Newsday: Paying high prices to bear the college burden

Parent Cafe
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<p>My problem with the "cost of living" argument is that I live in a high cost of living area (SF bay), and am living with a median-level income (~$50K).... and I'm managing just fine. It is quite possible to live cheaply in high-cost areas -- not everyone lives in the priciest neighborhoods. </p>

<p>I don't understand why families with 6 figure incomes haven't saved for college when they all seem to have saved for retirement. If a family can afford to put away $X to a 401K each year, couldn't they have instead put 1/2 X into the 401K, and the remaining 1/2 X into a 529 account? Or maybe put the full $X into each.... and to have given up some vacations or home improvement projects along the way? </p>

<p>And if for whatever reason it was impossible for them to save... where does this expectation concerning the cost of <em>private</em> college come from? The aren't complaining that they can't afford SUNY -- they are complaining that SUNY isn't good enough for them, and they can't afford an elite private. </p>

<p>The biggest surprise for me along the way was that (a) my kids applied to private colleges, and (b) it turned out that we qualified for enough need-based aid to afford them. But if the aid $ hadn't been there... then my kids would have gone to our in-state publics, and in fact my son is in one right now, largely for financial reasons. (He put himself out of the financial aid market by working full time and saving money -- something that the financial aid system is set up to discourage). </p>

<p>But the point is.... I didn't expect the local private elementary schools to be "affordable" -- why should I expect that of private colleges? It's great that private colleges offered large grants to my median-income kids -- but I see that as a gift, not an entitlement. (My son's first college wisely labeled the money as "gift aid" just in case anyone was unclear on the concept).</p>

122

<p>"You probably know more about this than I do. But my data show a pre-tax 11% average stock market return (including dividends) for 1926-1990 (that includes the great depression, and the collapse of 1987); and 18% for 1990-1999, with 2000-2006 somewhere in between."</p>

<p>I'm sure I don't know the historical data more than you because the data is the data. :)</p>

<p>The problem with historical data is the future may be different. I'm sure it will be different. </p>

<p>I can give many reasons why I think future returns will be smaller and a few where they might not be, but just looking at dividends today, I believe they are less than 2% (they are so low, I don't look), and PEs today of around 18, historically they are around 14 or 15 (and yes I know interest rates are low so PEs should be higher). </p>

<p>The 11% return is also overstated because companies are kicked out of the indexes when they do poorly or go broke, and the companies that replace them usually, not always do better.</p>

<p>GE is the only company that was in the Dow 80 years ago, for example. </p>

<p>I have a lot more reasons, but that's enough.</p>

<p>I believe Warren Buffett believes we are going to have 6 or 7 % returns going forward and Sam Zell wrote a song about returns. I posted this on another thread.</p>

<p><a href="http://www.yieldsz.com/%5B/url%5D"&gt;http://www.yieldsz.com/&lt;/a&gt;&lt;/p>

123

<p>Calmom, the tax code benefits the rich, and upper middle class. It benefits the investor. The college tuition game takes from the rich and upper middle class and gives to the lower middle class. It takes away from the investor and saver and gives to the spender.</p>

<p>That's the reality.</p>

124

<p>Again, it really doesn't matter - my wife still does better than the future Ivy-doc, even if she has no return on the $200k, and even if she doesn't even HAVE the $200k. </p>

<p>"But if the aid $ hadn't been there... then my kids would have gone to our in-state publics."</p>

<p>That's exactly the way I feel about it, and I just don't see the big deal. (I think a lot of it really is an east coast thang. ;))</p>

<p>"The college tuition game takes from the rich and upper middle class and gives to the lower middle class."</p>

<p>Evidence? (I just don't see it.) Again, prestige college costs for top 3%ers are cheaper than they were 25 years ago, and the subsidy for the wealthiest students continues to increase. Among the prestige institutions, economic diversity is lower than it was 25 years ago. In the past 15 years, the percentage of Pell Grant recipients at these institutions has declined. Merit aid for upper middle class students is rising rapidly. State universities are turning away low-income community college transfers (if they can afford it at all.) Certain institutions (I think of my alma mater, but I think it is true at all of the Ivies and many others) have close to infinitesmal non-athlete attendees from the middle and upper middle quadrants ($40k-$92k). Calmom and I (at least for my first kid) are among the lucky ones, but I don't sense that many colleagues out there.</p>

<p>What am I missing?</p>

125

<p>You're missing those people who are paying the list price.</p>

<p>I didn't say the rich are going broke paying college costs. </p>

<p>Those upper middle class kids, most of them aren't getting merit aid (at least enough to make a difference).</p>

<p>I'm not talking about 10 years ago, 20 years ago, etc. I'm talking about now.</p>

<p>Right now, a person who makes $200,000 is going to pay more for college than somebody making $50,000, for the colleges we talk about on CC.</p>

<p>Of course, you have to get in.</p>

<p>Calmom is paying less than somebody whose kid comes from a family with a much larger income or net worth.</p>

126

<p>So am I. But the subsidy for the rich is going UP, not down, and more, rather than fewer of them are getting it. And all those millionaire's kids being subsidized by my lousy alumni contribution, reinvested at 7%. ;) (I'd like to be giving it to the lower middle class at my alma mater, or even the upper middle class under the top 20% (below $92k), but d-a-m-n-e-d if I can find 'em....;)</p>

127

<p>"And all those millionaire's kids being subsidized by my lousy alumni contribution, reinvested at 7%. Lol</p>

<p>(I'd like to be giving it to the lower middle class at my alma mater, or even the upper middle class under the top 20% (below $92k), but d-a-m-n-e-d if I can find 'em...."</p>

<p>Lol</p>

<p>Well, I know 2 kids that got in. :)</p>

<p>I know the argument that you are getting a $65,000 education for $40,000 but I have a problem with that analysis.</p>

<p>Just cut everybody's pay and now I get a $40,000 education for $40,000.
I guess that is not going to happen. :)</p>

128

<p>
[quote]
Just cut everybody's pay and now I get a $40,000 education for $40,000.
I guess that is not going to happen.

[/quote]
</p>

<p>How clever! No it won't happen, but you are on target.</p>

129

<p>The fact that the "true" cost of college has risen to a point where it is economically not sound to charge it evento those at the top 3% income is the frightening thing. Especially when all the building and construction at many of these schools show exactly where the money is going. I don't see the relevance of this gap in cost to the consumer who is facing college costs that are far more than the increases in other prices or even salary. Back in the early '70's, my father was a governement employee. The % of pay that a private college cost for him is much higher than the same grade employee would face today. In addition, I was eligible for financial aid with federal (BEOG)grants and subsidized loans, something that level of pay will NOT qualify you for--just unsubsidized loans. The $2500 I got as a NMF just about covered tuition those days, and the $500-$1000 scholarship went in the old bank account to help pay for the next years, since in those days they did not reduce financial aid for other awards. I earned over a $1K that summer at min wage which paid nearly a third of the tuition. Not likely a kid these days could cover that proportion of the same private uni with a summer job.<br>
The very top wealthy folk can weather even more in tuition costs, but what is truly scary is that even those on the bottom layer of the top 3% are struggling to pay these costs. These costs are no small chunk of their income, and it cannot be expected that the full amount is going to come out of take home pay--the assumption is that there were savings and will be loans.</p>

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<p>
[quote]
The college tuition game takes from the rich and upper middle class and gives to the lower middle class. It takes away from the investor and saver and gives to the spender.

[/quote]
That's really tortured logic. No one is "taking away" anything from you when they give a benefit or discount to someone else. Some private colleges choose to allocated a pittance of their endowment to offset costs of students who could not otherwise afford to attend; other colleges choose instead to use that money to recruit the best athletes or the students with the highest SAT scores. Subsidizing some students doesn't "take away" from the students who are unsubsidized. </p>

<p>Furthermore, the financial aid system is structured to weigh income far more heavily than assets. I'd have to be an idiot to think that I was better off with -0- in savings than to have $100K in savings, but an increased EFC of $5600. I mean... I think it's better to be $94,400 richer. </p>

<p>I mean, when it comes down to it, anyone who is griping because their assets are too high is someone who is sitting on top of a huge nest egg and doesn't value their kid's education enough to be comfortable with parting with a small fraction of their savings for it. </p>

<p>The reason that the complaints of the "upper middle class" don't resonate well with we mid-to-lower middle class families is that what we hear them saying is that they want the benefits we get with none of the hardship that we live with due to our lower income. In other word -- the upper middle class want to hang on to their retirement savings when we have no such savings; they don't want to go into debt or have their kids borrow for their education when it is a given that we and our kids will borrow -- and our kids are expected to work. They live in bigger houses and drive nicer cars.... and then act resentful when we are the beneficiaries of a system designed to help fill an economic gap that they don't have. All they see is the $ sign attached to our grant without any appreciation for what our lives are like -- or for what our kids may have had to go through to get accepted to the private college they covet. </p>

<p>I mean -- let's trade incomes, o.k.? I'd rather have more money any day, even if a big chunk of what it makes has to go to the college my kid attends.

[quote]
Calmom is paying less than somebody whose kid comes from a family with a much larger income or net worth.

[/quote]
Exactly... and the other family has MUCH MORE MONEY.... so THEY are the ones who are better off financially , even though some college administrators decided to be really nice to my daughter.</p>

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<p>Calmom, I just stated the facts. I didn't make a value judgment .
But nice rant.</p>

<p>"I don't understand why families with 6 figure incomes haven't saved for college when they all seem to have saved for retirement."</p>

<p>No, you don't understand.</p>

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<p>2boysima:</p>

<p>
[quote]
Remember, the OP'ss $108,000 salary included working in the summer, too.

[/quote]

I did remember. In fact, I mentioned that my H also worked in the summers. He was on an 11 1/2 month contract during his highest grossing years and still only made a fraction of what Valerie Rowe makes.</p>

<p>
[quote]
$140,000 income on Long Island:</p>

<p>30% Fed, State, Local, Soc Sec, Medicare etc. (-$42,000)</p>

<p>10% 401K (gotta save the max for retirement!) (-$14,000)</p>

<p>RE Taxes...$550,000 home...which...in a good Long Island School District...is a 3 bedroom 1.5 bath, small-lot "starter" home! (-$8,000)</p>

<p>Mortgage (-$23,000)
(less than the OP)</p>

<p>Utilities (-$3,600)</p>

<p>Car payments (Honda Civic...gotta have one car that is somewhat reliable since the other one is a clunker "station" car) (-$2,400)</p>

<p>Car insurance (clunker doesn't get collision insurance...and family is accident free...and teens don't drive!) (-1,700)</p>

<p>And...This family hasn't eaten yet, purchased any clothes, or paid health insurance, or life insurance, or car maintenance, or school/sports activity fees or their EFC of $48,000!

[/quote]
</p>

<p>I added your figures. Since there were no detailed figures mentioned in the article, I must assume you are using yourself as the example. Your total comes to $94,700. Subtracting that figure from the starting figure of $140,000 leaves $45,300. That's still more than us average yocals in KY earn. I don't want to bore other readers with the details of typical expenses in my neck of the woods. We all know that housing costs and property tax bills are lower here. The tax bills are lower primarily because our houses are less costly. You might be surprised to learn that some of the numbers you gave are less, a couple considerably less, than what I am paying in KY.</p>

<p>
[quote]
This family has chosen to live on Long Island, and parents have had the good fortune to have good educations and work in their chosen professions. They're not whining.

[/quote]
</p>

<p>Actually, I did not say that the Rowe family is whining. I did say that I've read countless CC posters whine about how unfair their EFC number is. There's a lot of it going on right here on this thread.</p>

<p>
[quote]
But...since this family has lived other places in the US, they realize that most basic living costs are at least twice what they are in many other parts of the country...but salaries aren't always double what they are in other parts of the country.

[/quote]

I agree, salaries are not always double in places like the East coast and California. However, if you compare teacher salaries where I live to the salary Mrs. Rowe earns, at $88,000, she's definitely making double the money.<br>

[quote]
And...This family hasn't eaten yet, purchased any clothes, or paid health insurance, or life insurance, or car maintenance, or school/sports activity fees or their EFC of $48,000!

[/quote]

Actually, the article stated that they

[quote]
would have to fill a gap as large as $90,000 during the next four years.

[/quote]

I have to assume that means that the Rowes will pay as much as $22,500 ($90,000 divided by 4) per year. I agree. That's a lot of money. I figure by the time my D graduates, her tuition, room, and board will have cost $99,700. That's AFTER scholarships and grants, but before the $17,000 D will have taken out in subsidized Stafford loans. We have promised our D that we will take care of her student loans for her, so that entire chunk of change will be paid for by me and H. If I added the cost of books, dance wear and clothes for auditions, trips home, etc., the cost easily exceeds $100,000. Do I wish the cost of my D's education were less? Of course! Do I think It's unfair that I'm spending so much? No. Do I think that the Rowe family would have an easier time paying the bills at my D's school than I? Most certainly. </p>

<p>I feel that comparing the Rowe family's costs for college to mine are fair since their D wants to pursue the same major as mine. I would guess from Liana Rowe's grades that she would probably qualify for the same academic scholarship that my D has at FSU. Her family's EFC would probably not qualify her for the gigantic $1700 per year grant that my D receives. Hmm! Seems my family would come out ahead by $6800 over the course of 4 years. I'll grant that Liana Rowe may not qualify for a subsidized Stafford loan. She might have to take out an unsubsidized loan or her parents might need to take out a PLUS loan. In that case, my family has saved 4 years of interest that the Rowe family would have to pay. However, I still think that the $140,000 the Rowe family makes stretches farther than $45,000 a median income family in the heartland earns. My family earns less than that median figure and we are managing - $100,000 college cost and all. </p>

<p>I still stand by my original thesis. The Rowe family is not disadvantaged and neither is mine.</p>

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<p>I'll just note in passing that that "gotta save the max for retirement" is b.s. Saving the max is a luxury. Hell, given incomes and cost of living, good on ya if you make regular contributions period.</p>

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<p>Actually, to scrutinize those numbers a little closer - a family of 3 (2 parents, 1 college-attending kid) in NY with a $140K income would have only about $30K EFC attributable to income, under FAFSA methodology. With the numbers quoted by dancersmom above, $18K of the EFC is derived from assets -- if the kid doesn't work & doesn't have money, then (taking into account the FAFSA asset protection allowance), that would mean that the parents have about $360K in assets, above and beyond what is in their home equity & 401K (which are not considered in the FAFSA methodology). </p>

<p>Anyway, I still don't get it. If the upper middle income earners don't want to pay for private schools, why don't they tell their kids that they have to either attend their in-state public or a school that will give them financial aid? If they don't qualify for need-based aid, they can target schools that will give their kids merit aid. </p>

<p>The kids who qualify for more need-based aid still face the burden of winning acceptance to schools that will meet their need without imposing too great of a loan burden -- and those schools are really few and far between -- certainly nothing that anyone can count on.</p>

135

<p>This certainly is a hot issue. As for the comment about the local state universities not being "good enough" (I'd be surprised if that's an exact quote from the newspaper article), where did the collective CC wisdom on finding the school with the right "fit" fly to? Isn't the family just looking for a program that fits with their daughter's interests? Pity them that they had the naievete to let a reporter in on their dilemma. Are we really playing a game of "red state, blue state" here? </p>

<p>In the argument that all students receive a subsidy from private colleges (the actual cost of educating each student exceeding what anyone pays in tuition) no one seems to mention that the private college is receiving a tax payer subsidy due to the schools' tax exempt non profit status. Maybe it's time for parents to send a little statement with their tuition check along the lines of: "this check for $10,000 is really worth $20,000 when you add in the tax benefits your institution receives at my expense - but I'm happy to pay it. Keep up the good work." I leave it to the numbers people to plug in the actual figures.</p>

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<p>The Cost of Living argument confuses me- if the FAFSA is designed to measure financial health, the ability to pay (past, present and future), then it stands to reason that a family living on 150K a year in a high COL still is better off than one living on 75K a year in a lower COL. After 30 years, the couple living in a 3/2 home valued at, say 500K to 1 million can use that asset to generate income. They can sell, move to a lower COL area and live off the difference. Or they can get a reverse mortgage. On the other hand, a couple living in a 3/2 valued at 200K in a lower COL area, after 30 years, has just that. They can't move anywhere cheaper, so they're stuck in their house. A reverse mortgage will only generate a portion of what the higher COL family gets. In order to be in the same financial shape, they must have saved the difference over the 30 year period- on half the income.</p>

<p>I see this all the time in Florida. People are able to move down from the northeast and purchase beautiful homes, and live off the rest. The natives, having earned lower pay, have only their homes.</p>

137

<p>"Anyway, I still don't get it. If the upper middle income earners don't want to pay for private schools, why don't they tell their kids that they have to either attend their in-state public or a school that will give them financial aid?"</p>

<p>I don't get it either. It feels like a false sense of "entitlement" to me, and I have no idea where the parents got it.</p>

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<p>Actually, in my upper middle class neighborhood, almost all the kids go to State U's - - even those with very high SATs and GPAs. I suppose that is a good thing, it helps make the State U's seem better than they desire. The reason is clearly financial. If you live in a lower cost area, it probably does not make sense. It seems that, if you make more money, you should be able to live more frugally and save. I wish it worked that way for me. The grass looks greener on the other side of the pasture. I think I would be better off making a lot less, paying much lower taxes and living in a more reasonable cost of living area.</p>

139

<p>It's not that complicated. </p>

<p>You're sitting in an airplane and you paid 500 for your seat. You talk to the guy next to you and he paid 250. You're both on the same airplane going to the same place. How do you think the guy who paid 500 feels?</p>

<p>Now substitute school for airplane. </p>

<p>How many times do you read that AA school is raising tuition more than the inflation rate, but AA is going to take some of that money and distribute it to others?</p>

<p>I'm sure many people won't have a problem with this redistribution, but it is a redistribution.</p>

<p>I'm not going to get into values and what we should do as a society because everyone has their own values.</p>

<p>But how would I feel if I was a full payer who can afford school until the school has raised prices above the inflation rate for so long, I can no longer attend the school? And what would my thinking be if I could afford the school, if the school stopped those raises and stopped distributing the money to somebody else?</p>

<p>I'm watching the school raise prices out of my reach and take the increases and give it to somebody else who couldn't afford the school otherwise.
Taking from A and giving to B.</p>

<p>I can see why B is happy, but why should A be happy?</p>

140

<p>
[quote]
It feels like a false sense of "entitlement" to me, and I have no idea where the parents got it.

[/quote]
What entitlement? All we who live in high COL areas are saying is, why don't those huge cost differences get taken into account when aid formulas are calculated? Our income is higher because of where we live & that is held against us. The higher COL should be considered to come up with a fair, realistic EFC. Families with two kids in college at once are given consideration. COL should be, as well.</p>