Parents and Students Finally Getting a Clue on College Choices

The Wall Street Journal tells us that parents and students are starting to apply basic financial principles when they decide on a college education -- namely, making sure it's a good deal. The summary of their thoughts:

Old dreams of adult children earning degrees from elite, door-opening colleges or “legacy” schools attended by relatives are falling away in some families, in favor of a new pragmatism. Other parents and students are doing a tougher cost-benefit analysis of the true value of a pricey undergraduate degree. As parents wrestle privately with such emotional issues, many say they wish they’d begun years earlier to assess their values and priorities, long before their children’s college-decision deadline was upon them.

Here are my thoughts on the issue:

1. In many cases, selecting a college used to be this esoteric process where Johnny somehow found a school that was "right" for him. It was a great all-around place where he could learn, enjoy social activities, meet new friends, and basically "find himself." Much of the decision was based on emotions and "feel", with cost being a distant second (or third, or fourth) consideration. (After all, we can always borrow the money, right?)

2. Today it's a new ballgame since college costs are higher and schools are more selective in who they admit. As such, parents and students are thinking more about saving for college, evaluating costs and financial aid more closely, and starting to (or should be starting to) prepare for college as early as the student's ninth grade year. 

3. Better yet, they're looking at the value of a college degree. Selecting a college (and the corresponding degree you get from it) is moving from the world of "feel" and "likes" to the world of analysis -- is what you're paying for worth more that what it costs? Pretty basic question, huh? I'm glad we finally made it to this point.

4. I've written about the cost-benefit relationship of a college/college degree several times, so I won't reiterate those thoughts. But if you want my perspective, check out How to Make the Most of a College Degree.

5. Note in point #2 that I said "thinking about saving for college". I haven't yet seen any numbers that say people are actually saving more, but by reading various pieces I do think they are more aware that they should be.

6. Personally, this issue is going to become a big reality in my life very soon as my oldest child enters 9th grade in a couple years. I'm sure you'll be hearing more on this topic from me -- but this time from a parents ground-level eye view.

Comments

[Craig @ Money Help For Christians]

It will be interesting to see if people do actually become more conservative with their college selections. I completely agree that people select schools based on feelings. College has been the ultimate trap to borrow now, then think and pay later. It is one of the rare occasions where otherwise financially conservative folks forget to do their math.

[MrAtoZ]

Part of the dynamic mentioned in WSJ article is that there is a huge demographic crest of matriculating teenagers, i.e. the supply of incoming college students is large relative to the number of avaiable slots at all universities, private and public. They can charge an arm and a leg because of the strong demand for a college education.
In 10 years, when my daughter graduates HS, demographics tell us that the supply/demand balance will be different, and it will be interesting to see if both the pricing and the avaialbilty of college will have shifted.
Ultimately, college is like oil or any other commodity, prices and utilization are a function of how many people want it badly enough.

[MonkeyMonk]

One of the big benefits about going to an "elite" university that often gets overlooked in these studies is that success breeds success. The personal relationships you build in college can IMO be one of the most influential aspects to long-term success. There is a lot of truth in the statement "it's not what you know, it's who you know."

There is a lot of pure luck involved in meeting great success and wealth. Having a network of successful personal relationships can go a long way to stacking those odds in your favor.

[Greg]

I went to a Top-10 private university--tuition w/ room and board/living expenses was >$40K/year. Even with a very generous scholarship and help from my parents, I have more than $25K in loans to pay off (not bad considering some people I know). My wife, whose parents paid the majority, has ~$10K, extraordinary considering the total cost. At the time, I thought it was a great decision. Looking back now, I could have made the decision to go into the honors program at an excellent public state university; full-ride taken care of. How short-sighted. I had the time of my life, but I'm paying the price for it now.

Just like Craig said above, I'm a normally financially conservative person who didn't do their math (an engineer at that!). I've always made sacrifices now so that I'm better off in the future except for this one big oops.

Interestingly, my education is still by far my best investment, even considering the elevated cost. I feel strongly about this: even if people pay a premium for their higher education, it is still the best investment they can make.

[MC]

I guess I'm fortunate: even 20 yrs ago my family was 'way too poor to even consider sending me to an ivy league college. I only applied to 1 undergrad school, in fact.

I attended a small local college for undergrad on partial scholarship, and the rest was made up of financial aid and the fact that I worked during the school year (20-40 hrs a week) and also full time every summer (& I only took paid internships my last 2 yrs). I also got a few GSL loans the last year to cover expenses but they totalled only $1500 by the time I graduated.

Although I have encountered some "school snobbishness" in my career (I'm a research scientist and biochemistry professor at a major medical university), my sub-par undergrad school hasn't seriously hampered my career. For acceptance into grad school they don't care where you did undergrad as long as you took a solid schedule of serious and appropriate classes and kept a near 4.0 GPA, as long as you seek and get the appropriate internship experiences (and do well in them), and as long as you ace the standardized tests (ie the graduate records exam--the GRE).

In fact, I think that my undergrad life made me better suited for my career---I had to hustle to track down the opportunities and learn to multi-task in order to balance schoolwork and work. Many of my current grad students come from doing undergrads at Harvard, Yale, etc but we have found that the school is no guarantee of achievement at all.

Pulling good grades while taking too many fluff classes (even at a 1st class university) and not working at a job at the same time often means that they are relatively unprepared and fold under the intense schedule of academic work. They also have a hard time dealing with working in the lab 50-80 hrs a week (which is the minimum if you expect to complete your PhD).

[guinness416]

I went to college at home in Ireland, so some of this is over my head but regardless of where you're from I think the parents really have to take the lead on this whichever way the final decision goes. No 17 year old is going to understand the implications of college choice on career or finances down the road properly; how could they? Personally, I was a smart and relatively worldly kid - had travelled widely, worked, experienced sex/drugs/rocknroll etc but had no idea - none! - of what the "real" working world entailed or how decisions made at that time could snowball and still affect me in later years. Luckily I had good advice from my school and parents (and of course, taxpayer-paid tuition doesn't hurt either).

[ethel]

It's a shame that our culture now views college merely as job training and a way to make more money. If that is really all that you feel like your child could get out of it, then you should send them to technical school. In fact, I would bet that the highest ROI would come from community college. So, why don't we all just attend those and stop?

No, I am not hopelessly naive, but I believe that education cannot be reduced down to a mere commodity. And just because you use more than "return on investment" to choose a college does not mean that you *must* make stupid economic decisions. It's similar to buying a house. You should look at houses within your realistic price range. Then, from within that group, you are perfectly right to choose a house based on "feel" even it is not the absolute best choice in terms of a financial investment. After all, as many people have learned recently, a house really is not about investment alone or even primarily. But just because you make your final selection of a home based on feel does not mean that you must therefore choose the most expensive house. Houses, like education, are a combination of economic sense and emotional sense. Not only that, you hear of many more people going into bankruptcy as a result of mortgage debt, and not student debt. Why do you think that is?

In other words, it's a bit of a red herring to assume that people will always feel that the most expensive choice is right for them. It's also specious to assume that since college is becoming more expensive, then it is not worth it--and that Yale really is the same as a regional, satellite campus of a state university. Sure, we should think about the value of education, but we should not assume that the only "value" is the amount of money someone will make. It is very difficult to put a dollar value on learning how to think and, idealistic as it may sound, great colleges and universities (which can be found at a variety of price points) do just that.

America's higher education system really has been the envy of the world, but as more and more economic commentators want to reduce everything to a calculus of a monetary "return on investment," I worry that we will move more and more toward a commuter, technical, and silo-based kind of college, like many in Europe. It's a bit like only funding applied sciences without funding "purer" science. If *all* we do is value the applied, we will find that the quality of applied science decreases, and ultimately, the innovations in applied sciences will shift toward other parts of the world, which are taking up the mantle of pursuing and funding "pure" research. And if we only value education that trains someone for a job, we might develop a generation that can do his/her specific jobs well but cannot adapt to changing conditions. Think of how much technology has changed in the past 30 years! It's all well and good to have trained people really well in BASIC language programming, but that is obsolete now. If those people didn't learn how to think more critically and broadly, they would be useless in today's economy. And, beyond the economic equation, let's remember that we are not merely economic beings. We live in a democratic culture. I for one want to make sure we have an educated citizenry that can think broadly and relate well to others--as well as do their jobs well and take home a paycheck. Both are important.

[ethel]

One more thing: a lot of this has the feel of market timing. It is incredibly difficult to gauge which career will pay most down the road. As in your earlier post about this, you said that it makes sense for a doctor to go $100K in debt. Do you know any doctors? Many don't feel this way now, as the economic landscape of their job is shifting. Similarly, 30 years ago, we might not have thought it made sense for a nurse to go much into debt. Now? Many are highly valued.

I still run into people all the time who try to convince their child to major in business because they think it is more practical and profitable than other degrees. But, of course, a business degree is one of the *least* profitable degrees today because it is so ubiquitous. And the reason it is so ubiquitous? Because people wanted to "time the job market" and get a "practical" degree with a good return on the investment. But, as with timing the stock market, it is a very hard--if not impossible--task to figure out which degrees will be valued 25 years from now. (And of course it's not degrees that are valued, but intelligent and hard workers. And, yes, you can learn how to think better and more rigorously by going to a good college.)