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

[VectorWega]

When you buy a home, it's all about leveraging, so the bigger the home or mortgage the bigger your chance to make money( or lose money). So the least expensive neighborhoods could be appreciating faster but in term of absolute amount it maybe a lot less. 20% of $100K is $20K. 20% of 1 million is $200K. So the upside potential is a lot higher for a house in the most expensive neighborhood. Now back to the original discussion.

Since when would an investor care more about the absolute dollar amount rather than the rate of return? Yes, if I invest 1 million dollars, I should earn more in absolute terms than if I invested 100,000. However, if the 100k project produces a higher rate of return, I will take that project first. If there are 10 projects valued at 100k, each with a higher rate of return than the 1 million dollar project, I will take each of the 10 smaller projects prior to the 1 million dollar project.

[taxguy]

dt123 notes,"What we never see around here is a post from somebody saying "I paid full tuition at Some Expensive School, and it probably was a waste of money." What we see are self-validating posts saying "We saved and sacrificed, and it was worth every penny." Why is that?"

Response: There are several reasons for this. First, few folks like to admit that they made a mistake. Secondly, misery loves company. By geting more people to subscribe to the "sacrifice mentality at any cost," they feel better about what they did. Finally, and perhaps most importantly, the financial effects of incurring a lot of debt or of spending a lot of money don't manifest immediately . It takes a number of years to realize the true cost. Also, there are obviously folks who really believe that making any sacrifice,what ever the cost, is worth it for their kids. Frankly, I am willing to make sacrifices too BUT NOT at any cost.

Remember one of my posts: The future cost of about $100,000 was 1.5 million dollars. This is one heck of a benefit or loss for retirement;however, it takes approximately 36 years to get this. See my post 84 above for the computation of this.

[BlackTie]

^ On the other hand, if the $100,000 thing is so important to someone, not having children would save whole lot more.

[Dad II]

I think we have been running around with "examples" w/o any real meaning. With an EFC of 0, no one will be able to get $200K loan to attend a school. Also, how many kids would get "full" ride at the better state U? OSU gives out ~20ish full rides a year. In other words, most of the students attend state U at ~$20K.

On the other side, a lot of the "elite" schools meet 100% of your needs, some with more loan than other. For a middle class family with an EFC of ~$25K, you will either pay $20K for state U or $25K for an "elite" U.

We are a typical low middle class family. Based on our very first FA package from a private school, the toal cost to us is our EFC for 4 years + $18K loan (4 year total).

So, more realistically, we are talking about ~$100K with $20K loan at a "top" U vs $70K with 0 loan at state U for most of the middle class people.

[Dad II]

BT, that is a good point. why does one even want to get married? Isn't a wedding very expensive?

[madville]

Homes do not appreciate at a faster rate simply because they are more expensive. (often times, the most rapidly appreciating properties are those that are in the least expensive neighborhoods....neighborhoods that "turn around").

I'm no economist nor realtor, but that must be in your neck of the woods because it certainly doesn't apply in the city where I live!

[mafool]

I think mafool's ratio is the student's personal debt.

Correct. I was writing about the debt that a student takes on, over and above scholarships, financial aid, and the amount the parents will shoulder.

Our son was fortunate to have good choices. One, the instate Flagship, came with a full tuition scholarship. We could have paid for the room, board and other expenses. The other, after FA was factored in, cost 5-6000 more, and we told him he would be responsible for that if he chose to go there. I felt that 5-6000 a year in college debt would be something an engineer graduating form a "name" schools known for its career services would be able to handle, as he is likely to earn 55,0000 or more right out of school.

That was my math. Which, as I said had no basis but my gut! And I would have been far less comfortable with the arrangement if he had been directed toward a less lucrative career.

Since we evidently have some good number crunchers here, I'm curious to learn their reactions.

[VectorWega]

I'm no economist nor realtor, but that must be in your neck of the woods because it certainly doesn't apply in the city where I live!

Well, I am both a realtor® and a real estate investor, and I know that current value/price by itself does not cause increased appreciation. Given that you live in Ohio, I doubt you see a whole lot of appreciation period.

[madville]

Well, I am both a realtor® and a real estate investor, and I know that current value/price by itself does not cause increased appreciation. Given that you live in Ohio, I doubt you see a whole lot of appreciation period.

Price in and of itself no debate here, but typically the homes that are significantly above the median prices here have the variables of being in developed communities and better school districts. Although appreciation has been stunted across the board here more or less, the wealthier neighborhoods still have appreciation that is more significant and or stable than in the less affluent communities. My point being that typically that wealthier homeowner will have a few more chips to leverage in asssiting the kids to a more expensive school than the family living in a more moderate home.

[blossom]

DT123:
"What we never see around here is a post from somebody saying "I paid full tuition at Some Expensive School, and it probably was a waste of money." What we see are self-validating posts saying "We saved and sacrificed, and it was worth every penny." Why is that?"

Probably because the children of parents who save and sacrifice probably walk into whichever college they end up in (regardless of the name, the cost, or the prestige factor) and are determined to make the most of every opportunity which comes their way.

My neighborhood is filled with people who think that anyone who pays full freight is a chump; that you can get just as good an education at the local branch of State U as you can anywhere else, and that a degree is just a piece of paper. I can't argue with them; their kids are either at our State flagship majoring in Frat Pranks and Partying with a senior thesis written in Daytona Beach while on Spring break, or are attending the local U while driving fancy cars to and from the health club or back and forth to some club every weekend.

They are right; their kids will either succeed or fail in life and it will most likely have little to do with their education, the cost of that education, or the prestige of their college.

Meanwhile, there are kids at the local CC whose parents are recent immigrants and who take on 2 and 3 jobs to be able to support the kids in CC; these kids study hard, take advantage of every opportunity, and are working to transfer to a private college after 2 years. I'd bet those kids see the sacrifices Mom and Dad make and are prepared to prove them right.

My own kids? Never took college for granted; never assumed that they were there to get their ticket punched; are working hard and starting to be successful in their chosen fields while being financially independent from us from day one after college graduation.

So yes, we did the right thing by sacrificing and saving to send them to Brand Name U. If we'd had less we'd have sacrificed and saved to send them to lesser name U but have no doubt they'd have worked just as hard. Kids who grow up hearing that college is a big scam and tuition is a waste of hard earned money that could just as well be spent on a ski vacation or at Atlantis for a week in the winter are going to absorb some of that message by the time they get to wherever they are going.

[Bay]

This entire thread is meaningless if you do not subscribe to the "college education as an investment" mantra. For some of us, a college education is not an investment, but a continuation of the process of raising, molding, influencing, etc who your child will be for the rest of his/her life. We do not care how much money we get in return for educating our children. We only care about the person our child will be when the entire process of rearing him/her (including college) is complete.

[i_am_jam]

I understand what you are trying to show by calculating how long it would take to pay back a $150,000 incurred by attending say Yale over a state university, but you must also point out that very few people actually pay the ticket price to any school. In fact, some Ivy League schools have a great financial aid system that cuts out loans under a certain income bracket or cuts out the cost of tuition all together.

According to data from collegedata.com, here is the average indebtedness of students after graduation in 2006. To find these numbers, log in to collegedata, search for desired school, info will be listed on the overview page and under the money matters tab.

Keep in mind these are averages, so many students will be below, but just as many will be above these values. Also, you, as the student attending, and your parents, as the ones who have to pay back these debts, should consider if the benefits of attending your “dream” school outweigh the (now lower) cost of attendance. Also, keep in mind these are statistics from only one source, however, I think they are effective in getting the point across that the cost of attending a dream school is actually much lower than what is being implied by this thread.

Here are the top 25 universities (according to US News Rankings) and their respective average indebtedness:

Princeton – 4,965
Harvard – 9,717
Yale – 13,334
Stanford – 15,758
U Penn – 20,927
Caltech – 5,156
MIT – 17,956
Duke – 23,499
Columbia – 16,080
U Chicago – not reported
Dartmouth – 21,561
WUSTL – not reported
Cornell – 18,938
Brown – 15,940
Northwestern – 18,860
Johns Hopkins – 16,932
Rice – 15,873
Emory – 24,272
Vanderbilt – 19,429
Notre Dame – 26,285
Berkeley – 14,751
Carnegie Mellon – 26,500
U Virginia – 12,726
Georgetown – 24,816
UCLA – 15,996

In order of lowest average debt to highest:
Under 10,000
Princeton – 4,965
Caltech – 5,156
Harvard – 9,717

10,000-15,000
U Virginia – 12,726
Yale – 13,334
Berkeley – 14,751

15,000-20,000
Rice – 15,873
Brown – 15,940
Stanford – 15,758
UCLA – 15,996
Columbia – 16,080
Johns Hopkins – 16,932
MIT – 17,956
Northwestern – 18,860
Cornell – 18,938
Vanderbilt – 19,429

20,000+
U Penn – 20,927
Dartmouth – 21,561
Duke – 23,499
Emory – 24,272
Georgetown – 24,816
Notre Dame – 26,285
Carnegie Mellon – 26,500

A few things I find surprising: Princeton and Caltech's significantly lower numbers than any other schools. I never would have guessed these to be the leaders of the pack. Also, Rice boasts of it's lower tuition (about 6-7 grand lower than the average) yet its spot on this list puts it just about average for top universities.

Perhaps these numbers are not entirely accurate (as I have warned beofre) but they must have some truth to them. The difference between 150,000 and 15,000 is astronomical. That either means a very large proportion of students get free rides and the handful of student who pay the full price bring the debt back up or the debt follows a normal model (which I suspect) and should encourage students to reconsider applying and attending brand name universities over their state U (if that is what they truly dream to do, I'm not knocking a state U, it could be the perfect place for a particular student to thrive).

Is anyone willing to calculate the amount of money needed to pay off these kinds of loans in say 10-15 years?

[Christcorp]

There's definitely many different side topics going on here. For those who think some of us care TOO MUCH about money; no we don't. We're practical. What good is working your fingers to the bone if you can't personally enjoy some of it.

Those who said if money is so important, we shouldn't had kids. Well, that is just plain stupid. "Eventually a dog is going to die; why even have one"? Giving a child everything they want from birth and including their college is a disservice to the children. You need to say no sometimes. You need to set limitations. You need to foster self sufficiency and teach them how to do things for themselves. The who purpose of the "Training" portion of a parent is to someday have that child be able to support and take care of him/her self. Yes, weddings cost money; but you DON'T have to spend $50k on a wedding. You can spend $10K. College costs money; but you don't have to pay $30K a year for it.

Next; the examples given need to be more explicit. To thin that the ACTUAL LOAN TO PRINCETON when the dust settles is going to be about $20K; that's not realistic. The reason is because of 2 reasons. 1st; Most people don't know how to get money for school. We've already seen it here too many times. Most people think that you get money from the college/university. Yes, you can get some, but when you start looking at the HYPS type school, what they give is a lot less. Most people don't know that there's a lot more out there. Here's a good USAtoday article about the issue.

http://www.usatoday.com/money/perfi/...ver-usat_x.htm

Some here are separating the loan of the student and the debt of the parent. You CAN'T do that. Not unless you believe that the parent OWES THEIR CHILD a college education to HYPS. When you say that a family's CONTRIBUTION is $25K; where do you think they are getting the money? You are correct that MOST banks won't give a college student an unsecured loan for that kind of money. But some do. The fact is; the family contribution is ALSO DEBT. Now I do agree that if the family determines that they can afford "X" amount a year for college. (I DON'T CARE WHAT FAFSA SAYS THE CONTRIBUTION SHOULD BE. THAT IS UP TO WHAT THE PARENTS SAY THEY CAN AFFORD); if the difference to the dream school is proportionately very little; e.g. an additional $3-$5k, then it could very well be worth the little extra. Especially if the kid was going to get to part time job to help out. But generally speaking, the family contribution and the final student loan is ALL DEBT. It can't be separated.

As far as trying to say that kids are being taught that the money for college is better spent on vacations and trips; that too is rationalized garbage. Not one person here has said that education is a waste. The difference is; there are a lot of us who have first hand knowledge and experience and say that a degree from Harvard and the debt accompanied by it, is not proportionately a better education that going to State "U". There are times when Harvard is the best education. There are times when Colorado State University is the best education. That has nothing to do with money and is a totally different topic. There are times that if you want the best education in a certain area, that MIT, Harvard, etc... is the place to go. Sometimes, there are times if you want the BEST EDUCATION in a certain area, that Colorado state or Michigan state is the best college. The cost of the college is secondary. Also, what we call substantial debt is relative and subjective to each student. But when we are talking about substantial debt; either for the parent or the student; we aren't talking about a $20K loan upon graduation. We are looking more at a $100,000+ plus debt upon graduation.

P.S. WE HAVEN"T EVEN GOTTEN INTO TALKING THAT MOST PARENTS DON'T HAVE JUST 1 KID. SO MULTIPLY TO DEBT; IF THE PARENT IS EXPECTED TO PAY FOR IT; BY HOW MANY KIDS.

[mafool]

But generally speaking, the family contribution and the final student loan is ALL DEBT. It can't be separated.

I don't understand the basis for this statement. It appears to assume that absolutely no money has been saved for a child's college education and that no lifestyle adjustments are made while tuition bills are coming in. That is not my reality. We didn't save as much as I would have liked, but we did what we could. And we are certainly not making any purchases that are not essential for the duration. All of that was factored into "what we can afford to spend." We are FAR from wealthy, but we, as parents, are not (and I'll say: should not be) taking on personal debt to finance our son's education.

[taxguy]

I_AM_JAM notes," understand what you are trying to show by calculating how long it would take to pay back a $150,000 incurred by attending say Yale over a state university, but you must also point out that very few people actually pay the ticket price to any school"

Also I_AM_JAM cites averate graduation indebtedness for various top schools.

Response: Frankly, if you are not one of the people geting these grants, it doesn't help. My daughter applied to Syracuse univesity School of Visual Communication. Despite Syracuse noting that over 70% of the kids get some form of aid, we not nothing, nada, Zero! They wouldn't even negotiate based on what we got elsewhere. Carnegie Mellon resulted in the same things: Zero aid. Thus, if you are not one of the 70% who gets aid, I can assure you, it doesn't make you feel warm and furry.

As for average indebtedness, IVYs do give decent aid, especially lately if you are NEED BASED. Many other t op provate schools are not as well endowed and don't benefit their incoming students as much as the ivys. Remember, there are only 7 ivys and maybe another 20 well-endowed private schools out of thousands of private schools.