There’s been a lot of threads discussing the Krueger studies in the past. Krueger’s second study found the earnings advantage disappeared after controlling for where a student applied. Why did he select that as a control variable? This is both a fascinating result, and yet at some level absurd. Why should those rejected by Harvard be more successful those who never applied?
Let’s change the hypothetical slightly. Suppose the parents are full pay and have $300k in the bank. From a purely financial perspective, would the student be better off going to wherever they would get the most merit aid and then having their parents give them the difference in costs as a graduation gift?
@exlibris97 Yes, I’m aware of the benefit (or near requirement) for finance and consulting. That was mentioned earlier and is widely accepted. It’s still not a reason to automatically take on $300,000 plus in debt if someone is full pay but parents can’t/won’t pay. This thread isn’t about whether the cost is worth it but rather whether debt is worth it. I consider those two separate discussions.
Also, outside of investment banking/consulting, other fields aren’t as cut and dry. Prelaw and premed are easy to argue against a high cost undergrad because admission to law and med school is driven by LSAT/MCAT plus GPA. Entering graduate school without debt is also important.
@roethlisburger I’m referring to the second study. The reason to use those who turned down an Ivy is it gives a objective, definable group. Sure, there are students that could have been accepted to Haravard that didn’t apply and others who were equally talented but rejected because of number of highly qualified applicants but that group is difficult to quantify and track.
By using those who turned down admission to an Ivy, you have a definable control group of graduates from other universities to study the effect of an individual’s talents and effort against the name on the diploma.
In this case, I think career goals matter. Investment banking, pay for the Ivy, although a student needs to understand the demands of Wall Street, not just enamored with the pay and glitz. For other majors, taking the merit and gifting all or part of the money should definitely be given strong consideration.
With the generous money that HPY gives, the right financial answer is cut and dry for the low income student, more a toss up for the parent’s paying $15,000-25,000 per year, and strong lean to merit as you approach full pay. Of course full pay parents come in multiple flavors as well. $200k annual income that just missed the cut will need a long time to replenish that $300k in the bank. $400k annual income (and not in NYC/SF etc) can replace that $300k much more rapidly.
Did you read the second study? From the abstract:
Ok…none of us has a crystal ball…and we just can’t predict the future.
$300,000 in debt is $300,000 in debt regardless of the college. It’s a ton debt for undergrad school, in my opinion.
So what happens if:
- The student doesn't actually land a huge high paying job?
- The student (like the OP) wants to go to grad school and needs additional loans?
- Wants to marry someone with the same amount of loan debt?
- Parents can't help the student pay off the loans.
- Student and/or parents have some other financial needs...like maybe someone falls ill, or needs long term care...or whatever?
- Student drops out of college after two...or three years and has already amassed $70,000 a year plus in loans?
Then again…this kid might get a terrific Wall Street job right out of undergrad…and maybe he can share a place in NY with several others to make ends meet…because he has $3000 a month loan payments. Maybe his bonuses will be able to cover the loans…and they will be paid off more quickly…
Maybe maybe maybe.
Which is back to the heart of the thread - the loans don’t make sense. It’s a different debate than whether parent’s should pay $300,000 out of savings or current income.
No, those aren’t separate issues. If an Ivy League education provides a low ROI, it does so whether the education is financed out of loans, savings, current income, or some combination of the above.
I disagree but you are discounting risk. Using debt increases risk substantially. If I pay cash, I give up the opportunity cost of what I would have used that cash for but I don’t risk paying my current bills or transfer that risk to my child. A parent or student taking on debt at any level increases risk on the ROI and the greater the debt, the greater the risk.
There is a reason that there are strict rules for trading on margin.
@roethlisburger: “Why should those rejected by Harvard be more successful those who never applied?”
It’s a measure of ambition and possibly awareness. I can see how those who applied to Ivies/equivalents and were rejected, on average, have more ambition and/or are more aware of opportunities than those who did not apply to Ivies/equivalents and thus the first group makes more later on in life.
"Sportsman88 wrote:
It's a different debate than whether parent's should pay $300,000 out of savings or current income."
"No, those aren’t separate issues. If an Ivy League education provides a low ROI, it does so whether the education is financed out of loans, savings, current income, or some combination of the above. "
On average people who buy insurance lose money on the insurance. People buy insurance anyway in order to avoid catastrophic outcomes. These are separate issues because $300,000 in debt carries a non-negligible probability of a catastrophic outcome.
Of course, spending this much for a Bachelor’s degree might be a bad idea either way.
That’s certainly one possibility. Another possibility is the Harvard rejects or their parents are too clueless about the admissions process to realize they’re not HYP caliber. Another possibility is the people who apply to Harvard RD are those who got rejected by their ED/EA school. Another possibility is the people who don’t apply to Harvard are those who decided Harvard wasn’t financially affordable, or to bring the discussion full circle, not worth the additional cost. Given the trend for students to apply to an increasing number of colleges, I expect Krueger would get different results using recent data.
@roethlisburger: You can expect and conjecture all you want, but the great thing about data is that they can show which conjectures and expectations are more accurate than others.
Once again, the OP hasn’t returned, and the thread devolves into a debate about the “value” (or lack thereof) of an Ivy school education. 8-|
Perhaps, there should be a way for an OP to mark a thread as answered or otherwise indicate they’re done with a thread.
Some OPs do post a wrap up. Others just disappear.
Here’s the thread wrap up:
– OP has disappeared…hopefully he got the idea that borrowing the money for Yale was not the best decision, at least until he had really looked at alternatives, and now he is off in other threads doing that
– Nobody thinks going $300K or more in debt for undergrad is a good thing, though a few think it might be acceptable for those bound to be NY investment bankers.
– There is debate on whether an ivy league education is “worth” the cost, but that debate mostly assumes that you have the money, not that you are borrowing all or most of it. Many people on CC enjoy participating in that debate.
– There is debate on whether an average family making $200K should be able to adjust spending habits to free up $75K/year without borrowing. Mostly, those who make in that range think it is impossible, and others think that it just takes some discipline.
– Everyone was enthusiastic and respectful throughout – which is a good thing!
@NashvilletoTexas , thanks, about this:
“–There is debate on whether an ivy league education is “worth” the cost, but that debate mostly assumes that you have the money, not that you are borrowing all or most of it. Many people on CC enjoy participating in that debate.”
How does everyone think about this? If the families have enough savings and need to pay full price for Ivies/equivalents?
If a family can pay full cost for an Ivy, they would,have NO debt.
If they have the money, but think it’s smarter to borrow $300,000 for undergraduate studies, my answer is the same.
Debt is debt. Don’t do it unless you have to.
I checked the OP’s chance threads and he reports family income as 250K+
I hope that means that the parents have the means to cover some of the tuition out of income, and perhaps his wording misled readers into thinking that the entire cost would be covered by loans. I hope so.
Regardless, to answer @david_p - I would be leery of debt in excess of the maximum for federal student loans (27K more or less). As others have suggested, run some amortization tables for the amount your parents are considering. Calculate the monthly payment and the time necessary to retire the debt. Think long and hard if this sounds like a good idea.
Especially if you’re contemplating law school, undergraduate debt should be kept at the bare minimum.