This is a guest post from Neal Frankle of Wealth Pilgrim. If you like what you see here, please consider subscribing to his RSS feed.
Have you ever wondered if it makes sense to spend big bucks on an undergraduate education or whether you should at least consider less expensive state schools or online degrees? Some time ago, I read another blogger’s post explaining why college is worth the cost.
The value of education
This particular blogger’s logic was interesting and unique — he calculated the added income received as a result of having a fancy degree versus what the student could have earned with the money in alternative investments. After all, spending money on college is an investment and should be evaluated as such. Right?
He found that you (or your child or grandchild) usually do well by biting the bullet and spending the money. Let’s say, for example, that it costs you $200k to go to college. As a result of attending college, let’s further assume that you earn an additional $25k per year for the rest of your life. He argues that it’s a hands-down smart investment.
A different view
As far as I’m concerned, the foregoing math is right, but the comparison is wrong — or at least incomplete. I do agree that college is an investment. It costs way too much money and takes way too much time to just be considered as an “experience” — or at least that’s how I see it.
You’ll have one set of “experiences” at a prestigious Ivy League school, and a different set of “experiences” at a less expensive state college, and even another if you decide to become a student at one of many smaller graphic design colleges. There’s no way of knowing in advance which will be more important, or which will have a greater positive impact.
No, the way to decide where to do your undergraduate work is to consider the extra income you could produce as a result of going to an expensive school vs. getting the same degree at a less expensive school. That’s it. And when you look at it that way, the result favors spending as little as possible on undergraduate school.
Should you pay more?
Let’s consider the facts:
The most selective — and generally most expensive — schools usually attract the brightest students. And you’d expect those bright kids to excel once they join the workforce no matter where they went to school, right?
So the real question is: Do the bright students who attend top schools earn more over their lifetimes than they would have had they gone to a less prestigious and less expensive school?
Said another way, are your lifetime earnings a result of who you are or where you went to school?
Princeton economist Alan Krueger and Andrew W. Mellon Foundation researcher Stacy Berg Dale tried to answer this question. They looked at students who were smart enough to be accepted at the top schools, but who chose to go to less selective (and lower cost) institutions.
What do you think they learned?
Smart kids who went to the expensive schools were no more successful than similarly qualified students who attended less expensive schools. In other words, the student matters. The school doesn’t.
A real-life example
Not convinced? Here’s a true story from my own neighborhood.
My daughter just graduated high school. Her ultimate goal is to work on the business side of music performance. She was accepted at NYU, Berklee School of Music, and two state colleges. NYU and Berklee both cost north of $55k/year. The state colleges cost 75% less.
A few months ago, my wife was talking with our neighbor about the situation. My wife didn’t know it at the time, but our neighbor’s two sons were recent graduates of the Berklee School of Music.
When my wife told our neighbor about our situation, she immediately asked her two sons (living at home) to come out and speak to my wife. They told her what a great school Berklee was, and how much they regretted going there. Why?
First, each child was now saddled with over $100,000 in debt. They calculated that it would take 7 to 10 years to get out of debt.
Second, while they were both working in the music industry, they were working alongside other recent graduates who attended cheaper state schools. It turned out that they didn’t need the expensive college degree to qualify for the jobs they wanted.
My wife asked the boys which state college the boys’ co-workers attended. The boys told my wife that 5 out of 6 of their co-workers went to one of the state colleges my daughter was accepted to. Where do you think my daughter is going to attend?
Here’s a hint: Go State!
What do you think?
Do you think it’s worth selling a kidney to cover the cost of an undergraduate education? Why or why not?