How do you quantify the value of sending a child to a college other than your lowest-cost acceptable school? For example, our son wants to major in computer engineering or computer science, for which our state flagship, UMass Amherst, is good. We are well-off and will not get need-based financial aid, so Harvard, MIT, Cornell, CMU etc. will cost much more than UMass, which costs about $30K in state. How do you decide if school X is worth it?
I think it depends partly on family earnings and wealth. If you are worth $100 mil, you may not try to save $180K by sending your child to state school, but if your net worth is in 7-figures and you have three children (our situation), you will be more price-sensitive. We have sufficient money in his 529 plan to pay for an expensive school, but if he goes to a cheaper one, we can keep the money in the 529 and change the beneficiary to his child when/if he becomes a father.
There is no one right answer, but I wonder if anyone has developed a systematic approach to valuing colleges. You could find data on average earnings by major at various schools, but I think most of the earnings differentials between schools are due to student characteristics upon entrance. If your best guess is that say 25% of the earnings differentials across schools are due to what the school contributes, in terms of teaching, networking, and prestige, you could model the lifetime excess value of a more selective school vs. the default school. To that you could add the enjoyment of going to a “better” school, which is difficult to quantify.
Earnings differential or employability attributable to the school depends on the major and post graduation goal. In some cases, it may be large, but in some other cases, it may be none.
You want to help your unborn grandchild vs. the kid you’ve already raised and is eating breakfast at your kitchen table every day?
This I don’t get. use the 529 money for a kidney transplant? Absolutely. But I’ve got friends who have the dough set aside for their kids education and they’re already calculating that they can renovate the kitchen with a Sub Zero fridge and high end wine cooler if they can persuade the kid to go to our local non-flagship state U.
OP- what ROI are you looking for from your kid’s education? If your kid wants to go to U Mass- bravo, you are done. But if your kid wants/needs something different, and you can afford it, I suspect there is no information that the rest of us could give you that would persuade you otherwise.
We were full pay; I suspect from what you posted that we were less affluent than you, but thanks to luck, good health, and two corporate careers, we were able to do it. Nothing I have ever spent money on has provided me with more satisfaction. YMMV. And of course, if you can’t afford it, there are lots of more affordable options in higher ed these days.
I think the most monetarily successful person I know these days (not my college friends, or kids I grew up with… but a friend IRL) went to a college nobody has ever heard of, went to a law school at the absolute bottom of the rankings, and is a personal injury lawyer who endows cancer treatment programs and the like for kicks. We’re talking multi year commitments of tens of millions of dollars.
So do that if you want a true ROI. Go to a cheap college, a low ranked law school, and become everyone’s choice for asbestos, slip and falls, and medical malpractice.
My D is a sophomore in college at a highly selective LAC that costs us 2x (she got some aid or it’d be even more ) the cost of the honors program in our highly esteemed public flagship to which she was also accepted. For her, the smaller environment is a better fit and the flagship is almost in our backyard and she wanted to go farther from home.
I think at the margins she’s having a higher quality education – mainly b/c of smaller class size and more attention. BUT I can tell you I still have regular angst over the $$. We are not robbing our retirement to pay for college, but that extra $100k in our accounts would be really nice.
I can say we took off a large private university (Cornell) from her list b/c we realized it was likely going to be almost 3X the money of public flagship w/ honors and yet intro classes just as large. There was simply no way we could justify that. For us, with an LAC and its great resources spread over a small student body, the equation seems better. (She ended up WL anyway, so I guess the breakup was mutual, lol.)
Even though I know she’s very happy, is doing really well at her college, and is getting a great education, I fairly often wonder if she really would have ‘lost’ much by going to our flagship instead.
There is no way to quantify the potential advantage to attending an elite school versus a state school. Too many variables, too much unforecastable chance. It should be obvious that the largest factors in life outcomes are idiosyncratic to the individual. Personal drive, intelligence, and chance all play their roles.
So that being said, all you can really hope for in terms of an answer are opinions based upon posters’ personal experiences and reasoned thought.
It is important to focus on the marginal cost of one option over another, here assumed to be $180K in present value terms between an elite and UMass.
Without knowing anything idiosyncratic about your child, taking only assumptions that net worth is greater than $2M, income prospects are reasonable for the family in view of desired standard of living and future uncertanties, and two additional children to be educated (who may or may not have the choice of an elite), here is my opinion:
HYPSM, Columbia, Caltech, and a very few others are worth more than $180K, if the next best alternative is UMass. I’d change my mind if you were instate in NC, FL, MI, CA, TX, and maybe a few other states. Just my opinion!
It’s early on for S19 as he’s a freshman at an LAC where we are paying full price. He had options that would have cost us $100k less. We have the money saved to pay for a private school total cost but we weren’t dying to spend it. So far, his experience has been stellar and we feel ok about the price. Small classes even in math and physics where they would have been much larger at the universities on his list. And there’s a math and a physics snack study session with the actual professor every single week. That’s what we are paying for.
S19 has friends at places like Wash U and Cornell and they are crazy bright kids but are stumbling a bit in their STEM classes because they are more on their own. Yes, they can go to office hours and make study groups but it’s not the same. S19 will not lose his love of these subjects because he’s not in some weed-out class. He’s having one on one discussions with his professors who care about the subjects and want kids to love them as well.
Also, we feel like the alumni network is very strong at his school and active in helping kids find internships and jobs. It’s almost the flip side of what I once believed. I went to Northwestern and yes companies came to interview. But you had to be the top students to get on that list and it was so competitive to even have a chance to get time with a recruiter. At S19’s LAC, it’s more about the kids reaching out to start relationships with alums and, because it’s a small school and most alums had a really good experience at the school, they love to help these kids. It’s just more personal.
We weren’t interested in some sort of ROI involving how much money he will make upon graduation but, of course, we want him to get a job and support himself. We are happy to pay for his actual experience during the four years as well. So far, so good.
“We have sufficient money in his 529 plan to pay for an expensive school, but if he goes to a cheaper one, we can keep the money in the 529 and change the beneficiary to his child when/if he becomes a father.”
I don’t understand this. Why would you dictate how the 529 should be spent? Just say “here’s what is set aside for you, now you decide how to use it to best help you in life”. That may be a graduate degree, it may be a downpayment on his first house, or it may be going to an expensive school now. The least useful option at the age of 18 is insisting on spending it on a future grandchild. Let your son decide what it’s worth to him.
Agree with others that you can’t measure ROI…there just isn’t consistent data from school to school to allow a meaningful calculation.
You said your kid is looking at computer engineering or computer science and IMO students with these majors from just about any school are in demand and tend to do well in immediate post-college job placement.
I don’t want to pay such a heavy penalty. My understanding is that students in Master’s and PhD programs in the sciences and engineering typically do not pay tuition, so I’m not sure he would have 529-eligible expenses if he did go to graduate school. Of course, plans change, and maybe he will want to attend business/medical/law school.
In general, since money is fungible, I don’t see giving money to a grandchild as much different as giving money to the parent of the grandchild. If you are a parent and your child has a big 529 account bequeathed by grandparents, you can skip contributing to it and spend on other stuff.
THIS is the thing that nags me at night. The smaller class sizes. The personal attention. From actual professors, not graduate assistants.
For some kids, I think this sort of environment can make a world of difference in outcome. But for financial reasons, I want to tell myself my oldest (and first in line for college, 2020) might be one of the kids who would thrive either way.
Could you elaborate? For which majors and post-graduation plans do you think the differential is larger? If your child definitely wants to go to medical school, maybe the prestige of the undergraduate school means less, and a 529 plan can be used for high medical school tuition.
Well, with three kids, and a differential of say 3445K = 540K between public and private school, I’d like to try.
It would be nice to have better data, but unless the data systematically overstate the incomes of some schools and majors vs. others, the available data may still be usable.
You can’t quantify. Prestige alone is what so many parents and students are after irregardless of what quantifiable fruits prestige would bestow on them (or not). It’s always going to be a balance act between unquantifiable prestige and quantifiable EFC.
That balancing act works in favor of those in low to middle SES standing largely due to the fact that more prestigious schools tend to be more generous with their FA. For full paying families, it’s really an individual decision.
Prestigious schools, however, tend to be richly endowed, so the student experience can be rich, as well. My older son attends a flagship public university whereas my younger son attends a university which is perennially ranked #1 in endowment per student. There’s a world of difference in the opportunities presented for them. So consider the experiential, as well.
For pre-med and pre-law students (and some other pre-[some profession] students), cost becomes more important, due to the cost of the professional school. Admission is more heavily dependent on GPA and test (MCAT or LSAT) scores than college prestige, and characteristics that can be favorable for helping the student build a successful application may not coincide with college prestige.
On the other hand, those aiming for management consulting may want to pay more attention to college prestige, due to preferential recruiting at colleges at the top end of prestige.
Computer science and engineering college recruiting has different characteristics. To the extent that prestige and reputation matter, it is in-major prestige and reputation. But bigger companies tend to recruit widely due to greater needs (but they may be selective in the process – it may be easy to get recruited, but hard to pass the selection process and get hired, so that those from more selective colleges are better represented because of themselves (they were strong enough to get admitted to the more selective colleges), rather than their colleges’ treatment effects). Local presence also matters for smaller companies.
You can estimate the trade-off of extra college costs vs extra earnings post college. To make the formula simpler, I’m going make some simplifying assumptions (constant college cost differential, constant earnings differential, constant discount rate, etc.)
The difference between the total extra earnings post college and the total extra college costs in today’s dollar is
D = E * d^Nc * (1 - d^Nw) / (1 - d) - C * (1 - d^Nc) / (1 - d)
where E is the extra earning per year post college (i.e. the difference in earnings between a graduate from the more expensive college and the less expensive college); C is the extra cost per year between the two colleges; Nc is the number of years in college; Nw is the number of working years post college; and d is the discount factor which is given by the formula
d = 1 / (1 + r) where r is the interest rate used for discounting cash flows
If we use r = 5%, Nc = 4, Nw = 30, then the formula for D becomes
D = 13.28E - 3.72C
If we further assume C is $30k per year, the break-even extra earning per year is approximately $8.4k per year. In other words, a graduate from the more expensive college needs to make an extra $8.4k per year to break even.
I think the usefulness of the data will depend on how many students responded, and of course on the major. If a school graduated 100 students with Computer Science degrees in 2014, but only 10 responded to a employment/salary survey, I’m not sure how useful that would be. It might be that only the ten most successful students would be keen to report back on their success – the students who are underemployed may not respond.
OTOH, I’d find the stats more reliable if a school reports great outcomes and a 60%-80% response rate.
Which of these salary/outcome surveys list the percentage of graduates who actually respond? That would help determine which figures might be closer to the real truth.
What bluebayou says about self-reporting is correct. Most outcomes/placement data is self-reported by graduates meaning there is no way to verify it’s accuracy.
Some factors that could skew the data:
-Not all students answer the surveys, sometimes the participating proportion is low, even less than 50%
-Students who land jobs with higher incomes may be more likely to participate in the survey
-Some students might include signing bonuses and/or annual bonus potential when reporting starting salary
-Some (gasp) students might intentionally misreport the data
-Etc.
IMO when looking at majors that tend to be more regimented/similar by school (e.g., accounting) or those with curriculums that are accredited/also substantially similar by school (e.g., ABET accredited engineering/CS), paying less for a similar curriculum can probably increase ROI in some (many?) cases…e.g., lots of threads/anecdotes/outcomes data showing similar starting salaries for engineers from the most selective schools working side by side with engineers from state directional schools, and everywhere in between.
That said I agree with tiggerdad’s point that college is not just about ROI, it’s about the overall experience…of course, everyone doesn’t have the luxury to make that choice though.
Most of the salary surveys do a poor job of data hygiene. So a kid from Stevens who gets a job as an engineer at a consumer products company in Ohio making $85K her first year, vs. a kid from Cal Tech in the same discipline who gets a job at a startup making $75K in Palo Alto- the Stevens kid wins on ROI every time- and the Stevens kid is living in a nice condo with a pool, while the Cal Tech kid is living in a cruddy house shared with 5 other people. But the Cal Tech kid gets options- and the company goes public three years later- and the kid is STILL earning below the Stevens kid-- who is now making 95K-- but the Cal Tech kid is a multi millionaire who is able to retire at 30.
So many problems with these surveys. Cost of Living. Monetizing the value of benefits, future share price, non-cash comp. Professional development and advancement. Even the value of bread and butter benefits- I’ve worked for companies which have gold plated health care benefits- and those where you’d better budget some after tax cash to pay for what doesn’t get covered in your PPO. None of that gets captured in these ROI calculations.
And the biggest bugaboo- self reporting. Every year one kid from “random You’ve Never Heard of IT” college gets a job in M&A at Goldman Sachs. You can bet that kid reports in his/her salary. The fact that 80% of the graduating class is earning $35-40K working as insurance adjusters, retail bank trainees, and early childcare teachers gets obscured by the self-reporters in the high flying occupations.
AND- these surveys ignore the impact of graduate school. An American History major from Earlham with an MBA from U Chicago is (all things being equal) going to out-earn a computer science major from Hofstra without an MBA or any other graduate degree by the ten and 15 year mark. Even if it seems like a no-brainer that the CS degree from Hofstra is the better career bet than a history major from Earlham.
So go ahead- play with the numbers using bad data, poor collection protocols, and self-reported (with no quality control) information.
@EconPop One can get that small class size LAC experience at LACs that give merit. S19 would have had that same experience at Grinnell and Kenyon and Dickinson where they all gave him $25K per year in merit. He had other “fit” reasons for choosing Bowdoin but the small classes taught by professors in an intimate environment is available at all LACs. Some would say the departments at LACs are lacking when it comes to breadth or depth in curriculum but, for his interests, an LAC will be just fine.
As for the OP whose son is looking at comp sci, I would be careful at some big schools as those classes are getting very very big because of demand. I am not an expert on this but I read quite a few stories on CC about comp sci majors with very large classes or classes with an online component or difficulty getting into the classes. For such a specific major, I would ask a lot of questions for each school on the list.