This was a nice post on a college Parents Facebook group in response to a “What do you wish you had known” question to parents of upperclassmen:
I wish I had known how much my son would love _ U. It was not his first choice and I was sad he didn’t get accepted to his “dream” school. Looking back I can’t imagine him anywhere else. He met a great group of friends at orientation. They have roomed together the last two years and will move to off campus housing next year. My shy kid has grown into a confident man - varsity esports, TA, peer mentor, an incredible co-op and an amazing girlfriend. We could not be happier with _U. I feel like a student that has the opportunity to attend is very fortunate.
Thank you to those who have provided thoughtful responses, personal experiences, and words of wisdom. We are still working through the process and haven’t made a final decision yet.
Part of my issue is I thought we were in pretty good shape until realizing just how darn expensive almost all schools are. We have enough saved in a 529 now to cover almost all of CU for 4 years. We will have most of the additional total cost for Baylor saved in another four years without having to make substantial changes to lifestyle, etc. So we likely could pay the extra, without loans. I just need to convince myself the extra cost is worth it.
And I probably shouldn’t have used “dream school”. Top choice would have been a better choice of words.
I married by college sweetheart. We came out of undergrad with plenty of debt. It was tough to see people going on nice vacations and honeymoons when we had a driving honeymoon. We had to wait for nice things.
Our D19’s first choice was about $8-9K more expensive per year than where she ended up. We showed her the budget and what we could contribute. She would have had loans at her first choice compared to no loans at the school she actually went to.
In the end she is happy at the cheaper school. The more she has learned about finances the more happy she is that she won’t have loans to deal with after graduation.
All that being said if I had the money to send her wherever she wanted to go I would have. Sadly I don’t have an unlimited supply of money. Although starting off adulthood with a car paid off and a down payment for a condo/home would be nice too.
As I get closer to retirement I really loathe debt myself. Debt controls a person to some degree.
I have to ask something as I read these posts. Do you all ever interrogate your child about what is so “dreamy” about their dream school?
Another way of looking at it is $200K saved for college and put into a standard index fund will be worth about $3.2 million in 40 years. Assuming at 7% interest rate and roughly doubling every 10 years.
I can guarantee you that 99.9999% kids do not understand this simple math. But I hope you do as a parent.
I understood the math (I have an MBA as does my spouse) and my children all understood the math (one majored in math at MIT)
Now what’s your question?
For us, who had saved for college since the kids were infants, that’s what the money was for. We would not have paid full freight for a kid who wanted to major in beer pong and sorority formals in college; we would not have paid full freight for a kid who would rather have gone to culinary school, learned to style hair, become a plumber, or any number of fine professions where you can get certified at a community college.
But for kids who were ready for challenging work, who understood the math (we fund 8 semesters, then you’re on your own financially), and took their end of the bargain seriously (got jobs with health insurance ASAP) and who were not expecting the 4.2million payoff in 40 years from US (they are more than happy to put sweat equity into their OWN wealth creation, as we did with ours)… we considered it the best and highest use of the money.
We had two incomes, we are both healthy, we have no ex spouses or alimony to complicate things financially, AND we took a reasonable bet that our kids would be ready for their own journey (intellectual, artistic, spiritual, financial) when college was over.
One of our kids went to an early stage startup and quickly showed us (we’re the saver/investor types) that being in on the ground floor when a company goes public is a MUCH better way of accumulating wealth than your 7% example. Live and Learn. And that’s with a much maligned (on CC at least) degree in the humanities! Never took a programming course or anything CS related…
Many ways to build a nest egg. And investing in human capital is one.
You answered the question.
Another thing to consider is that 90% of kids change their major in college. So even with the best of intentions, a college that looks good going in might not be the best option down the road.
You speak of one kid that went o MIT and another (same??) that was successful in a startup environment. Those are not easy things to achieve and not normal for the vast majority of college kids.
Assuming a perpetual 7% interest rate when the 10 year UST is at 2.05% seems like a reach.
Similarly, but as long as we are being extreme inflation is currently running at 7.5% so even experiencing 7% returns in a world of 7.5% inflation means that the purchasing power of $3.2mm would be less 30 years out then the $200k today.
I don’t think either a risk free 7% return on average over 30 years exists nor do I think inflation persists at these levels for 30 years making such analysis somewhat dubious with such specificity.
I agree that 99.999% of kids don’t understand that math nor do most parents.
Point being anyone can distort assumptions in an attempt to validate a point of view or perspective. For some kids and opportunities it makes sense and for others it won’t. Such decisions are art not science and certainly not a simple math problem as portrayed.
If we are sticking only with the financial benefits of paying up for a dream school, we should take the analysis further. Many on these threads are willing to “pay up” because they believe there is a higher ROI at these “dream” schools. If the kid coming out of the dream school makes $300 more a month out of undergrad and this salary differential grows at 3% annually, using that same 7% interest rate and same 40 year horizon, that extra $300 now translates to $3.4 million later, wiping out that tuition savings. Yes, a lot of us do understand the math. And we still believe it is worth it - whether solely due to our belief that our children will have higher potential income as a result (and $300/month is not hard to fathom as the salary differential out of undergrad) or, in my case, the more compelling argument, because we believe that the intangibles that our kids accrue as a result of the better fit school are that valuable.
My MIT kid did not go to a startup. And if he’d decided to become a HS math teacher we’d have supported that decision (not that he did) as long as he figured out a lifestyle that he could sustain on a math teacher’s salary.
There are a lot of things you spend money on that are not likely the biggest ROI for that same dollar. Stay in a hotel on a vacation instead of camping in a tent? Why? Where’s the ROI? Contact lenses for a kid who is self-conscious once she gets to HS after wearing glasses since she was 5? What’s the ROI? Buying books for a kid’s birthday instead of using the library? What kind of idiot does that?
We were pretty frugal in some areas of child-rearing (my kids would say VERY frugal) and quite lavish in others (education being the notable example). I am grateful (literally, every single day) to have had jobs which allowed me to fund the lavish things, cover the basics, and not worry about how I am going to pay this month’s heating bill.
It would need to be $300 per month after tax for an equivalent comparison since tuition is paid with after tax money (or at least your savings into a 529 are paid from after tax earnings).
A roughly $6000 per year higher starting salary may be achievable in some professions and for some pairs of schools. But I very much doubt that this is the case for the majority of students at expensive private schools or that their parents even plan for such a differential to be achieved.
Ok - so throw the $300 into a 401k (guessing most kids out of undergrad are not maxing their 401k contributions). Hey, maybe the employer will even match and then it makes the point even stronger. Lots of assumptions in this whole debate. The point is, a simplistic example of how much someone saves going to a less expensive school misses a whole lot - some financial, some intangible.
90% seems very high, but when I attended Michigan’s freshman orientation, back in 2018, the Michigan representative who spoke, said that somewhere around 75% +/- of freshman change their majors at least once.
Similarly, the inflation rate in the US for the last 100 years is 3.25%. What we are going through presently is likely not going to be a long-term situation.
So yeah, my assumptions are not off the mark here. If anything, that amount might well be $6.4 million!!
Would your son be able to do work study or get a job and split the $20k a year difference with you? His willingness to do so may help indicate how important the more expensive school is to him. Plus, having a job will help him value his education and learn the value of money and responsibilities. As for CU, does it have a Christian dorm or a Christian house that he could rush? Could he join an honors program for smaller class sizes etc.? In other words, I’d look for compromises between the two options as neither seems perfect.
