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March 19, 2013

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I think Apex's comments on the issue nailed it. Just. Totally. NAILED IT!

My parents' lack of planning when it came to college savings was a powerful lesson for me. I had to pick a school knowing that I was responsible for all of the costs - so I chose based on fit, academic programs, and scholarship offers and affordability.
I ended up taking about $6K in loans for undergrad, though had they been unsubsidized I would have been able to pay them as I went because I worked every summer.
If we have kids, I would definitely consider not locking anything away for college because I'd want them to be value investors in their education. And when they're spending someone else's money, they're a lot less likely to look for the best value.

One thing that it is important to note, you can ask a school or program about the success of their graduates but the vast majority of the time the data they will give you is skewed to the point that it is worthless. Colleges and universities do not have any way to track students once they graduate and the majority of the time the data they get back is based on students who they have good contact information for (typically alumni who are already heavily invested in the college) and who are motivated to respond (often because they want to brag about their success). How to Lie with Statistics by Darrell Huff was published in 1954 and covers this exact phenomenon in chapter 1. The realities of the data haven't changed significantly in 50 years.

Thanks FMF and Apex. This article has made me rethink our parenting style when it comes to our kids education.

We were among those who saved nothing for our childrens' educations. It wasn't lack of love, but lack of stretching the dollar far enough after saving for our retirement and meeting current needs on one income, as I was a stay-at-home Mom. Likely we didn't prioritize college savings very highly as neither of us went to college. Our experience:
Our eldest son graduated from high school in 1998. He disliked traditional classes and was an indifferent student, except for mechanical classes where he excelled. He took a sheet metal class (a few weeks) and got a job at a local aircraft plant. He worked there during the day and went to A&P (Airframe and Powerplant, to become an aircraft mechanic) school at night. He paid for this schooling (three years, 5 hrs/evening, 5 days a wk) himself out of his day job wages. He lived with us and had no life outside of these two full time endeavors. He got his certification, worked his way up with an aircraft company locally, is now a manager at an aircraft service station. He made a little over $100,000 in 2012.

Our second son (graduated 2000) was mostly interested in computers while in school. He took primarily college prep courses, made about a 3.0. He chose to attend a local college, applied for no scholarships or loans, and got his BS degree in about five years. He lived with us and flipped burgers at night, which paid his costs for the state school in our hometown and left him little extra for recreational spending, but he graduated with no debt. He currently works as a Business Analyst for a local small company and makes about $50,000 a year.

Our youngest son (graduated 2005) liked school and did well. He was a National Merit Scholar, so was offered free college at many places. He got a degree in Aerospace Engineering and currently is working on a masters. At the time he graduated from college (2009) local aircraft company engineering openings dried completely up, so he continued working at the nonprofit engineering research company where he worked part time while in college. He makes about $60,000 a year. His wife, who went to private college with loans, is a teacher and makes about $50,000 per year. They are currently working on paying off her student loans.

My takeaway thought from this is that - at least in our family - there is not necessarily always a correlation between college/no college and income (although oldest son has been told that he will rise no farther within his company without a degree, he is actually the first person to get his current position without one) and that even in fairly modern times (my experience spans the last 15 years) it is fully possible to get a degree without help from parents OR loans. Which is not to say that if I had it to do over I don't wish we'd put something back for their education, because the first two did have to work hard to pay for school while in school. On the other hand, I am very, very proud of the men they've become. They didn't just get older in those years, they really grew up. Whose to say that working their own way through wasn't really for the best?

Jane -

You have a lot to be proud of.

Looking back, it all seems to have worked out for the best. I'm wondering though, did you feel a bit (or a lot) of uncertainty as you were going through it?

I certainly agree that too many people go to college, and that it's depressingly common to overpay for mediocre degrees. All the statistics Apex cited prove that.

However, when he says "a top prestige school is often not the best answer...", I have to disagree, or at least ask for more evidence. If you're admitted to one of the few dozen really elite colleges or universities, you're probably a top-performing high schooler. You are more likely than the average 17-year-old to have a coherent plan for your future, and to make the most of the opportunities a top college can provide. For such teenagers, I think turning down Harvard/Stanford/Columbia/MIT/etc (or their smaller counterparts Williams/Pomona/Carleton/Harvey Mudd/etc) in favor of the full-ride merit scholarship at State U tends to be pound-foolish. If I have children someday, I would hate to tempt them to make to make this trade; so, like the person Apex is critiquing, I'll save enough to send them to whatever school they want.

I went to a top college, and so did almost all of my acquaintances. We graduated on the eve of the great recession. Here's what I see among them: A lot of people in top Ph.D. programs with full funding, on their way to great professorships or research careers. A lot of people (like me) who got technical degrees, went into industry, and earn six figures doing interesting work we love. A lot of people who got non-technical degrees and have solid five-figure jobs doing what _they_ love in publishing, politics, education, business, or social work. Some people in medical school/residency. A few people living on a shoestring to focus on a charitable cause, or on traveling the world. No retail sales clerks or taxi drivers.

You could say we all would have been equally well off with a less prestigious school, and you might be right, but can you prove it? For four years, we had the benefit of highly personalized education, with the world's most talented professors, on resource-rich campuses, among a highly ambitious peer group. Also, yes, we have a brand name and alumni network that opens doors. I think all that has a huge impact, both to future income and to future career satisfaction.

I agree with most of the conclusions in this post both the appropriateness and value of college as well as the attractiveness of 529s in general as a savings vehicle. I got into a similar discussion with Apex on my reader profile recently as well.

I went to a technical college that routinely flirts with #1 international rankings, I got a degree in a hard science (physics), and I paid nothing for the education. From this side of the fence I have to say I'm not sure my education would have been worth it if I had to pay for it. If I had gone on to grad school and an academic career it would be the best path. For my present work in finance it was unnecessary. My first employer specifically avoided recruiting from my school because it's graduates are too academically focused.

I plan on sending my children to private K-12 schools, the absolute costs are much much lower than secondary education and in my view the benefits are much much greater. When they get to college we'll play it by ear.

I think an interesting solution to the problem of overpriced secondary education would be to introduce risk based pricing for student loans. Engineering degrees would carry some of the lowest rates, creative writing degrees would require an additional spread to compensate for the increased risk of the borrower and so on.

The only part of Apex's comments I disagree with is this statement "Your kids are not mature enough, smart enough, wise enough, or have enough discernment and experience to make this decision." I don't think this is true. It may be in some (most) cases but that should not be the norm. It's a bit of a chicken and the egg problem, is an 18 year old immature and thus unable to make a wise decision about college or is his inability to make decisions the cause of his immaturity? I submit that the idea of paying hundreds of thousands of dollars to send your child to any school of their "choice" is just the last in a long series of well intentioned but ultimately harmful parenting practices. How can you expect a child to make a mature wise decision about college when the parent is themselves making an unwise immature decision? This certainly gets away from finance but it's something to consider. Unfortunately most school aged children I know are not being taught good decision making skills in regard to work/life/finance balance. It's no surprise that they make poor decisions as 18 year olds when they haven't been shown how to do so wisely as children.

FMF - I don't remember feeling uncertainty about saving for college back when we SHOULD have been but weren't...I expect this is because of our own situation (as I said, neither of us went to college, and in fact our own children who did were the first in both families to get degrees) which mainly revolved around the fear that we wouldn't have sufficiently saved for retirement. We both had parents who did not, so that required some help from us and caused us a lot of worry on their behalfs. At the time if someone had told us we should carve off a portion of the money we were saving for our own old age and set it aside for our childrens' educations, we probably would have said that we ARE doing this for our children. We want them to know that we are going to be all right for money and they need not worry for us when we are older. To us THAT seems like a gift, but as I said that perhaps is more important to us because of our situation.

I do want to say, though, that even though we didn't have the money to help them, they all knew they were welcome to live at home while in school (though there were still rules, somewhat more lax than high school but not completely lacking, and they were expected to help out around the house when they had some free time) and we were fortunate to live in a city large enough to have three universities (one state, two private) from which to choose. The bottom line is that although all three knew that we weren't going to be providing for college for them, every kind of moral and emotional support would always be there and they all grew up knowing fully that we were wildly proud of each of them for every accomplishment and were behind them to make sure they wouldn't fall. I like to think that we gave them the support that made it possible for them to go out and do the hard things that turned them into the adults they are.

Jane -

There is certainly a lot to be said for having young adults work hard for their education. I think they value it more. I know I did.

@08graduate

You are making the classic mistake of analyzing the value of college education. You said "If you're admitted to one of the few dozen really elite colleges or universities, you're probably a top-performing high schooler. You are more likely than the average 17-year-old to have a coherent plan for your future". This is likely true.

Your experience tells you that this set of people generally end up being successful in their chosen field, academia, industry, or wherever, again likely true.

You are making the inference that a prestigious college education has a causal effect on their success. This is not supported at all by your experience. I'm not saying your wrong I'm just saying you can't possibly make this conclusion given your information. You can't compare the average outcome of 17 year olds with gifted 17 year olds who go to elite schools and make any statement about the value of elite schools. You need to compare gifted 17 year olds who go to elite schools with gifted 17 year olds admitted to elite schools that choose not to go. This data is notoriously difficult to gather I have yet to see a study that does it well in my opinion.

This last statement is a game changer for me" or if you withdraw funds not needed for college because the beneficiary has received a scholarship." I have often worried about whether I will save all of this money, and then not need it because my child received more than enough scholarships to cover their costs.

Is this essentially saying that you can withdraw the 529 funds in equivalent amounts to what your child received in scholarships? if so, that would be incredible!

Adam -

Yes, I believe you can withdraw amounts equal to scholarships received.

This discussion shows me that in spite of all the progress that has been made since my youth (the 50's) that it is getting harder and harder for many young people to obtain the education they would like than it was in my days.

My father was a fireman and my mother never worked, they never had any investments, as we know it. They never owned a home, and died with just enough to cover their final expenses.

However in 1951, at the age of 17, I graduated from high school and became an aircraft apprentice with a major company. This 5 year indentured apprenticeship put on a path to obtain the British equivalent of a BSc degree in aeronautical engineering at no cost as well as getting paid, and rotating through most of the departments in the company.

This degree and my 5 year's experience then easily got me a job in Canada in 1956 working for their major aircraft company. From there I easily moved to the USA and obtained a job with a US maker of aircraft escape capsules in 1958. It was then that I realized that I needed to get an MS degree if I was to get into the kind of work that I wanted to. That's when in 1960 I sent out my resume to Lockheed Aircraft in Burbank CA, Lockheed Aircraft in Sunnyvale, CA, and Boeing Aircraft in Seattle, WA. Within a few days I received three offers of employment at competitive salaries. I chose Lockheed, Sunnyvale because the brochure they sent me contained a detailed description of the Santa Clara Valley (now Silicon Valley) and I was impressed with the climate and everything that the location offered. Lockheed also offered to pay for me to get an MS degree at a fine university at their expense. I had to make up the time I was at class and ended up getting my MS degree in 1963 at the age of 29. The tuition cost was $30/semester unit at a private Jesuit university.

These two degrees cost me nothing and enabled me to have a very enjoyable and well paid career until I retired in 1992.

Just try to duplicate my experience in today's world.

This is a great post that strikes a nerve with many parents. I battle from time to time on saving for education as well. I look forward to helping out my kids when that time comes for each of them to attend a college or university, but I will not pay for the entire bill. When a responsible older teenager invests their own money and time for education they will feel more obligated to do well in class.

@Bill,

I do agree with you that today's 17 year olds are less mature than they were a few generations ago due to their upbringing. This is both the fault of parents but also of a society that is difficult to combat as they are with "society" in general more than they are with their parents.

However, recent research has shown that the area of the brain that are most responsible for planing, decision making, and risk analysis, namely the prefrontal cortex does not fully develop until at least age 25. I have seen articles other than the one I am posting here that say even to age 30.

http://www.npr.org/templates/story/story.php?storyId=141164708

This is really kind of a shocking discovery as we think of an 18 year old as fully developed but mentally they are not. I often hear people in middle age talk about how they used to be so daring but they have gotten chicken in their "old age." I think most people have had that experience or know people who have. The truth is they have not gotten chicken. Their brain actually fully functions now and they are able to make better decisions about what they are going to do. What used to look like bravery, was actually simply recklessness. They can now assess the risks and make better decisions. Before the brain simply was not factoring in the downside properly but only what looks like the immediate upside and even that upside was probably being over-exaggerated.

Not able to properly assess the downside and over-exaggerating the immediate upside? Kind of sounds like a 17 year old thinking about college doesn't it?

I want to say one more thing on the brain development that I think wasn't clear in my comment. This is not talking about learning. Obviously a 17 year old has much to learn. It is not even talking about maturity as people often don't "grow up" until their 30s or 40s or until they have a kid sometimes. Sometimes never unfortunately.

It is talking about the physical development of the brain. The research isn't showing that it takes time for the person to learn what they need to learn. It is showing something far more fundamental and profound than that. An 18 year old brain is not capable of performing certain assessments that a 30 year old brain is. The 18 year old brain (while it thinks it is superior), is actually an inferior cognitive device to a 30 year old brain. It's like a v-6 engine that is only firing on 4 cylinders. No matter how hard you push it, it can't do what the v-6 can do. It is simply, physically, incapable of measuring up.

This is what is the shocking part. We can't expect a 17 year old to make a fully informed, fully wise decision. His/her brain is not physically capable of doing so yet.

I recall a teacher I had in high school that I absolutely hated. I do not know what prompted this exchange but one day in class he told us all that we were only 16 and we didn't know a thing. He said we wouldn't know a "damn" thing until age 25 and then we wouldn't know much. In my 16 year old wisdom I thought he was a pompous "donkey." I recall the statement he made that day often and with fondness. I wish I had the ability to appreciate it at the time.

@FMF,

I didn't know you were going to post this but thanks for giving this front page exposure. The right decision is different for everyone, but if this can cause some people to think about the topic a little more purposefully then I think that will be of great benefit to them.

@ Apex- just a comment back to yours... if the brain development only happens by 25 or 30 then why are we putting immature brains behind the wheel, or behind the bar, or in the armed forces. How about voting...?

-Mike

Some other comments that you may find interesting.
When I decided to leave high school it was required that I go to see the headmaster of the Boy's Public Grammar school that I attended. My headmaster had an MA from Oxford University. He first asked me what I had planned for a career. I told him that I planned on becoming an engineer. His comment to me was "Why would you ever want to drive a train?". He then went on to encourage me to seek employment in the Civil Service, telling me that I would have a fine career in one of the British Colonies.
He strode around the school in his Cap and Gown and always conducted the Morning Assembly at which any Jews or Catholics waited outside until the morning prayers and hymns were finished. If there had been a troublemaker the day before he would then march the boy in question up onto the platform, in front of the whole school, striking him across the legs with his cane, as he walked down the aisle, and then totally chastizing him for whatever infraction he was guilty of - maybe a school prefect (i.e. upper classman) had caught him smoking in the lavatories. The usual punishment was administered on the hand or the behind using a bamboo cane. The demographics of our school was 1000 boys, 997 Church of England, 2 Catholics, and 1 Jew. People of color didn't exist in my schooldays in England. However it is very different these days since when England gave up its colonies after WWII there was a flood of immigrants from all over the world.

I think parents ought to be more involved in the decision process to pick a college. I believe paying for a very top tier school may be a worthwhile gamble since attending such a school will open the student up to some great peer connections.

But the second tier schools that charge just as much for a degree with a low track record for job placement... I don't think so.

-Mike

We're struggling with the same issue now. My parents paid for college and law school. It was such a huge life advantage for me to start working a high paying job without any student loan debt and I feel like I should pass along that advantage to our child. In addition to a 529 plan, since my husband owns his own business, he pays our son $5000/year for modeling in ads and then puts that amount in a Roth IRA for our son that can be used by him to pay for college.

Anyways, for us, it is less a question of whether to fund a college plan, but how much? I'm curious what other amount other people are committed to paying 100% of college costs are saving per kid.

Great post. I was responsible for bearing the cost of my college education so I chose a school that was good, not great, but good and also affordable.

I had the option to go to various schools and chose the least expensive one (after financial aid) that both fit me personally and had the academic programs I was most interested in.

I wound up with $4,500 in school loans when I graduated and was able to repay that money fairly quickly.

This put me financially ahead of many friends, still paying off tens of thousands in school loans, because I was able to save and invest out of the gate, taking advantage of compounding!

If I have kids, I'm not sure if I'll sock money away in a 529 for them. What I witnessed were college friends on their parents dime took their education less seriously.

@08graduate

Two excerpts below from your comment:

"If you're admitted to one of the few dozen really elite colleges or universities, you're probably a top-performing high schooler. You are more likely than the average 17-year-old to have a coherent plan for your future, and to make the most of the opportunities a top college can provide. For such teenagers, I think turning down Harvard/Stanford/Columbia/MIT/etc (or their smaller counterparts Williams/Pomona/Carleton/Harvey Mudd/etc) in favor of the full-ride merit scholarship at State U tends to be pound-foolish."

"You could say we all would have been equally well off with a less prestigious school, and you might be right, but can you prove it?"

Someone already did the research and basically did prove it:

http://economix.blogs.nytimes.com/2011/02/21/revisiting-the-value-of-elite-colleges/

You are correct that someone who can get admitted to an elite school is a top performer who is taking their education and future prospects very seriously. The research in the link I posted controlled for exactly that. Rather than looking just at test scores they examined students who applied to and got accepted at top elite schools but then choose not to go there but rather to attend a less prestigious school instead.

What they found was that after controlling for the ability to get accepted at an elite school, the advantages of an elite school completely disappeared. If you were good enough to get accepted that's all that mattered, actually going no longer made a difference. Any school that you now went to and applied yourself to would result in the same outcomes over your life as the students who did go to the elite schools.

And actually it went even further than that. If you were ambitious enough to apply to elite schools and think you might be able to get in but got turned down, that was still enough to make your outcomes just as good as the people who actually attended an elite school.

There are certain career paths that to my understanding are only possible if you attend certain top elite schools because all the companies recruit almost exclusively from those schools. In those cases the elite school means everything. It would seem if that is not the case then the elite school is mostly just bragging rights. That's what the research seems to show anyway.

@Mike,

Hey now, you are talking controversial stuff there. :) But I don't disagree. The more I know about brain development the more is scares me to death to put my kids behind the wheel.

I will let you draw your own conclusions on youth voting.

As far as the armed forces it could certainly be argued that they are not fully understanding what they are signing up for. I suspect that is true. It probably also helps the armed forces too though. There is a reason they want 18-25 year olds in the infantry. Yes they are the most physically capable. But they are also the ones most willing to charge ahead into battle and take risks that older men might be a little more reserved about.

I certainly do not want to disparage any older military personnel who might read that the wrong way. I am sure the training and the devotion to the country and to your fellow soldiers is a far more powerful than anything else. But I think it is the case that an 18 year old's lack of risk assessment ability makes him on average a better soldier than a 40 year old. It would make him a horrible General, but a good soldier.

@Apex That's interesting research, thanks for the link. This part seems like an important caveat, though:

'From my perspective, the main limitation of the paper is that even its less elite colleges, like Penn State, are relatively elite. (A full list of the colleges whose graduates were part of the study appears below.) That doesn’t call into question the findings of the paper. It’s still deeply surprising that choosing to go to, say, Xavier instead of Columbia may not affect your future earnings.'

@Bill

You are making the inference that a prestigious college education has a causal effect on their success. This is not supported at all by your experience.'

I agree. I was intending to say that in the absence of hard evidence, my personal experience strongly suggests a causal link. The research Apex mentioned may trump that. I'm going to read the original paper tonight to get a better idea.

@08graduate,

Yes that is a good point. I certainly don't think all universities are created equal nor was I trying to suggest that. There must be some differences in quality between some of them. The real question is when comparing schools is #1 or #3 way better than #50 or #100. And is private elite way better than a known good public school. And the answer appears to be that the differences there are negligible.

The other thing that I think matters is peers and networking. The elite schools are going to have a network of very successful people. Even other top public universities are not going to have nearly as rich a network of success. Success can both rub off on you and you can leverage your contacts after graduation if you are good at the networking affect.

The reverse could also be true at a really weak university. When so many people are going there and just going through the motions, it would be much easier to get their failure dragging you down as you are surrounded by it.

So I certainly don't dismiss those affects. To be honest with you it is surprising that when compared to less elite schools that the peer effect and the networking effect seemed to have no measurable impact after controlling for applying to an elite school.

I think the take away for me would be go to a very good school for the field you want to study. It doesn't have to be private. It doesn't have to be top elite. It doesn't have to be expensive. It just needs to be good. But if you go to a poor or mediocre school, well expect mediocre results.

Allow me to offer some perspective from the trenches.

My daughter is a sophomore in an engineering discipline at a top ranked engineering school (state school, but out of state for me). My son is a high school senior interested in studying engineering also. I have visited TOO MANY colleges in the past few years.

I have expressed to each of my children that the goal of going to college is not "find themselves" or to "have the college experience" but simply to better prepare themselves to become a productive member of society. They should choose a major in which they have an interest, and hopefully, a passion but one that can support them after they graduate.

We committed long ago to paying 100% of our children's tuition. We managed to save roughly 50% of that for each child in 529 plans. I think that was a reasonable goal. We cash flowed my daughter's first two years and will rely on the 529 for the last two (while we pay my son's first two). No, we are not wealthy; just committed to our children starting life debt free. They understand this and appreciate our sacrifice.

I agree with most of APEX's comments. While I agree also that most high achieving children will become high acieving adults, there is something to be said for a strong career services department and an alumni network.

Find out from the school how many and which companies recruited there last year. Were there Major specific career fairs? How hands on are the department heads? Do they know their students? How many students in their proposed major received internships/Co-ops? Good schools can answer these questions. My daughter had an internship offer her freshman year and multiple offers this year.

My son is currently torn between going to the same school as his sister where the engineering program he wants is highly ranked, focused on student placement and has a vibrant alumni network or to a small, private, lesser known school with a good local reputation. Because of scholarships the private school will cost about $6000 less per year. I am pushing him to the larger University because I think it will present better opportunities now and in the future.

I totally agree with Apex's comments. The biggest mistakes are families thinking that they must pay for an elite school, and that graduating from an elite school will translate into automatic success. Another big mistake is parents not encouraging young women students to study and work towards a viable career path.

Lots of good points from Apex.

I think for the elite schools such as Harvard it depends on what the actual situation is.
First I agree that the cost of an elite private school like Harvard isn't necessarily 'better' enough to warrant spending a lot more than a very good public school. e.g. On a pure ROI basis I'd absolutely pick Berkeley over Harvard.
99% of us can't get into those schools so its not really worth spending too much time debating it. For the 1% of people who do get accepted then it depends on the situation. First, whats the financial situation? Ivy level schools generally have VERY generous aid if you aren't high income. Its easy to get a free ride at those schools if you have financial need. If you're rich and smart then you may be faced with the choice of going to an elite ivy and paying a little more but you're rich so you can afford to do it if you want. Of course you want to pick the right school for your intended career. Engineers should probably go to MIT over Harvard and future politicians might prefer Harvard over MIT.
I'm hard pressed to think of a situation where turning down Harvard makes sense. Whats that scenario??


I think its more important to discuss public versus private in general. Theres a lot of kids going to relatively obscure medium quality private schools and spending 2-3 times as much as what they'd spend at a similar quality public school. That happens a lot more often than people deciding to go to Harvard or not. I know people in my own life who did just that. A friend thought that if he went to the local private school that people would just throw jobs at him because he went to such a great school. Nope.

Old Limey said : "it is getting harder and harder for many young people to obtain the education they would like than it was in my days."

About 5 times as many people have college degrees now compared to the 1950's.

It doesn't appear harder to get education now than it was in your day at all.

Most today kids do go to college. 68% of the high school graduates for 2011 were enrolled in college in 2011. Many will drop out but around 60% of them will have degrees by '17. That would result in 40% of the 2011 high school grads getting bachelors in short term. A small % more will obtain degrees later in life.

Couple other reasons 529's can be bad :

1. theres generally better tax incentives from tax credits. The American Opportunity Tax credit pays up to $2500 credit right now.
2. Having money in a 529 hurts you more on financial aid application. That money is considered an asset and they expect you to use it to pay for college. If you put the same amount in a 401k it would not be considered in the financial aid application.

Jim -

#2 assumes you do one or the other. Personally, we max out my 401k and contribute to a 529 in addition to that.

I also prioritize 401k over the 529. If we can't max out the 401k, then we'll skip contributing to the 529 that year.
Our college degrees are the reason why we are relative well off today. For that reason alone, I would push my child to attend a university.
However, I would hesitate for him to go into a big debt to attend an Ivy league college. There are many alternatives and Apex is right. Kids usually choose college for the wrong reasons. We'll work with him when the time come. If we have to, he can go to a local college for two years while living at home.
I still think a degree is essential, but the particular school doesn't really matter much to me. I'll have to do more research in 16 years or so.

These are random thoughts and my observations and what I have learned about college.

Not only are 17 year olds not equipped to make college decisions, sometimes the parents are even more ignorant. We have a friend who nephew is spending some of his college money to play hockey on a minor league team and his parents do not see anything wrong with this. When I told them it was illegal and he could be fined $20k they gave me a dumb look of really? If you use your college loans or grant money for anything other than college you are in violation of the loan and grant agreement.

College IS a big business and run like that. They market, recruit , incentive and persuade you to go there. Ever since the government and lending institutions got into the act the cost of college skyrocketed. They all believe in giving little Johnny and Susie a chance at the big college but not the resources to succeed so they fail and are in debt. Little Johnny and Suzie should have went to community college and built there skillset, in some cases matured a little and then attended university when they are serious.

Harvard will no longer be accepting AP classes from high schools. Why? Because they are losing money. What a surprize!!!. When Harvard starts this I suspect other colleges will follow Harvard. Enjoy those AP credits now. My son took AP Calculus and got a 5 on the exam and placed out of Calculus 1 in college.( saving me 4 credit hours of tuition) My son was in AP Physics but switched it was too hard and after talking to the college admissions they said the AP Physics would not count for his program even if he passed with a 5 because it would not have been Calculus based Physics.( I have to take Calculus based Physics in college and we did not use a stich of Calculus in the class) I am glad he did not waste his time and our money taking the AP test.


Colleges are also getting smart in that they making the curriculum dependent on other classes. In order for you to take C you first have to have A which is offered at a Community College but you still have to take B which is offered only at their college. Prior you could take A and go directly into C but the college still wants to get its money. In some degrees going to 2 years at Community college will not shave off two years of your 4 year degree. It may shave off one , maybe one and a half.


You can get plenty of college money but the current rates are 3.4% for subsidized and 6.8% for unsubsidized. Ummm yeah. I can get a new car loan for 1.74% through my credit union and college loans are UNFORGIVABLE DEBT in which bankruptcy will not get rid of it.

As for the people who have college degrees and have jobs unrelated to their degree if you talk to the college it is there fault. Where does a college think like this? Most people are not marketers and sellers they are good cogs in a machine. The people who know how to market themselves and their degree and land a job in their field of study are the winners. People who don’t know how to market themselves are the people who take any job they can get because they are in sooo much debt and there degree is rendered useless. Hence my term "useless degree"

People who don't have to do this quite so aggressively are people in the Science and Research, Technology, Engineers, Medical. Humm aren’t these the fields the media is talking about growing and in high demand and maybe because there field of study is so specific and narrower while that communications, business or humanities degree is too broad. Maybe that is why they are the ones having issues finding jobs? Not specific enough.

@Jim
Instead of saying "It's harder and harder for many young people to obtain the education they desire", it would have been more accurate for me to say that "It's getting more and more expensive for them to obtain the education they desire".

A recent statistic from Bloomberg News Service states:

The cost of a college degree in the United States has increased "12 fold" over the past 30 years, far outpacing the price inflation of consumer goods, medical expenses and food.

“Soaring tuition and shrinking incomes are making college less and less affordable,” Sen. Tom Harkin (D-IA), chairman of the Senate Health, Education, Labor and Pensions Committee, told Bloomberg. “For millions of young people, rising college costs are putting the American dream on hold, or out of reach.” Indeed, as tuition costs continue to rise and the national student loan debt hits $1 trillion, some people have been left wondering if college is even worth it anymore.

My daughter obtained her Business degree from our local California State University while living at home between 1978 and 1981 and paid all of the expenses for her books, tuition, and sorority membership out of her earnings at a car wash and from housecleaning jobs. She also bought an old Honda Civic from me with a zero interest loan and never missed a payment. She is now 52 and I just checked her two Fidelity accounts that I manage for her and as of today they are worth $2,916,797.

@Apex: I enjoy reading your replies, they are very logical and you make very convincing arguments.

-Mike

@Apex

The link the NYT provides doesn't work, but the paper can be found here:

http://www.econstor.eu/bitstream/10419/51889/1/664668143.pdf

I've skimmed it, and while I could rattle off a few quibbles, I basically think it's sound within its scope.

As the authors and the journalist acknowledge, though, that's a big limitation. Everyone in this study population went to a top or near-top school, with lots of resources, quality professors, strong networks, and relatively high tuition. It doesn't tell us anything about the potential downsides of minimizing costs more dramatically. You and I seem to be in agreement that those downsides might be large, especially for high-caliber students, which was my original point.

Wow, great post and great comments. Thanks for the insight here. We have two very young kids (9 mos and 4 years old) and I have 529s for both. After maxing out 401k's, this makes sense for us since my state (Indiana) offers a tax CREDIT of 20% (up to $1,000). So I look at it as a guaranteed 20% gain on what I put in every year ($2500 for each kid). If the state did away with that credit, I would significantly decrease contributions. Given that I started the plan for our 4 year old in 2008, that account has done quite well so far.

Thanks again for all the insight.

@Mike Hunt

Aw shucks [blush].

Thank you for the compliment. I do appreciate it.

@08graduate,

I agree that the school selection in the study was somewhat limited. It would have been nice to have a more expansive study. However I looked up some of the tuition rates of some of the schools in the study.

Penn State: 15.5K in state
University of Michigan: 20.5K in state
Miami University: 13K in state

University of Pennsylvania: 43.5K
Northwestern University: 43.5K

That is a huge disparity.

The thing is You can replace Penn State or Miami University with University of Wisconsin, University of Minnesota or a whole host of very good public universities from various states and I would expect the exact same results as we see here for Penn State, Miami U etc (In fact U of Minnesota and U of Wisconsin are generally rated better schools than those two in most areas).

So while the study results are limited they sample some schools that are representative of top public schools from a whole host of states and they find that top students who choose these universities do just as well and it looks like it's at about 1/3 the cost for tuition.

So while I do agree that going down the quality scale could cost you, I do not agree with your other assessment about the downsides of minimizing costs.

Cost is a poor assessment of school quality because public schools are highly subsidized by the states they reside in for in state residents. And many public universities are highly rated. A resident of those states choosing to go to say U of Penn rather than penn state simply because of the name is spending an extra 28K per year (112K extra in 4) than they need to in order to get the same end results according to this study.

Cost always matters.

Here is an interesting thought exercise. What are the two areas that in the last few decades we have reached a general mindset in this country that cost doesn't matter. That we must pay any cost to get the best service no matter what? ..... Education and Health Care. What are the two areas of the economy that have the highest inflation and have continued to have it for the last few decades? ..... Education and Health Care.

It's not a coicidence. Not even remotely so. Cost always matters. If we act like it doesn't, then the economics quit working and we get the inflation we have now in both of those fields.

Education is beyond the saturation point. We have too many people getting college degrees. The study I pointed to in my original comment that FMF started this post with shows that. 41 million college degrees fighting for 28 million jobs that require college degrees.

And we lament the high costs of Education and the most common solution proposed is more aid for education.

This results in a couple things:

1. A greater amount of money and demand for degrees - Econ 101 = higher cost of a degree.
2. A greater supply of degree holders for a job pool that does not demand the greater supply of degrees. This means more qualified people to choose from per available job - Econ 101 = lower pay for the job.

Response: This is problem. This is cutting off the American dream (see Old Limey's quote of Senator Harkin above). We need to increase aid for education.

Lather, rinse, repeat.

Cost always matters. I can't do anything about the government screwing up the cost curve in education. But if they are going to screw it up I can at least choose good public schools that are bending the cost curve in my direction.

@Apex

If you look at out-of-state tuition, that gap shrinks or vanishes. The University of Michigan costs more than 50K! For people who live in a state with an Ann Arbor or a Miami or a Madison, yes, the price is pretty compelling. When you say these are representative of flagship public universities around the country, though, I'm not convinced.

Another thing to consider, also called out by Dale and Krueger, is that education is not one-size-fits-all. It could be that students in this study are generally pretty good at selecting the school that will provide the most value for them. You have to agree that Bryn Mawr and Penn State are very different experiences. If you sent the people who went to Bryn Mawr to Penn State instead, or vice versa, they might do much worse. In that case, the Bryn Mawr students are still getting a good value even though they're paying 3x as much for "the same" results (regressed against the model). The study wouldn't show us that.

As for the rest of your post, I completely agree that too many people are getting degrees, in part due to subsidies. I also agree that cost matters, and that excessive demand is driving cost growth in education. None of that seems pertinent to the conversation I think we've been having, which is about value.

Just in my lifetime in the USA, 1960 and onwards, there have been very dramatic changes in the goods that America manufactures. We used to have a textile industry - that's gone completely as have many other fields that employed millions of workers. Where I live in California we used to have a gigantic General Motors plant and a large Ford Motors plant. The Hi-Tech industry used to employ thousands of workers in high paid jobs in clean rooms in the semiconducter field - they're gone.

The consequence is that the young people see no alternative to having a well paying job during their lifetime than getting a college degree, even though many of them really aren't college material and pick majors that aren't sought after by employers. Meanwhile I see large numbers of well educated and very smart Indian workers and their families that have come to this area under the H1B visa program to grab loads of the top jobs. Even Apple computer with its fantastic recent successes doesn't manufacture their products here as they used to. Now they are all made in Taiwan at the huge FOXCONN installation, along with the hi-tech products of many other US companies.

If I had just arrived here rather than arriving in 1960 there's no way I would have had a successful life. For one thing the Cold War has been over for well over 20 years and the plant that I used to work in, that made nuclear missiles and satellite systems has shrunk from over 35,000 workers at the peak to about 5,000 today.

One's success or failure in life is very much a factor of timing. If you are in the right place, at the right time, with the right qualifications everything can turn out "peachy" for you. However, change one of those requirements and you can be one of the many unemployed facing a dismal future. A friend of my wife has a son-in-law that was recently laid off from his Hi-Tech manager's job at the age of 50. He thought he was helping his company when they asked him to start training a much younger person to do the kind of work that he did. He even took the young man on his business trips overseas to show him the ropes. He has now sent out over 200 resumes and is still out of work. Being middle aged with a high salary these days can be a deadly combination.

@Old Limey,

I think that is some very astute analysis. You have seen a lot in your lifetime and the glory days of USA employment and productivity are in the past. I don't know if we can get them back or not but it currently does not look promising.

Given that, it is not surprising as you say that people see minimal prospects and thus they chase the college promise. But college degrees don't create jobs that require them simply because the degrees exist and thus the promise cannot be fulfilled.

The competition from out-sourced labor and bringing labor in via H1-B visas creates a difficult employment picture for many.

Unfortunately while I can see the problem pretty clearly, I don't know what the solution should be. Unfortunately I only know what it will not be. It will not be more students going to get degrees for which there are not any extra jobs. It will not be more aid for students to go get such degrees. And it will not be simply going to an expensive school or grad school to get a pedigree.

In a global world where borders and boundaries are being ripped down at an amazing rate, America's competitive advantage has been minimized. We can no longer justify wages that vastly exceed those of the rest of the world. As such I think our middle class will continue to struggle because we aren't worth what we used to be.

Crowd sourcing is a classic example. I can get anyone in the world to build me a complete website for a few hundred bucks and it will be better than I could build myself, and I am an IT person.

It is in this kind of world where the college degree is worth less (not worthless) and costs more every year that its value continues to be more questionable. The choices are very big and very difficult and a poor choice could be disastrous. It is a bit frightening how crucial it is that this choice be made well and very sad and tragic how many are not choosing well.

@Old Limey,

I think that is some very astute analysis. You have seen a lot in your lifetime and the glory days of USA employment and productivity are in the past. I don't know if we can get them back or not but it currently does not look promising.

Given that, it is not surprising as you say that people see minimal prospects and thus they chase the college promise. But college degrees don't create jobs that require them simply because the degrees exist and thus the promise cannot be fulfilled.

The competition from out-sourced labor and bringing labor in via H1-B visas creates a difficult employment picture for many.

Unfortunately while I can see the problem pretty clearly, I don't know what the solution should be. Unfortunately I only know what it will not be. It will not be more students going to get degrees for which there are not any extra jobs. It will not be more aid for students to go get such degrees. And it will not be simply going to an expensive school or grad school to get a pedigree.

In a global world where borders and boundaries are being ripped down at an amazing rate, America's competitive advantage has been minimized. We can no longer justify wages that vastly exceed those of the rest of the world. As such I think our middle class will continue to struggle because we aren't worth what we used to be.

Crowd sourcing is a classic example. I can get anyone in the world to build me a complete website for a few hundred bucks and it will be better than I could build myself, and I am an IT person.

It is in this kind of world where the college degree is worth less (not worthless) and costs more every year that its value continues to be more questionable. The choices are very big and very difficult and a poor choice could be disastrous. It is a bit frightening how crucial it is that this choice be made well and very sad and tragic how many are not choosing well.

oops, I guess a hung browser can still submit a comment.

Limey, Yes college is certainly more and more expensive. But I don't think it really results in it being 'harder' to get a degree. Its harder to pay off the debt after the fact.

I do think the college debt levels aren't the national tragedy that some people act like. Average debts are in the $25-30k range and thats similar to buying a new car. I think the bigger problem is all the people getting useless degrees.

Yes its also very unforutnate that the turn the American economy has taken in the past 30 years. Our nation is seeing the middle class dying and our social mobility is poor compared to other industrial nations.

@Jim,

If you have a good degree in a good field and are good enough to get a good job then I agree that 30K in college debt is very manageable. It would be nice not to have it but all things being equal it is easily "good debt"

I also agree that the useless degrees are a much bigger problem. Unfortunately the two are often combined and often times the useless degree is actually combined with 50K+ of college debt especially if they went to an expensive private school thinking that was more important than the degree. When you combine all the people with useless degrees that have 25-50K of college debt on top of it, that is a growing problem that we should try to prevent from getting worse rather than offering more aid and lower interest on students loans which will only encourage more of the exact thing that we don't want.

The person with 25K college debt and a 75K job you don't hear about because that debt is not at all a problem for them. The thousands you hear about are usually the ones with the useless degrees and the big debts.

Which is more cruel, to deny a student the opportunity to fund such a degree with debt or to allow them to get the degree and then suffer with the debt that they will have no means to pay back?

Every thing in our society and aid system says the former is a tragedy and that is the real problem. Until that is fixed the latter will continue to get worse.

@Matt

I think you are wrong about the reasoning for Harvard not accepting AP credits. They are not charging by credit hour and they aren't going to make any more in the end by requiring students to take freshmen level courses at their university.

When I went to school 12 years ago they did not except any AP courses for credit. The reason was that the AP courses are simply not as thorough or well taught as the college basic level courses. From my experience I agree with that, my AP courses did not compare with what I got at school. I'm actually surprised that Harvard was still giving credit at all for AP.

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