Should you incur substantial debt for dream school or even pay the "dream" tuition?

Parents Forum
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<p>Here is a post that I did concerning majoring in art at CMU about a year ago. However, it may be applicable to any art, design or theater major or other major that doesn't pay well. I just see too many kids and parents incurring substantial costs and debt with the attitude of "well, I love my kids so finances be damned."</p>

<p>Before your kid decides to attend that "dream" private school paying full tuition or an expensive out of state school, I believe this information will give you something to think about.</p>

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<p>Be advised: CMU themselves noted that total cost of tuition, room, board, fees and books will exceed $50,000 per year. This also doesn't count transportation home, medical insurance of $900 per year etc. The admission's officer that I spoke with mentioned that the actual cost is $52,000 per year if everything is filtered in. This also doesn't take into consideration future cost increases!</p>

<p>Sadly, whether you major in computer science, engineering or business, which can command some high paying jobs or art,which usually doesn't pay as well, the tuition, fees and room and board is the same.</p>

<p>Note: I am not knocking parents who scrimp and save and borrow to pay expensive tuition. I am just raising the issue for consideration.</p>

<p>Kakle, here is what it takes to amortize $150,000 of debt over 15 years:</p>

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<p>Principal borrowed: $150000.00
Annual Payments: 12 Total Payments: 180
Annual interest rate: 8.00% Periodic interest rate: 0.6667%
Regular Payment amount: $1433.48 Final Balloon Payment: $0.00</p>

<p>The following results are estimates which do not account for values being rounded to the nearest cent. See the amortization schedule for more accurate values.
Total Repaid: $258026.40
Total Interest Paid: $108026.40
Interest as percentage of Principal: 72.018%</p>

<p>Thus, they would need to pay $1,433 per month just to pay off their college debt! This is in addition to taxes,which takes up about one-third of their salary, mortgage or rent payments, car payments, food, insurance, gifts, travel, entertainment.etc. I think you get the message.</p>

<p>By the way, even for $100,000 of debt, the amortization would be $955 per month.</p>

<p>Interestingly, assuming no college debt, if you take the same $1433 per month and invest the money at 8% for the same 15 years, they would have $273,941 at the end of 15 years! Note, the same $1,433 per month for 30 years would be worth $582,107. For 40 years it would be worth: $808,960</p>

<p>Consider what an extra $800,000 is worth at retirement! This certainly makes me wonder whether families should pay full tuition for that expensive "dream " school ( even if they could afford it) vs. paying nothing at their in-state university.</p>

<p>Finally, incurring a lot of debt also has some very negative side effects. For example, student loan debt is usually not dischargable nor is it dischargable in bankruptcy.</p>

<p>Thus, unless you get some substantial scholarship money, tell me how a person who majors in art, education or other low paying major will be able to afford paying off this debt? Moreover, even if parents can afford to pay the full tuition for an expensive priviate school. is it worth losing at least $800,000 at retirement?</p>

<p>Note: I am NOT knocking your choices for incurring a lot of expensive tuition for a dream school or even borrowing for this type of school. I just wanted to make everyone aware of the real cost and opportunity cost of incurring these expenses instead of sending the student to a good in-state university. These consideration have to be on the mind of every parent, and if not, they should be.</p>

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<p>We paid for our son to attend a great university with a highly regarded music performance program. He did get a good performance scholarship, but the school is expensive. You know....he got a great education (he graduated last May) and we have no regrets.</p>

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<p>taxguy, can you do the one where you figure out how much a certain amount of money paid for tuitioin defers retirement?</p>

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<p>Shrinkrap. please elaborate with:
1. How much money are you talking about?
2. How many years till retirement?</p>

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<p>Taxguy,
Is it true that if an 18 invests $1000 every year for 6 years, he will have 1 million by retirement age?</p>

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<p>Wedgedrive, no it isn't true that a mere $6,000k can become $1,000,000 unless he had a phenominal rate of return.</p>

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<p>Sigh.......</p>

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<p>So, how much would an 18 year old have to invest in a retirement account to have 1 million by retirement age?</p>

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<p>Shrinkrap. please elaborate with:
1. How much money are you talking about?
2. How many years till retirement?</p>

<p>Well I'm thinking if I pay (not borrow) an extra 20K for a private vs. public, is there a way of telling how much longer it will take to retire? I thought somebody had calculated that....I'd LIKE to retire right now but....</p>

<p>anyway just found out D didn't get into 1st choice public so we my end up spending for a private....</p>

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<p>Taxguy, loved your explanation. </p>

<p>Our D took the "let's not go into debt" route, thankfully, 4 years ago when she accepted a nice scholarship to a good school, but not a "dream" school. Since, my husband has retired (just before his employer declared bankruptcy), and I have had to stop working to care for an elderly parent. We saved carefully for years and are living off of much of this savings right now (waiting for the 401K to recover in the market and to be of age to tap it). Due to this savings, we probably would not have received extensive finaid for our daughter. </p>

<p>She did very well academically during her 4 years as well as blossomed beautifully as a young woman. She is about to graduate with top honors and has been accepted into a "dream" university (definitely top ten nationally and in her field) to pursue a PhD, fully funded (another wonderful gift to us). </p>

<p>So, after 4 years, she is arriving at the same place she probably would have arrived at by attending a "dream" undergraduate school...but without debt hanging over her head and leaving us enough money to live on. Moreover, her undergrad school turned out to be the perfect place for her in general. Definitely a win-win if you can overcome the "big name" cache or Ivy fever:)</p>

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<p>Millionaire Calculator. I use $1000/month starting at 18, millionaire at age 45</p>

<p>Ditech</a> Millionaire Calculator: Ways to become a millionaire</p>

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<p>A consolidated FFELP (consolidated PLUS) for this amount will have a amortization of 300 months (25 years). Which will substantially lower the monthly repayment and allow borrower to pay in the later years using inflated dollars </p>

<p>Like mortgages, people refuse to understand the impact of interest and risk. They should eat more blu cheese to improve their buying impulse.</p>

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<p>PS: Our government, civic leaders, and educators have been pushing for college training for many years now. However, there are many opportunities that do not need college training. Remember the hype for home ownership and get a loan now because it was never been so low. Just one year ago, a long time ago. </p>

<p>If anyone has done remodeling on their homes, its not the materials but the labor (skill and expertise) that costs.</p>

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<p>Our son too chose to go apply to only those colleges where he could attend without going into debt. He is now a senior graduating in May, has about $45,000 of his $76,000 college fund remaining and best of all it has become his "dream school".</p>

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<p>Add to these concerns the state of the economy and other uncertainties. What's the SMART thing to do? I guess it depends on how much money one has. </p>

<p>We have so many friends that literally will say: "Beg, borrow, or steal" to send your s to the very best college you can. That's not what our investment counselor suggests. Debt compels one to make choices that may not always be in one's best interest.</p>

<p>The rat race of work, study, compete seems to start so early and last so long. When you add the burden of debt to the equation, it's depressing and overwhelming for many.</p>

<p>We subscribe to the idea of getting the best product at the best price within our budget. There are some great educational products out there that are a tiny fraction of full freight private colleges costs.</p>

<p>Graduating debt free is liberating and allows one's next class of choices to be based on something more personal than the repayment of crippling debt. JMHO......</p>

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<p>I have been given some great financial advice. Save as much as possible cutting back on all unnecessary expenses. Work hard, earn as much as you can, and consider taking on a second job. Postpone your retirement to at least 67, preferably to 70 years old. You will have plenty of money for retirement and you will be able to finance great assisted living and nursing home care. The rest can go to your kids, but if you were wise you did not have kids. They are really expensive.</p>

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<p>max001, you are so correct about student debt. It is not about the money but the fact that it can limit a student's choices following graduation. I am talking about things like needing do defer grad/professional school, feeling a need to move back home to save on living expenses which in turn severely limits job opportunities, choosing a job based on starting salary vs job satisfaction, and even deferring life choices like marriage, children and buying that first home in extreme cases.</p>

<p>As Americans are slowly coming to realize the true costs of debt and how it adversely impacts their lives, allowing our children to take on excessive student loan debt is both foolish and sends them the wrong message.</p>

<p>Our son had choices to make early on-to apply to the likes of Cornell or CMU with significant student loans or apply to Case, RPI, et al and graduate, not only debt free but with a big $45k nest egg to begin his post graduate life. If the choices were Cornell/CMU vs Podunk College those student loans might have been worth it. But as you noted, the choices are rarely so stark. A student merely has to slide down the selectivity chart a bit to find great, affordable options.</p>

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<p>One thing to check...some of those expensive schools give huge amounts of financial aid to many students, sometimes even full financial aid (e.g. If your family makes under $75K/year, you pay no tuition at MIT). Yes, if finances are a concern for the family (or the student, if the student is paying), consider finances. But don't take the price tag at face value. Many people assume incorrectly that they could never afford the expensive schools.</p>

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<p>We have not seen one college bill yet so what I say here are based on estimations. I just don't see why there are so many discussion about taking debts for college education.</p>

<p>I read many threads in the FA forum. The upper limit of EFC is about 1/2 of combined take home income. So, why can't you just live off the other 1/2 of the take home? Of course it will mean some cut per standard of living, i.e. live in a small 60 year old house, drive an old car, take no vacation etc.</p>

<p>So, I think the question is about you live in a big mansion with two S class benz in the garage or have happy children who get to attend their "dream" schools. As a matter of fact, I think quite a few CCers took the "happy children" route without going into heavy debts.</p>

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<p>
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Our son had choices to make early on-to apply to the likes of Cornell or CMU with significant student loans or apply to Case, RPI, et al and graduate, not only debt free but with a big $45k nest egg to begin his post graduate life.

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<p>I'm actually surprised you got a really big difference between financial aid at schools such as CMU and RPI. They were the two places I was deciding between, and I was able to get CMU to match RPI's financial aid offer, so it wound up costing me the same amount of money to attend CMU as my brother down the road at Pitt.</p>