While some students will be able to go to college only if they receive
financial aid and others have the resources to go wherever they want,
most fall into a middle group that has to answer this question: Do they
try to pay for a college that gave them little financial aid, even if it
requires borrowing money or using up their savings, because it is
perceived to be better, or do they opt for a less prestigious college
that offered a merit scholarship and would require little, if any
borrowing? It’s not an easy decision.
“It’s not just the sticker price and the net costs,” said Sarah Turner,
professor of economics and education at the University of Virginia. She
added, “How likely is it that you will get into medical school or law
school or have some other opportunities” if you choose the more
prestigious college?
That’s the rational argument. In these decisions, though, emotion often
wins out, and it can lead to the slippery slope of excessive borrowing.
“Families really need to look realistically at what they can afford,”
said Lynn O’Shaughnessy, author of “The College Solution” and
a blog
of the same name. “Sometimes, they’ll look at a package and say, ‘It’s
not enough, but we can sacrifice and send our children to the school
they really want to go to.’ They have to realize this a four- to
five-year commitment.”
Ms. O’Shaughnessy said she was trying to counsel a father in New Jersey
who was on the verge of making a horrendous financial decision. His
daughter had received a full scholarship to attend Rutgers University
but her first choice was New York University, which, even with financial
aid, would cost the family $32,000 a year. The father, an engineer who
was also out of work, said he was going to send her to N.Y.U.
“I can’t even believe he’s considering it,” she said. “I was floored. It’s irrational.”
But, unfortunately, that father is not so unusual. While it is hard not
to give our children what they want, here are some ideas on how to think
about this financial dilemma without going broke — or at least know why
you will be broke.
The competition to get into top colleges is fierce in many cities and
towns in America, but nowhere is it more so that at the country’s elite
institutions. And many parents feel compelled to reward all that hard
work.
The debate between paying full tuition at an elite institution or
accepting a merit scholarship from someplace less prestigious “is a
conversation we have all the time,” said James Conroy, chairman of
post-high-school counseling at New Trier Township High School in
Winnetka, Ill., an affluent suburb in Chicago. “It’s a tough
conversation because what it gets down to is the values of the family.”
But he said many parents did not realize that their children were going
up against other children who were identical to them — at least on
paper. “There are 100 schools that we talk about in this office day
after day after day,” he said. “But those are the same schools that
every New Trier across the country talks about.”
Prestige has always been part of the equation, but he said he had
expected parents to start looking for value in colleges after the 2008
financial collapse. Instead, parents have come to see the elite
universities as the only way to give their children a chance at success.
They feel jobs are hard to come by and companies are only going to look
to hire at the elite universities.
“Whether it’s true or not, I have no evidence,” he said. “But that was
what was out on the bongo drums in the community.”
Ms. O’Shaughnessy knows this thinking well. The New Jersey father she
described has many contemporaries willing to try to pay for something
they could not afford. And there’s no guarantee, she said, that N.Y.U.
will bring his daughter greater success.
“Frankly, I think that’s why East Coast schools that aren’t in the top
tier but are in cities can get away with charging outrageous amounts of
money and giving mediocre financial aid packages,” Ms. O’Shaughnessy
said. “Students fall in love with these schools, and there are parents
who are willing to sacrifice beyond all rational reasoning.”
But economists are not sure this trade-off is worth it. In two
much-discussed studies
about the value of a degree from an elite college — one with people who
graduated in the 1970s and the other with more recent graduates — Alan
B. Krueger, then an economist at Princeton University, and Stacy Berg
Dale, a senior researcher at Mathematica Policy Research, found that
equally smart students had about the same earnings whether or not they
went to top-tier colleges. The big difference, their studies found, came
from minority and low-income students who went to top-tier colleges:
They did better later on.
Lawrence Katz, a professor of economics at Harvard University, said he
could envision circumstances where there might be a benefit to attending
the more elite institution, but he could see more instances when paying
to go to a large, nonelite university was a waste of money.
“The difference between going to Swarthmore and Penn State is greater
today than it was in 1976 because there are higher returns to all
upper-end skills and connections,” he said. By contrast, a larger,
private, expensive nonelite university was not necessarily better than
“the flagship campus of a top-notch state university.”
For parents willing to pay more for that nonelite, private university,
Professor Katz said they should not think about it as an investment but
as a form of consumption. “If your kid is dead set on it, you can
splurge on it,” he said. “But you should view it like a wedding or a
vacation. There are plenty of things that you can do that make your life
better if you’re upper middle class, and that’s fine.”
This spending becomes problematic, of course, when parents cannot really
afford to pay and, worse, Professor Turner said, when students borrow
heavily without thinking about the kind of life they want after
graduation.
“Am I certain I’m going to end up on Wall Street?” she said. “If you
know that’s what you want to do, borrow and go to N.Y.U. But borrowing
does not make a lot of sense if you want to go to culinary school.”
In most cases, though, the decision is what Professor Turner called, “a
choice under uncertainty”: few high school seniors really know what they
want to do and, by extension, what they will earn.
Parents and their children trying to make the decision now need to be honest with themselves, Ms. O’Shaughnessy said. If they decide to pay more than they can afford for the coming school
year, they need to remember that they’re looking at a four-year expense
and that given increasing tuition, the total cost will be more than four
times the cost of freshman year. “If you have a smart student who can
get into some of these expensive schools, they’ll do well in other
places,” she said.
Parents and students also need to look at the graduation rates of the
colleges they’re considering. While taking on a lot of debt is not good,
taking on a lot of debt and not graduating from college is even worse.
And if the students received any merit scholarships, they should
consider them. They are a sign that a college really wants the student.
For parents who will be in this situation in a few years, you could do
worse than take a page from the playbook of James Montague, director of
guidance and support services at Boston Latin School, the oldest public
school in the United States and one that selects students based on exams
and grades. Mr. Montague said his students, a third of whom are on subsidized lunch
programs, do not often have the options of their peers at wealthy
suburban schools. Their parents are not going to be able to find or
borrow $30,000 a year for four years.
To prevent disappointment — or to force the students who want to be
bakers to go to work on Wall Street to pay back their loans — he said he
encouraged students to apply to at least one state college that would
give them merit aid and to stick to the federally subsidized loan
limits.
“Our students are reasonable about this,” he said, adding, “Our students
are very resilient. They’re going to make it work.”
And ultimately, that will be what determines success long after a college is chosen.
