Let’s clear something up about 529 plans. The principal (what you contributed) is never subject to income taxes or penalties. For example, let’s say a parent currently has 150K in a 529 plan with his son as the beneficiary and he lives in a no income tax state like Texas.
100K is principal and 50K is gains (earnings). If you closed the account and did not use any of the money for qualified educational expenses, your son would “only” owe federal income taxes of $5,889* + $5,000 (10% penalty of earning) for a total of $10,889.
He now has $139,111 ($150,000 - $10,889) in his bank account he can use any way he wants (e.g. down payment on a house, set-up a retirement account, buy Bitcoin, etc.).
*note: the beneficiary’s individual 2019 federal tax rates are $0 up to $9,699; 12% up to $39,474; and 22% up to $84,199, and so on…
The bottom line is that even if you don’t use the money in the 529 plan for qualified educational expenses, you will have some significant money to use as you see fit.
Just for the record folks. UMass Amherst is number 64 overall in usnwr. Great overall.
For CS it is elite.
It’s CS programs are off the charts good. It may be in the top two or three for Artificial Intelligence programs in the nation. Definitely top ten. The world of CS in the future is coalescing around AI.
And Uber selective Amherst college CS students hope to be able study upper level classes at the next door neighbor.
So the comparisons and roi calculations, imho should be based on another major and a different set of schools.
Ivy CS outside of Cornell & Columbia, for pure chops and research. And twice the cost. Nah.
The better bumper sticker and overall vibe, traditions, etc. sure I get it.
UMass is number one in collegiate dining rankings. So that’s good too. Lol.
Caltech. mit. Berkeley GTech. The other tech options and focus would be a great experience too. That might be worth the premium.
If money is not an issue - all the top schools are great.
“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);”
This a flaw in the model, there’s no guarantee that graduates from a more expensive college will earn more than graduates from a less expensive college. Even if you account for the same major, say CS, there’s very little correlation between expensive colleges and earnings in their first role.
“- but the Cal Tech kid is a multi millionaire who is able to retire at 30.”
This happens to maybe one Cal Tech kid out of a 100 or 1000. Not typical at all.
There’s no requirement that E has to be positive, mathematically. E could be zero or negative if graduates from the more expense college earn the same or less.
There is no way to quantify this. It just depends on whether or not you think it’s worth it for you!
There have been many many discussions on this topic on CC.
UMass Amherst is quite good for CS, and it’s often mentioned that, for CS and Engineering, college name doesn’t matter.
However, if you have enough savings and can afford to send your kids to an elite private and the kid is competitive for those colleges, why you wouldn’t do so, instead of trying to save for future grand kids ?
You may want to consider stepping back and defining what the “it” is that your paying for. While I do believe that brand value plays a role in overall value there are many other more important aspects to a college. The more opinionated a kid is going into college selection the easier it will be qualitative estimate overall value (and that number will only be of utility to you). While it may be hard to compare, say, CMU to Amherst in general, it may be easier to compare CMU SCS to Amherst CS, and even easier to compare the undergrad AI sequence at CMU SCS against Amherst’s undergrad AI sequence (if they have one). Defining “it” makes things easier but never exact.
"We all have intuitions about what various schools are worth, but I am looking for a framework to come up with such values. "
You’ll probably need to google roi frameworks, or models to get a starting point. ROI definitely considers opportunity costs of each option, so the money saved from UMass (say 150K), which I’m assuming you’d keep, being invested for 20 or 25 years is significant. But how do you quantify prestige? Maybe alumni network, you could use linked-in and see how many MIT vs UMass grads are in the geographies or industries your son is interested in while adjusting for MIT being a smaller school. I don’t know if anyone has come up with this kind of framework, even if you conclude that MIT has the better professors - more cutting edge research or industry connections, you can’t quantify those things, well easily anyway.
The idea that an engineering degree or CS degree is same nearly everywhere is a gross simplification and misunderstanding. Programs at different colleges vary significantly in breadth, and more importantly, in depth. Devils are in the details. A few employers that pay north of $250k for a new graduate know the differences and they only go to a few campuses.
We are in a similar situation. We also have three kids. My kids apply mostly to top private colleges with state university being the only safety option.
I believe there is a difference between MIT and state school and there is a way to quantify the difference though it is hard to find or compile this data. Earnings of recent graduates are provided by many college ratings web sites.
However, any statistics represent an average or median data and you have to understand how likely it applies to you.
Graduating from MIT represents a capital and you need to estimate how you will use this capital. This will determine the ROI. If you want to be a teacher, you will be the same teacher earning the same amount of money regardless if you graduate from locale state university or MIT. However if you envision top executive positions in major companies or even if you want to launch a start up and try to raise capital being MIT graduate will give you considerably more power than being a graduate from a local university.
I work for a major multinational corp. We never recruit in our state university and as far as I know hired I believe one or two graduates in recent years. But we go across the country to recruit in top universities, pay full relocation package and over $100K starting salaries.
I suggest you view this like any other purchase. Put a budget on the purchase (cost per year you are willing to spend). He applies to all the schools which he likes. Then when the acceptances come in (after all the entire discussion is moot if he doesn’t get accepted to MIT or Harvard - which odds are very low for). do this analysis then. You rule out any where the cost is above what you have budgeted (including whatever aid you receive) and then decide which of the places have the best fit for you.
Compare this to shopping for a handbag. Let’s say you budget $100 for a new handbag. You can rule out the ones that are out of stock (don’t get accepted to). Then you cross off the ones what are over the price you set (tuition too high). Then you compare the features of the remaining handbags - what do you require - a zipper closure, a cross body strap, etc. Then you pick the one you like best that has the features you want within your budget.
One of my brothers earned a BS at Caltech and then went on to earn a PhD there. Perhaps a hallmark of places like Caltech is that EVERY student is likely to be very smart, very skilled in math, and probably very nerdy. Not that Techers don’t have fun. But I know that when he was a graduate student, working as a TA in Physics I (taught by Nobel winner Murray Gell-Mann), my brother came to realize that many of the first-year students were likely to be smarter than he was. On the one hand, this kept him on his toes at all times. On the other hand, this is a high-pressure intellectual environment.
There are other schools – not just tech schools – where the overall caliber of the student body can be intimidating to mere semi-geniuses. I think applicants to any school need to think about not just the curriculum but also the amount of pressure, peer-competiton, and sheer demandingness of the program. They should look at extracurricular opportunities, alternative majors, and the social life of the colleges. They should look realistically at the types of careers that graduates usually undertake.
Sure, many students want to go to the “best” colleges they can get into, but they need to think about the social environment, including the city or town where the college is located. For my son, who attended UChicago, being in “a major league city” was very important to him, and he got well off campus at least once a week as a relief valve. The work was demanding, but he sought balance and recreational alternatives.
IMO, one of the biggest misconceptions espoused by CCers is that “prestige” is just name brand but forget about the actual education one receives for 4 years. To me, it’s less about prestige and monetary ROI and more about getting a world-class education that will stay with you for the rest of your life.
For example, you here it all of the time on CC that if you are pre-med do not go to a prestigious college because you will not get a good GPA and its expensive but what if you are “that kid” who needs and wants to be challenged by the best pre-med college in the US and world? My close friend attended Yale undergrad and Yale medical school and you can bet he got the one of the best pre-med educations in the world. It’s not about the “prestige” but everything to do with the actual education one receives. Some colleges just do I better job of it than others. Fact…
Injparent, Im slightly disagreeing. The Caltech grads I know have all done very well. Several started when FB was in the toddler stage, but I have no idea what they are worth now.
For some, it’s.not the salary but the daily work. They want to do research and develop languages.
For the record, UMass has a well regarded reputation in CS ( also economics and psychology). If I was full pay, and still a MA resident, I’d have to research and learn if the differences are worth it. The choice is clearer in other states.
^I certainly don’t disagree with anything you’ve said. Here’s what I believe on the issue of college cost:
Only a handful of colleges are worth paying significantly more for, and only if they're good fits (primarily academic and financial fit);
Outside of these few colleges, students and families need to think hard about and make their own decision on whether a college is worth the additional cost for their students in their specific fields, unless they're financially unconstrained; and
Many, if not most, families don't want to think about their kids' college choices *purely* in dollars and cents, but they should be made aware of the financial consequences, which *can* be quantified;
Just want to echo what PrivateBanker wrote about UMass being excellent in CS. I have only seen grad rankings but UMass is above the Ivies, as I remember. We visited some years ago and were very impressed. (BTW Lowell has a lot of robotics and nanotechnology.)
Someone mentioned large classes and teaching by grad assistants. Well, that’s Harvard. Actually at Brown the teaching assistants in CS are undergrads.
I cannot see any reason not to choose UMass Amherst for CS. The issues might be location (though that area is hopping and has the consortium of 5 colleges). The size but it is broken down into smaller residential communities and the CS dept. would be a home. And the peers might mainly be from MA.
Getting into CS at UMass Amherst is extremely compettive and anyone in the industry would know that.
To my mind, the only reason at all to be unsure here, since choosing UMass saves money, is prestige.
I know for a fact that there are towns where the kids just won’t apply to UMass. It’s absurd.
The popularity of CS these days has caused lots of colleges to expand class sizes or take other actions to keep enrollment under control (e.g. rationing of CS courses for CS majors at Swarthmore).
I don’t think most CCers dispute the idea that there are difference in the quality of education among colleges. Opinions differ on where the difference is significant enough to be worth the extra cost. Is a Harvard education worth more than a really good State U (Michigan? UVA? or U Mass?). Harvard (or similar) does not have a lock on highly talented, well educated PhD professors. While saying it doesn’t matter where a student attends college is not accurate, it is equally ludicrous to say that the only place a student will get a quality education is a top 20 school. My son that went to a state college, ranked in the 50s, feels like he got a great education and the opportunity to do real research on cutting edge issues.
But there are likely doors that will open more easily with a degree from CalTech, MIT or CMU than from U Mass Amherst, at least initially. However, after a few years work experience is what matters and graduates of both may end up in the same place. IMHO, since you have the money in the 529, your son should be able to chose where he wants to go with that money. It is different story if a family has to struggle to pay their EFC.
UMass Amherst also has an honors college that has top students from all over the state enrolled. The average high school GPA of entering honors students was 4.3 (weighted) and a combined SAT score of over 1400 in Fall 2018.
My daughter was a high stats kid, but we were full pay. She did not even apply to expensive private schools because it was not something we were willing to struggle and go into debt for with another child still at home. She is at a top ten public school. Recently, she applied for and got a highly competitive internship with a federal agency. While visiting the agency for some testing, she ran into a high school classmate who also got the internship. This classmate is at a selective and expensive private school. They both got the same internship. My daughter has taken every opportunity at her school to make her resume competitive, and she succeeded in getting the internship with the agency she’s dreamed of working for. The kid at the public school with a 4.0, study abroad and research experience will have the same opportunities as the private school kid.
My DD is graduating from the top school that get mentioned here a lot with CS degree. We were fully paying for her education. You can’t quantify the value of attending highly selective school because it’s greatly depends on an individual what they will be able to to with opportunity given to them. Opportunities at those schools are unimaginable but I believe that with the willingness and persistence same results can be achieved at any school by the very top individuals. She will be starting her career with a very lucrative compensation package. Along side with her will be starting her friends from not very well known state schools. They start on the same level but she has only her undergraduate degree and they have graduate.