Thanks for the feedback. I wish these “elite” colleges all the best.
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100% that this is a very personal, family specific decision. That said, I’m going to play a bit of devil’s advocate here…
If your net worth is in the millions, chances are your kids are going to inherit a fairly large amount after you are gone. Why not invest some of that inheritance into their education if Midd is the perfect fit for them? I hear my own parents’ voices in my head saying that education is the best gift you can give to your children.
(Full disclosure to OP who is new here that we were ready to be full pay at private universities for our D but she felt more of a connection to the big flagship schools for engineering.)
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One reason so many families can pay full cost is the stock market has been on a run for a long time so their 529 plans have kept up with costs.
If we have a bear market, you will see a lot more pushback from these donut hole families.
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So I think this question leads to several others.
On the expenses side:
- How can Middlebury and other colleges rein in tuition?
- Are they wasting money on frivolous items that could be cut from their budget
- Could they draw more from their endowment and less from tuition revenue?
- Could they find additional ways to make money through sponsoring auxiliary programs or renting out their facilities?
- Could they fire some faculty and staff or sell off parts of their campus? Do Broadloaf and the summer language institutes cost too much?
On the financial aid side:
- Would it be better to provide less aid to non-wealthy families so that there is less of a gap between what poor, middle-class, upper middle-class, and wealthy families pay?
- What percentage of one’s net worth is an acceptable amount to spend on a BA? Does that vary with wealth?
- If a my net worth is 500K, is it problematic to spend 50K over four years for a degree? If my net worth is 1 million, is it problematic to spend 25K per year on a BA?
I’m hearing some posters argue that it is a personal decision, and I do agree that it is very personal, nevertheless I am still curious what is a reasonable amount of one’s net worth to spend. Is the sticking point that makes the system seem untenable really about percentage of net worth or is it about the overall cost of the degree? For a family with a net worth of 50 million, is a 90K tuition reasonable or is 90K unreasonable under all circumstances, in which case, I think reducing expenses is the only remedy.
DadTwoGirls wrote:
I know a very, very small number of families where spending $400,000 for a bachelor’s degree would be no hardship at all and would leave enough in the bank to pay for both siblings and graduate degrees.
I might be an outlier here, but I think the bar of “no hardship at all” is too high. There is nothing wrong (in my mind) if families experience some hardship or sacrifice in the years that their children are in college. Some consider private colleges to be a luxury good well worth considerable sacrifice. Others consider a BA to be a necessity but they are open to less expensive colleges, thus requiring little or no sacrifice. Perhaps the question should really be how much hardship is a BA worth? What sorts of other things would the family have to give up? In the above situation, I think it is perfectly reasonable to pay for their children’s undergraduate degrees and not their graduate degrees.
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Some “top schools” are free for incomes of $200k or less. When my kids went, it was $65k.
If the goal is an affordable BA, community college followed by state university or college is the cheapest.
For many, Middlebury would be far more than 10% of their income. I would think 10% would be a reasonable expense depending on how many children in the family. going to college at a time . Whether Middlebury is the school depends on a lot of things, but their tuition and other expenses are in line with other schools.
State universities aren’t always cheap either. $35k or so here. Merit aid at a private can sometimes result in less cost, though some state U’s also offer free or lower tuition for merit.
If Middlebury is $90k/year and the OP is discussing 10% of that, then the family income is $900k. I think it is reasonable to pay 10% in that case. That leaves $810k to live on and save.
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I believe OP said 10% of net worth which is a lot different than 10% of income.
According to the 4% rule, If you have a $3 million portfolio, assuming a 60/40 allocation, you can retire on $120k per year. If you spend $400k x 2 for 2 kids and have a $2.2 million portfolio, that number is reduced to $88k. After tax, depending on state income tax, actual spend dollars is probably around $80k (or less).
$80k/yr in retirement is a good number but not what most people consider "wealthy”.
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For what it’s worth, I think the issue at Middlebury like all private, elite colleges is that tuition has gone up faster than wages. 30 years ago, full tuition would have been around 1/4 the price today. A 90th percentile income in the mid 1990s was around $100k. Today a 90th percentile income is around $250k.
So, in the mid 1990s, a 90th percentile income made $100k and spent about $25k on college, so 25% of their income. Today, a 90th percentile income makes around $250k and spends just under $100k on college, so now 40%.
One can argue what a donut hole family is, but to me, this gets to the heart of the feeling that these high income but not 1% or even 5% families face. And I’ll note that if these families still paid 25% of their income to college costs, it would come to about $62.5k, which I think is awfully close to a number that a lot of parents seem comfortable with spending on CC.
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It depends on whether the parents have other financial needs and wants that they plan to use their money for (e.g. their retirement, other kids’ education, medical bills, support for other relatives).
The question of % of net worth that is worth it for a BA is not straightforward. It is super family-specific.
The comment above about 529s keeping up with inflation seems accurate. Families who were able to heavily front-load 529s from birth should be able to full pay undergrad solely from the 529, and possibly even some or all of grad school if it turns out to be in the cards. Of course, what can be afforded out of the 529 now thus depends on how much the family was able and willing to put away 13-18 yrs ago, vs other expenses as well as retirement investment options.
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Many people are skeptical that the market can continue producing these double digit returns. If not, and the economy goes into a recession, schools may miss out on a big chunk of super talented kids whose parents just say no.
IMO, it’ll be the elite school’s detriment to lose these candidates and less selective school’s gain to welcome them into the fold.
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The way I see it, one needs to account for the diminishing marginal utility of wealth across all your financial planning. Long story short, once you have enough financial resources to fund a comfortable but not extravagant middle-class lifestyle for your family, including things like a safe and comfortable home, good basic education, and so on, the evidence from happiness studies and such is that a lot more spending is unlikely to generate a lot more happiness.
OK, so suppose you are fortunate enough to have significantly more financial resources than that. One perfectly viable option is to give a lot to charities and such.
But suppose you also want to upgrade various aspects of your spending from basic/comfortable to “luxury” in some form. You have a lot of options. Business class instead of economy tickets. Nicer restaurants. Nicer cars. A nicer house, maybe even a second “vacation” house. A boat, if you really like lighting money on fire. And so on. Again, realistically you can’t buy your way to a lot more happiness, but if you think some of this sort of thing will add at least some value to your family life, then I don’t think it makes you a bad person to do some of that, and not just give it all to charities.
OK, so then let’s say your best in-state option represents that comfortable level of college education for your kid. I don’t mean to denigrate it as such, like an economy ticket to Europe still gets you to Europe. A Honda Civic still gets you to your job. And some kids might actually prefer the in-state option, in which case it is a non-issue.
But maybe some kids would see Middlebury as the equivalent of a business class ticket to Europe, or a BMW for a commuter car, or whatever. Some people like to tell themselves they can also get to more places, and maybe, but I am generally skeptical about that. But you don’t need to believe that, you can just believe the upgrade will make the journey more enjoyable.
And it is a long one, most of four years of your life, not just a few hours to Europe, or even just a few hours commuting each week.
OK, so if you have the financial resources such that you can comfortably afford all the basic stuff and still have plenty left over, choosing Middlebury over your best in-state option could be a rational choice. Not at all mandatory. But if all you are really doing is spending money that way as opposed to buying more business class tickets, nicer cars, a vacation home, or whatever, then choosing Middlebury for your kid instead of more of that sort of stuff is not inherently a bad idea to me.
It is just choosing a luxury, and if the sticker price seems big, well, it is bundling a lot of experiences together, and so it makes sense buying that big bundle of luxury experiences would be pricey.
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I do think that the colleges use some sophisticated mathematical modeling for pricing.
The big benefit of the 529 of course is the tax-free growth. It seems so much cheaper for a high tax bracket family to pay out of a 529 than either some other (relatively) safe fund or current income.
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Yes but most 529 investments are target date funds. If the market tanks and they have less than expected, some families may push back. If the economy starts faltering and people are concerned about job loss, they may push back.
IMO, the donut hole familes produce a lot of really high achieving kids. For example, 10% of all the NMSF class of 2026 in our state are from our public HS. The majority of these students come from donut hole families.
This is true. I guess I was referring not to donut hole families, though. Donut hole families, as I would define them, would not have enough assets saved, regardless of savings type.
Or, the donut hole family that does have some 529 funds would not have any cushion to absorb a market drop, like you are suggesting.
I vaguely recall a recommendation for 529s to switch from more risky funding options to more stable/safer lower return options as the child nears college age.
Sure, I was just trying to get at the original question: What percent of parents’ net worth is a BA from Middlebury worth? I still wonder if OP’s objection is really about net worth or if they are concerned because they think Middlebury’s tuition is outrageous or overinflated. If the latter, then I wonder if the % of net worth even matters. If you believe that a Middlebury degree is not worth 90K per year or the price is artificially jacked up then it seems to me that it doesn’t really matter whether one’s net worth is 5 million or 50 million. The implication is that Middlebury needs to find a way to charge less.
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So high level, I think most family financial planners would agree that first parents should be maxing out contributions to their tax-advantaged retirement accounts, including because those are typically not assessable in financial aid calculations. Since getting even to those maximums is beyond the means of many families, this makes 529s a moot issue for many families, the sort who will likely be qualifying for aid anyway.
529s come into the picture once you have the willingness and ability to save beyond the contribution limits of your retirement accounts. Typical options for savings at that point include net home equity (including second homes and such), other investment real estate or possibly small businesses, taxable brokerage accounts, and 529s. 529s do tend to be very competitive for educational costs because of the tax savings.
High level, I think this starts fitting into the luxury choice framework I was sketching. If you put a lot of savings into 529s, you are basically pre-choosing to spend on education. If you choose a vacation home, maybe less so (and you can see resentment when colleges treat this as a choice you can undo). Taxable brokerage accounts are by design usable for anything. And so on. Point being it is still a choice of luxuries, but choosing to put a lot into 529s indicates in advance a willingness to choose luxury educations.
As for market events, well, you can manage a 529 to moderate exposure to market events shortly before or during higher education periods. Like we use the PA 529 GSP plan for the terminal phase of our 529s, and that pretty much insulates us from market events, by design.
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Maybe. But many of the elite schools are actually subsidizing even full pay students if one simply takes annual operating expenses divided by number of students and compare to gross COA. It looks like Middlebury is subsidizing full pays.
Middlebury’s financials are a bit more complicated because of the Monterey campus/grad programs (which they are closing for financial reasons.) Middlebury has been communicating they have concerns around their expense structure for a few years, and their endowment is lower on a per student basis than some of their LAC peers as well.
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From Middlebury’s point of view, it would only need to charge less if it had difficulty attracting students at its prices (both list price and FA-discounted prices). Losing the OP’s student may not matter to them if there are others of comparable credentials willing to pay. But less desired colleges are more likely to encounter noticeable resistance to high pricing.
Of course, some parents are willing to pay much more than list price to increase their kids’ chance of admission (donation / development admissions).
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Yes, I am aware that many elite schools are subsidizing everyone. Still my read of the original post is that the poster believes 90K is an outrageous COA (though I don’t know if they meant for Middlebury in specific or for any private college) and that Middlebury could/should find a way to charge less.
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