Be Sure to Evaluate Cost of College After Financial Aid

I've talked before that in order not to be straddled with college debt for years after graduating, students and their parents need to make sure that there's a match between the cost of the college (and the debt incurred) and the salary that the student can earn upon graduating. In other words, a student who leaves a college with $100,000 in debt and expects an annual salary of $20,000 has made a bad economic decision. On the other hand, a student who leaves college with $20,000 in debt and expects an annual salary of $100,000 has probably made a good economic decision. Of course there are other factors that go into selecting a college and occupation, but the finances can't be too out of whack or they will condemn the person to a long period of financial strife/distress.

This piece helps me clarify my point a bit. In the advice above, I'm talking about the NET cost of college (and in particular the amount of debt a student leaves school with). For instance, a college that costs $50,000 a year to attend but that gives $40,000 in financial aid (not loans, but grants) is much cheaper than a school that costs $20,000 a year but that gives zero aid. Here are a couple of examples from the article:

• A single year of college at Harvard can appear to be out of reach for most families. The cost for tuition, room and board is $47,100, Franek said. “But here’s the interesting thing,” he said. “The average grant aid package at Harvard is $35,000. So that really cuts the price tag down.”

• Likewise, a single year of tuition, room and board at Princeton costs $45,600. “But the average grant aid — that’s free money that you don’t have to pay back — is $31,600 a year,” Franek said. “At Princeton, they want to make sure that they remove finances from the equation. They’ll back you … so that they meet 100 percent of your need.”

This is similar to what I did when I went to school. My undergraduate school was rather expensive, but through scholarships and a lucrative work-study program, my schooling was paid for. In graduate school, I worked every weekend night for two years, but my expenses were completely covered (plus $300 a month -- a fortune for a poor student like me.) So in the end, I made a six-year, $5,000 investment and it paid off with millions in return.

The analysis in the piece I linked to is a bit flawed in that it names the best values in education but doesn't take into account what students are earning once they leave these institutions. You must balance both -- the net cost of the college as well as the expected annual income upon graduation. If you know these two, you can make a solid financial decision about which college is right for you or a loved one.

Comments

[Strick]

In this day of huge debt numbers for school, its always nice to see ways people find to stay out of debt completely. I went to NC State, and many of the locals there had it figured out: Instead of parents saving tons of money or going into debt, their offer to help for college was to let their kid continue living at home through college, eating and sleeping there. Since UNC and NC State still only cost about $5K/year for instate students, the student could earn enough money with just a summer job to pay the tuition and fees and not have to work at all during the school year. Not everyone is lucky enough to live within a short driving distance of a great 4-year school, but using this same set-up with a community college for the first 2 years could get your kids half way there without any savings and/or debt.

[MasterPo]

I don't understand.

I thought it was mainly the high-brow blue bloods that go to places like Harvard and Princeton. These are the people typically labeled as "the rich".

So how on Earth do the children of these people qualify for financial aid?!

Much less grants and other non-repayables?

[Shaun]

MasterPro,

They don't just accept rich kids. They accept -smart- kids. There may or may not be a correlation between the two.

[Ben C]

Strick,
First off, GO HEELS! and sorry about dook the other night;)

Second, I would rather my children go to school and stay in the dorms and get the full college experience than commute from home. I went to a community college for the first year (plus summer school) and then went to a four year college. I paid for most of it by working my butt off at a fast food restaurant and getting an internship in my senior year and no help from my parents (I didn't want their help, even though they wanted to). While I graduated with less than $10K in debt, I feel I missed out on the experience of going to school. Plus by the time the kids are ready to go to college I'll have worked my tail off raising them; I want them GONE when they're 18! ;)

[Strick]

Ben - I think we are probably on the same page (with the value of the college experience, the desire to get my kids out of the house, and wanting Duke to lose), which is why I'm saving for my kids. I was talking about, for those that haven't prepared, a ton of debt is not the only way out. The kids I knew doing this only worked summers to pay the cheap tuition, so they had as much waking time on campus as anyone else (they didn't exactly run home after classes, and I remember one guy I was totally jealous of because he was bringing home cooked leftovers for lunch every day), so I don't think they missed out on near as much as you did having to work so much during the year.

Its just that I know quite few people that didn't miss out on any of "the college experience" at all, but are not exactly waxing poetic about it ten years later as they still have huge six-figure debt and small five figure income (though, admittingly, most of these are law school grads who discovered a JD is a ticket to huge income for only the top 10%, and the other 90% don't exactly get their loans forgiven).