50 to 60 percent of the students are full pay (“sticker price”).
Here is some clarification of the numbers. The value of $512,000 is the value of the top 1% of adjusted gross income for the 1980-1982 cohort (college classes of 2002 to 2004), while the value of $630,000 is the value for the 1991 cohort (college class of 2013). All values are in 2015 dollars. The increase is about 2.10% per year compounded. For reference, the average inflation rate over that time period is 2.39% per year compounded.
Here is the reality. For most private universities,they could not engage in the current system of educational socialism without full pay students. Anyone receiving scholarships should look to their left and right and profusely thank their full-pay classmates.
Those that pay full tuition are subsidizing those that cannot. A fair and equitable system would be to lower the tuition for all and given no scholarship financial aid beyond the bucket of funds generated from pre-funded scholarships or institutional endowment income or corpus . Why should those that are wealthy or those that have planned for years to fully pay for their children’s education be forced to subsidize others?
How about the fact that an educated population is a public good that will benefit you?
How about the fact that no one is forcing you to go to an overpriced private school?
Let me offer this analogy. Suppose you need a car and go to a car dealership. The car dealership tells you the price of the car is $20,000. But because your neighbor also wants the same car but only has $10,000, you have to pay $30,000. Would you buy the car or would you go to another dealership? The answer is obvious. The only difference here is that one product is a college education and the other is a car. And, unfortunately, all of the larger sellers of a private college education have adopted the same educational socialism model.
Its not socialism to believe that the public as a whole needs to pay for things that benefit the public. An educated population is a benefit to the public. The truth is that when you, as a parent, bear the full burden of raising and educating a child, you are doing your neighbors a huge service. You are donating to society the next generation of doctors, teachers, scientists, engineers, nurses etc. You are willing to do that because you love your children and society is taking advantage of that love. But in reality society should bare a large share of the burden because society is getting a large share of the benefit. That is why I am so firmly committed to public education and tax payer funded state colleges.
The right analogy is not a car dealership but a fire department. What if we thought about the fire department, the way you think about college. Why should you pay to protect your neighbor’s house? You do it because if his house burns down, its a huge issue and a huge danger for everyone. Its a benefit to the whole population to protect homes from fires, so the population contributes to it.
What happens to a society that doesn’t pull together to educate its children? Well, civil unrest for one thing, if people keep having children but can’t afford to educate them. A growing, discontented underclass is really not a healthy thing in a society. And what happens if the cost of college becomes too much for even loving, middle class parents to bare? They stop having children. You might think this is a good thing…over population and all… but it can be a terrible crises. Look at the demographic issues some countries are having because young people decided to do just that…not have children or have too few. You always need an educated capable young generation to support the old. If it becomes to burdensome to have those children, you have a real problem on your hands.