It’s not just about market loss, it’s also lower returns. Multiple financial firms have forecasted single digit returns over the next decade.
If you put in $10k per year into your 529 and it’s returning 5% while elite school costs are rising at 5%. After 18 years, you wont be able to afford 4 years of full cost.
That seems right to me.
I note, though, I tend to personally think the opposite, recognizing this is controversial.
[Edit: I see another poster made a similar point while I was writing this, so just consider this reinforcement.]
But Middlebury, to use it as an example, had an operating budget in FY 25 of about $338M, which works out to around $123K per student. This is not even including the use value of things like land, buildings, and so on, beyond the necessary maintenance and depreciation costs.
So basically, even at full pay, you are getting a significantly subsidized experience. Some of that is coming from things like research grants and operating revenues, but a lot is coming from gifts of some form, either for current use or to an endowment fund.
In a way this is sorta crazy. Legally these institutions are operating as a form of charity, but many of the beneficiaries of these charities are kids from wealthy families. Why do people with money to give choose such charities? I’ll tell you that personally I don’t, I think I can do a lot more good giving our charitable contributions to other sorts of institutions. But for whatever reason, some people do, and quite a lot in fact, and so even at full pay these kids from wealthy families are getting charitable support from such donors.
Of course you might still think a Middlebury experience would not be worth $90K per year for your kid. But I don’t think that price is artificially high. I think it is artificially low, in the sense it is being reduced thanks to the charity of others. Crazy as that may be.
Agreed. It’s good Middlebury is looking at their cost structure, as running annual operating deficits isn’t a great business model, even with fairly healthy endowments (not talking about schools with crazy high endowments like HYP which could run large operating deficits forever.) Schools that are running operating deficits are at relatively more risk of market declines not only from the consumer perspective but from hits to their endowments too.
So the way the PA 529 GSP specifically works, your earnings are indexed to full pay tuition costs, and actually if you don’t use the in-state publics, you can just choose whatever index works best for you. So like our S24 is at WashU, but we are using the Ivy League index for him, because that is higher than the non-Ivy private index.
Of course this is limited to PA residents, but these days with things like TIPS rates being positive real, it is reasonable to assume that if you invest in something like TIPS that will likely more or less keep up with college tuitions as well.
Of course the bigger picture here is as much about incomes as about asset returns. In 2025, a top 10% household income in the US was about $251K. Back in 2016, it was about $162K, so about 55% increase in 9 years. Cumulative inflation as measured by CPI over that time is about 34%. So, the top 10% in 2025 had more income in real terms than the top 10% in 2016, and that would particularly translate into more money for what I called “luxury” spending.
OK, so it is been a pretty great period for the top 10% sort of households with kids approaching college age. Solid increases in real incomes, and great asset returns. If they have shifted any 529s or such toward safer things like the PA 529 GSP or TIPS, they are probably pretty much fully funded for privates. But even if they are also cash flowing, well, those higher real incomes support a lot more cash flow.
OK, so back to Middlebury. Looks like in 2016-17, full COA was about $64K. 2025-26, it was about $94K. That’s about a 47% increase, so more than consumer inflation. But not more, actually a bit less, than the 55% increase in top 10% incomes.
Coincidence? I don’t think so.
Good number some places; not so good in others. Property taxes alone….
Yeah, my read on what has been happening since around 2016-17 is that colleges HAVE been experiencing some competitive pressure to moderate costs, not least because of the leveling off of the US college-bound population and how that has helped shift market power back a bit to students/parents. At the extremes this has forced some closures, but other colleges have at least had to restructure operations somewhat, maybe devote more fundraising efforts specifically to student aid, and so on.
This is all good in the sense market capitalism is good–consumers benefit when producers have to compete to be more efficient.
At the same time, though, luxury car brands exist. Luxury hotel brands exist. Competition in such markets doesn’t eliminate the luxury market, just makes luxury goods and services producers more efficient.
Some people of course don’t like talking about colleges in such basic economic terms, but it is what it is. These are private entities and while technically non-profit, they are still competitors in a fundamentally capitalist system.
Again the real oddity is typically there is no one giving charitable money to Ferrari or Four Seasons to make their goods and services less expensive for wealthy kids. But that is an oddity that has proven durable as applied to luxury private colleges, so again it is what it is.
When I looked at their financial statement, salaries are the biggest cost but it doesnt break down between faculty and other salaries.
Are they keeping a financially efficient number of employees outside of faculty?
I note I think this is a big issue when it comes to what sometimes seem like fundamentally very different attitudes toward college costs.
Big picture, housing costs went way up in some US metros, much more so than professional class salaries went up. In other US metros, it was the opposite–professional class salaries went up more than housing costs.
OK, so professionals in the latter sort of metro likely have found it way easier to put money into things like 529s, taxable accounts, and so on, on top of their retirement accounts. Professionals in the former sort of metro may have a lot more in net home equity, but not so much in those other accounts.
Until recently, at least, it was much more the exception than the rule to treat net home equity differently from 529s/taxable. And professional parents who lived in areas where they felt forced to put a lot of their savings into net home equity often protested.
One possible response is this was sort of their choice again–like they could have taken only a small pay cut to live in a much cheaper metro and ended up far ahead in liquid savings. In that sense you could see their choice to live in a highly desirable metro with high housing costs as another luxury choice of sorts.
But people in that situation don’t necessarily love that framing, and it appears at least more colleges are treating net home equity differently, a few entirely excluding it and others limiting its aid impact.
The Four Seasons doesnt charge some people full price and others nothing either. If every one of their students paid full price, would the schools be subsidizing anyone?
I assume the only reason we can even call it subsidizing is because 2/3 of students get some form of aid.
I understand institutional priorities but Im only talking about the financial cost.
Hard to say but when people evaluate colleges these days in my circles, they are certainly looking at things like health services, advising services, safety services, and so on. They are basically expecting high-end service levels across the board, not just in the core teaching positions.
No, at least as I am using the term, ALL of the students are getting subsidies because people are giving money to these institutions and that means they can charge even full pay students less than their share of the costs.
You are right that Ferrari doesn’t have any of this happening at all. But just using the $123K operating budget figure for Middlebury, at $94K full pay that’s like a 24% subsidy, and then it goes up to 100% at a full ride.
Again, it is kinda crazy that the subsidy doesn’t at least go down to 0% for the wealthiest families, but that’s the pricing model that is competitive, and donors keep giving.
The difference in schools’ financial aid ethos is really interesting. We are a middle-income family (at least according to Mwfan1921’s definition above) who did not find Middlebury to be financially accessible. My S25 was offered aid packages at several other NESCAC schools that brought COA to between 35-50k (which we could afford, and he attends one of those schools now). Middlebury (and Tufts, actually) consistently shows our cost to be over $70k on the NPC, so he didn’t apply.
Fwiw, I think it’s defensible for schools to prioritize very high-need families in awarding financial aid–my family could afford to pay the full cost at our state schools & my kid was always going to have fine college options. But we looked at probably 20 SLACs, and Middlebury was uniquely unaffordable for us.
Yes because the cost of the education per student is higher than gross COA. At least that’s how I define ‘subsidizing.’
Can’t comment on details I don’t know BUT if you listen to college administrators talk about costs one of the things they mention is that there are many jobs they must have because of governmental reporting requirements. But again, I don’t know the details on all of that.
Note I did not define middle income…specifically to avoid controversy.
I’m not in a position to do a cost-benefit analysis on a Middlebury education, but quite a few families pay more than 10% of their total wealth for a four year degree at the state schools you seem to prefer.
If the 10% is accurate and your net worth is roughly $4M, the cost of Middlebury is just a fraction of the expected growth in that net wealth each year. Or, it’s possible (probably likely, given your ability to save so far) you could fund a fairly large chunk from income, especially if you paused retirement contributions for a few years. You don’t have to do so but that’s your choice. Different folks will have different opinions on marginal benefits vs marginal costs.
Yeah, right now a very conservative financial portfolio will generate about 4.5% or so of income annually, so around 18% over four years. The idea of giving up over half of that income to a college may not sit great for some, but for someone with that sort of portfolio to begin with, it is not necessarily going to bend their wealth trajectory all that much in the long run. Yes if it lasted a long time, but only four years is not so bad.
Again, though, this is assuming we are looking at 10% of financial net worth. Once you start factoring in things like net home equity, I get that some people are going to see that as crossing a different line.
And none of this means you have to think it is actually a good use of that money. There are plenty of ways some people spend $400K that I would never consider.
This highlights of the reasons why the question of how much of one’s net worth should they spend on college doesn’t really work as a universal question or principal. There are many people in this country who have a negative net worth or one close to zero. The percentage of their net worth that they should spend could be close to or even above 100% to get a great return on investment. Whereas the calculus would likely be very different for OP. Not to mention, the net worth question leaves out important information like annual income, amount of savings earmarked to education (eg 529 balances), consideration of cost of the alternatives in assessing value (assuming the kid will go to college somewhere regardless), and what portion of that net worth is primary residence equity vs other assets. Thus, while the percentage of net worth may be a good question on an individual level, it doesn’t translate well across wealth and income to one where a universal answer would make much sense.
Hotels in general offer numerous different prices for the same room depending on when you book, refundability, affinity discounts, etc.
Their formulas are not based on an individual’s ability to pay. When you book a hotel, they dont use your income and assets to determine your rate.
Not sure if that’s correct. Free upgrades, free nights, etc are usually all about your income and assets.
Usually, the more money you have, the more likely you are to get free nights and upgrades from Four Seasons, and the like.
Im not sure what you mean. Upgrades and free nights are typically earned through stays and loyalty which is based on dollars spent. They dont give you free nights because you’re low income.
A better analogy would be legacies who get in because their families donated millions to the school. That’s not donut hole families.