That’s the first time I heard $300-$500k income families considered a “donut hole” group. I’ve generally heard it refer to middle class or upper middle class type families. That said, such definitions are arbitrary.
As I stated in my previous posts, costs after inflation increased for wealthier families paying sticker price and decreased for typical lower/middle income families. This model has become the norm for high endowment private college, and there has been no shortage of wealthy families that are happy to pay sticker price following this change. If anything demand for selective private colleges has increased more rapidly among wealthy families (including $300k-$500k income group) than other income groups.
I would suggest this is really the heart of things.
For the reasons I have been explaining involving the actual terms of these aid formulas, I am a bit skeptical there are many families who would not qualify for aid and who actually “can’t” pay that much. I am skeptical in fact there are many who would even end up much worse off in terms of net worth after four years, assuming prudent financial management and just a modest amount of the parents watching their spending. I am sure some such cases exist, I just don’t see much reason to believe they are very common.
However, it used to be even easier for the wealthiest families to afford the most expensive colleges. So to the extent some wealthy people don’t like paying more, even if they can afford it, I understand some deciding not to at the higher cost.
One additional thought. Before I explained in Middlebury’s most recent financial statement, FY 2025, they had operating costs per student of about $123K. I just looked it up, and for FY 2016, it was about $109K. So these days $94K gets you a bonus $29K, whereas back then, $64K got you a bonus $45K. And that’s before accounting for inflation.
OK, so that I can see “complaining” about, in an odd sort of way. Full pay students were subsidized by third parties both then and now, but full pay students are not getting as big a subsidy now as they were getting then, at least not at Middlebury.
So if that is the sort of thing making people think it is less worth it now than before, that would be interesting. Of course you would have to check your subsidy rates at the competing options.
If you run the Monte Carlo on total assets, an additional $400k invested, compounded over time can make a substantial difference in retirement scenarios. Not if you have $10 million but if you have a couple of million.
Not to rehash the entire argument on choice. As a percentage of assets, it can be material.
Your tone suggests that it IS your point. Zero out of pocket costs for tuition and room/board at an out of town college is NOT free.
However, we can likely agree that affluent (or almost affluent) kids have many, many choices available to them in life that low income kids do not have. And that the tiny number– in the aggregate– of college-going kids who either want to go to Middlebury but cannot afford it, or who DO end up at Middlebury with financial hardship on their families represent a very small pool of “we need to fix this” problems.
Well, right, it always has an opportunity cost. Money you spend on one thing can’t be spent on other things, including in the form of saving and then buying things later.
But that’s really my point. If you pay $400K for college, it is very true you no longer have that money to pay for something else. Not now, not in the future, you made a choice to spend those financial resources on that particular form of consumption.
But that’s just as true of the money you spend on a $50 bottle of wine. Can’t spend that on anything else either.
I think most of what is happening here is really just that college is a big bundle of stuff so has a big price tag. I mean we are talking about COAs that cover room, board, and most of the activities a kid will be doing for the better part of four years. That’s a big bundle!
And we are actually imagining parents spending similar amounts on themselves annually, each in fact, so it is not like they are unaccustomed to annual living costs at such a scale. And Junior is actually getting an education too!
But because it is all being put on one bill for Junior, I guess it really hits home for them how much they are spending.
But again, if they would rather spend on something (or someone) else, now or in the future, then cool. That’s always true, that if they don’t spend it on college, they can spend it on something else instead. I just don’t know if there is anything else of note going on besides that.
My focus is on these familes that I know. Im just pointing out facts that there’s only a small sub group of people who pay this. Im not even in this group.
Ive never stated that people shouldnt recieve aid. But there are families who have to make choices that others dont and only within that context do I reference the other groups - low income, middle income, and wealthy.
Perhaps at the very heart of it, I see these families have to pay $400k out of pocket and they understand the impact on their finances. There are people who make it sound like it’s nothing and they just need to live a more frugal lifestyle when these people are frugal.
No, it’s not poor and destitute but that’s an entirely different discussion. This discussion is on these families who have to pay these costs and despite what others may think, it’s substantial.
Completely off topic, in addition to us being full pay, we have consistently donated to D24’s college for years (even prior to her attending) , all of which goes to helping kids who cant pay college costs.
The colleges are non-profit, so the additional revenue from endowment returns increasing faster than inflation is going somewhere. A comparison of revenue and expenses is below. I am comparing average of most recent 3 IPEDS years to 10 years earlier, using inflation adjusted $.
Inflation Adjusted Revenue Per Student: 10 Years Ago → Recent
Tuition/Fee/… Revenue: $50k → $46k
Investment Return: $38k → $43k
Private Gifts: $17k → $16k
Inflation Adjusted Expenses Per Student: 10 Years Ago → Recent
Instructional Expense: $27k → $28k
Institutional Support: $15k → $23k
Student Support: $11k → $17k
Academic Support: $12k → $9k
So again in the scenarios we have been playing around with, these barely-full-pay parents could pay what the college is asking for and still be able to spend like twice as much on just themselves as a median household spends on their whole family. I think if we worked out a total financial model for these parents with reasonable consumption smoothing, it would actually be even higher than that.
I am not saying these parents are necessarily not “frugal” in spirit. On the other hand, I am not sure there is a lot of frugality as ordinary households would understand that term when your budget is that high.
I do think there is one major possible exception to that claim, and it involves housing in VHCOL areas. I am aware that some high income people can pay quite a bit to live in what would count as quite modest homes in most metros, let alone outside of metros. So to the extent they are using up a bunch of that above-median budget on what is really a median-style house by standards of people outside VHCOL areas, that may feel like frugality to them.
Still, usually that is in fact in part savings they can tap with loans.
And at a high level, VHCOL areas are VHCOL because they are very desirable to people, and so in some sense choosing to live in such an area is another type of luxury choice, where the luxury value in question is locational.
I am going to suggest what your numbers are basically suggesting is that at least over the last 10 years, what is happening is that increasing investment returns are mostly being used to make things less expensive for lower income students specifically. I’d also be interested to know more about that switch between academic support and student support, and I would not be surprised if that was also on net to the benefit of lower income students.
Which I have zero problem with, personally. Indeed, I know over this period there has been a lot of public pressure on these colleges to do exactly that, and I agree with that pressure.
Absolutely, and in fact in a much more sophisticated version of all this, I would be suggesting full-pay families may not only be grabbing those easily quantified subsidies, but also various hard to monetize but still quite important networking benefits. In fact, I would suggest those subsidies are explainable in part because they are themselves contributing to those networking benefits. Like collectively they are the sorts of families other students, and for that matter faculty, alums, donors, and so on, want opportunities to network with.
OK, so to the extent this actually was a forced choice (and I am still not so sure it is, but let’s go with it), maybe you can choose to spend more on networking by using your financial resources on housing in a VHCOL metro, or more on networking by using your financial resources on a VHCOA college.
And I truly am open-minded to there being no obvious right or wrong choice, and indeed different choices could obviously make the most sense for different families.
But in what world does a family HAVE TO PAY $400K out of pocket? In a world where there are 50 flagship universities, most states have branches of the flagships and a network of directional state U’s, and the “Middlebury-achiever” student is likely to get a substantial merit award at a public OR private college a skootch below Middlebury in the rankings?
Are there really people who believe they HAVE to pay $400K? Especially the frugal ones who have the money but it would dent their lives? I don’t know anyone like that. I know the kids from families with lots of children who are heading off to colleges in a different region of the country because the price tag worked. I know the families where the kid makes it into the Honors College of the flagship and it’s like they’ve won the lottery. And the families where the kid lives at home and commutes– usually not to the first choice (and ultimately “too much money”) college but an acceptable alternative. Kid decides that no loans and living at home is preferable to taking out loans and living in a dorm- a perfectly logical choice for some kids. And a few brave souls heading overseas….
Who are these people you mention and why on earth do they think they need to pay $400K?
I am going to suggest again a lot of it is basically this is many, many private swim class decisions hitting all at once.
I once started trying to back-of-the-envelope how much our kids had cost us just getting them through HS, and I quickly stopped because that was not going to be a number anyone really wanted to know. Of course we spend more on our kids than many parents, but kids in general are just expensive, and these days don’t stick around to work on the farm for free.
This is in fact a top explanation of why fertility rates tend to crash in economically developed/urbanized areas. Too expensive, no real payback.
That doesn’t mean I regret having not just one but two of these massive cost sinks. But it is never going to make financial sense.
OK, so again I really feel like part of the issue is you get like a $45K bill for one term, and are thinking, damn, that is a LOT of money! Money I will not have for my own retirement, or whatever.
And of course that is in fact more than many people should pay, but many get aid. And for those who don’t, I again think the math works out to be not that inconsistent with the levels of personal consumption you are planning anyway.
So that is about 14,000 for 4 years, which could be 10% of some family’s net worth, particularly if they don’t own a home. So for them, theoretically you should pose the same question, is it worth spending 10% of a parent’s net worth on a BA from Harvard?
More realistically, the $3500 that is a minimum at Harvard is the expected student contribution through work study or other term-time employment. The parents are not necessarily paying those costs, but that is true at other places as well. Students can always contribute to the cost of attendance through summer and school year employment as well as student loans.
Harvard’s calc returns $0 cost to parents with low income/assets. The $3,500 is fulfilled by student work. This differs from Middlebury’s calc, which does not return $0 cost to parents. Middlebury’s minimum for low income/assets is $3.6k cost to parents/student beyond student work. Middlebury increases cost beyond this as income increases to middle class or assets become significant. Specific numbers have been referenced earlier in this thread and are summarized below… well above $0 for many lower/middle income families.
Average “net billed costs” by income level are below, as listed on Middlebury’s website. The website mentioned 100% of families in these income groups qualified for grant aid.
$30k to $50k – $8k
$50k to $80k – $14k
$80k to $120k – $18k
Quite a few selective private colleges offer more generous FA than Harvard’s current NPC. Harvard seems to have reduced FA recently, perhaps due to conflicts with fed and related budget deficits. Nevertheless, I’ll use Harvard as an example since it was mentioned. For the same income groups, Harvard returns the following, assuming non-retirement savings/assets of 2-3x income (2x for $40k income, 3x for $100k income) and no other kids in college.
$40k – $0k cost to parents, $3.5k work
$65k – $4k cost to parents, $3.5k work
$100k – $16k cost to parents, $3.5k work