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TMFBro (< 20)

College is too dang expensive!

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October 05, 2010 – Comments (33)

The Washington Post writes today of a recent study (commissioned by Sallie Mae, not exactly a disinterested party) that finds Americans are struggling to pay for college: "The study, which was conducted by Gallup, found that the percentage of families who planned to make little or no contribution to tuition increased, while the percentage who expected to cover more than half of expenses decreased."

That's not surprising, given the economy and all that. (I was surprised by other findings in the survey, which I'll get to later.) 

But the problem isn't just the economy; the problem is college is too expensive, with tuition rising faster than overall inflation for many years now. Why is it too expensive? Here are my guesses:

1. Parents and their kids believe a college education is essential. This is likely true; as economics professor Todd Gabe said in this CNN/Money article, "There's a very high correlation between earnings and educational attainment." (That article ranks "America's brainiest cities," giving the No. 1 spot to the Washington, D.C., region -- my current home. It might also explain why I left my hometown of Tampa, which is ranked as fourth-least brainy. Go Bucs!)

2. If people believe it's essential, they'll pay any price or take out loans, if those loans are easily available. The cost of college, therefore, is missing some important market-based price controls. 

3. Call me a curmudgeon, but colleges look more and more like country clubs. My daughter is a freshman at my alma mater, and the place has all kinds of amenities it didn't have when I was there: elevators (that talk!), big-screen TVs in dorm common areas, a student union with a Starbucks, and several large workout rooms. Anyone else have that experience? 

Now, here's what surprised me about the study:

"On average, families have saved about $28,000 to pay for college. About 12 percent of that money is in 529 plans, while 14 percent comes from general savings accounts or certificates of deposit. Another 21 percent comes from investments, but the largest portion of that money - 23 percent - is in retirement savings."

The average family has $28K socked away for college? That seems high to me. The study also found that "low-income families saved less money than wealthy households, they still put away an average of $1,788 annually toward college." Am I the only one who finds it hard to believe that low-income families save anything at all for college?

Anyway, let's get to the "financial lesson" portion of the show:  Unless you've over-saved for retirement, resist tapping IRAs and 401(k)s to pay for college. Your kid will be able to get a degree, either by attending less-expensive school (or even community college), scholarships, government programs such as ROTC, or taking out loans (though no loans is much better). However, if you reach your 60s or 70s without enough retirement savings, you won't be able to retire. There's no such thing as a geyser scholarship.

Robert Brokamp, CFP®, is the senior advisor for the Fool's Rule Your Retirement service.

 

33 Comments – Post Your Own

#1) On October 05, 2010 at 11:27 AM, miteycasey (30.51) wrote:

1) supply/demand

2) preceived value.

3) actual value

 

1) I think this is kinda obvous. Like most things in America prices are charged that will be paid. 100k for a piece of paper?  

2) this is tricky in my mind. Kids think they take out 100k loan and think they'll pay it back in 5 years, but they don't realize they are only going to make 30k. We are told an education is the way to riches.

3) This where the rubber meets the road. 100k for German history degree? How about 75k for a Elemetry Ed.?

How about paying 100k for an engineering degree and 80k for a MBA. Pay the price for something that's going to show a return on your investment.

This is where my gripe lies. Like most things in life people let #1 & #2 dictate what they get instead of what they need.

It's like buying a crap stock expecting great returns yet it never goes up instead of investing the same money in a great stock that's going to pay you back multiple times.

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#2) On October 05, 2010 at 11:27 AM, ocsurf (< 20) wrote:

Private universities can keep raising tuition because there is a high-demand to attend these institutions.

Public universities are funded by the state...need I say more?

Population continues to grow and more and more people are going back to school. These schools need to grow in order to service these people and remain competitve. Thus, they need more money.

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#3) On October 05, 2010 at 11:32 AM, mtf00l (45.85) wrote:

College educations aren't what they used to be.  Today most and especially the cheapest are extensions of High School, educating a working class of subjects.

Another "musing" as UltraLong would put it is that Bill Gates and Mark Zuckerberg, both Harvard men, didn't finish college before making their marks.

Where one goes to college may make all the difference in the world and that will come at a lofty price.

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#4) On October 05, 2010 at 11:50 AM, russiangambit (29.30) wrote:

Is getting a degree elsewhere for cheaper (like Europe) an alternative? Or is there and issue with finding a job afterwards? It seems like most colleges differntiate themsleves on their job placement abilities rather than just education as such?

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#5) On October 05, 2010 at 11:51 AM, russiangambit (29.30) wrote:

Another question - is there some sort of statistics on how many actually pay full price vs. how many get scolarships and for how much?

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#6) On October 05, 2010 at 12:12 PM, miteycasey (30.51) wrote:

The National Center for Education Statistics reports that two thirds of all College students have student loan debt after graduation, with an average of $19,237. The median debt load is $17,120; a quarter of undergrads borrow more than $25,000, and a tenth borrow more than $35,000.

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#7) On October 05, 2010 at 12:15 PM, miteycasey (30.51) wrote:

A 96% Success Rate. According to the National Center for Education Statistics at the US Department of Education, only 4% of undergraduate, graduate and professional students receive private sector scholarships, and the average amount received by those students is about $1,600.

 http://www.finaid.org/scholarships/matching.phtml

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#8) On October 05, 2010 at 12:19 PM, outoffocus (23.09) wrote:

College tuition has all the makings of a ridiculous bubble that should be popping soon.

Healthcare on the other hand...

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#9) On October 05, 2010 at 12:41 PM, EnigmaDude (89.37) wrote:

Why not just pay for college with Gold?

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#10) On October 05, 2010 at 12:45 PM, QualityPicks (48.80) wrote:

No, no price controls please! But do start a company, that yearly publishes the average salaries/income of the graduates of a particular school and degree. That way people know exactly how much a degree is worth, and then they can decide for themselves how much to pay for it.

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#11) On October 05, 2010 at 1:10 PM, mtf00l (45.85) wrote:

Here's the top 10;

Top 20 universities in the 2010 THE World University Rankings

2010 rankings[15] University Country

1 Harvard University US

2 California Institute of Technology US

3 Massachusetts Institute of Technology US

4 Stanford University US

5 Princeton University US

6 University of Cambridge UK

6 University of Oxford UK

8 University of California, Berkeley US

9 Imperial College London UK

10 Yale University US

It would appear Cambridge and Oxford are tied for 6th however, they are considered the same institution.

About number 1 see post #3

See the rest of the list here;

http://en.wikipedia.org/wiki/Times_Higher_Education_World_University_Rankings

 

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#12) On October 05, 2010 at 2:02 PM, TMFBro (< 20) wrote:

Just to be clear, I mean price controls imposed by the market -- not government. In other words, the price controls that naturally occur when something becomes too expensive for people to afford.

I wonder if this isn't an example of a well-intentioned government program that in the end achieved the opposite result, or at least mixed results. With the government providing low-rate, subsidized loans, colleges can hike up prices because families will find some way to pay -- either now or in the future.

The same could be said of the mortgage insurance deduction. I sure like the deduction, but it also makes a bigger monthly payment more affordable, possibly driving up home prices. 

I'm sure there are studies out there confirming or contradicting this (written, of course, by people with several degrees!). 

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#13) On October 05, 2010 at 2:14 PM, portefeuille (99.60) wrote:

#11 the top200.

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#14) On October 05, 2010 at 2:22 PM, Mstinterestinman (20.18) wrote:

I am really leaning toward starting my own company seems more and more instead of the student loan debt you might as well be in debt for building assets. I'm a sophmore at a middle tier Public University thankfully since i'm a veteran most of my tuition is covered.

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#15) On October 05, 2010 at 2:32 PM, mtf00l (45.85) wrote:

@portefeuille

That is an awesome list!  After the tenth school it kind of becomes irrelevant, doesn't it? Go large or go home, right?

@Mstinterestinman

You could do worse.  If you choose to go that route, good luck to you and I hope you find great success!

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#16) On October 05, 2010 at 3:37 PM, stockmarket10101 (< 20) wrote:

Check this out: http://www.census.gov/prod/2002pubs/p23-210.pdf

The reality seems to be that, on average, those with a college education earn more than those without one. Does that mean that you cannot be 'successful' without a college degree? Absolutely not. We have many examples of college dropouts that earn a significant amount more moeny than many of you, or I, do or ever will (even compared to college dropouts that have not attended the Harvards of the world). 

However, what people need to realize is that most of us out there are not Gates, Brin, Page, Zuckerberg, etc., but rather are middle-of-the-road people. Based on the Census data I've provided, we would be much better served with attending some sort of college or university. 

For young people out there reading my post, do not frame this discussion in a manner that distorts the realities of life. You are much better served, and will have more options to succeed, by educating yourself and attaining a college degree than if you choose to take the other route.

If you truly are a big shot and have big shot ideas, and if you truly want to roll with the Gates of the world, you'll put your ideas into practice whether or not you attend college. If you do end up going to college and being a big shot, then you will easily be able to payoff your college debt and still live a life of extreme luxury (including private jets, as many cars as you can fit in your oversized garage, a trophy wife, etc.). So, going to college and paying off debt wouldn't have been a big deal for you. If you end up going to college and being upper-middle class or just another average Joe, then, as the data indicates, you're probably better off than if you didn't attend college. So, yes, going to college would have put you in some debt, but it just might be better than the alternative lifestyle you could have had. If you end up not going to college and being totally wrong on your assumptions about how big of a big shot you are, you're going to struggle for the rest of your life. You could still hit it big, but it just isn't very likely. 

Don't live in a fantacy world. Get an education.

 

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#17) On October 05, 2010 at 3:58 PM, russiangambit (29.30) wrote:

> However, what people need to realize is that most of us out there are not Gates, Brin, Page, Zuckerberg, etc., but rather are middle-of-the-road people

I heard someone say that kids who are smart enough to get to Harvard don't need Harvard education. They'll do fine no matter what they do.

It is very true. 

 

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#18) On October 05, 2010 at 4:05 PM, russiangambit (29.30) wrote:

> That is an awesome list!  After the tenth school it kind of becomes irrelevant, doesn't it? Go large or go home, right?

How do French survive with their top school being only #23? These rankings are suspicious. I think what they show is that US colleges excel at marketing, i.e. selling something for higer price that it is really worth.

 

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#19) On October 05, 2010 at 4:21 PM, miteycasey (30.51) wrote:

#12 you mean the government squeezing the middle class? ie. families make too much for wealth based assistence, but not affluent enough for a college education to be pocket change.

 

Another example of institutions taking advantage of government money.

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#20) On October 05, 2010 at 4:59 PM, TMFBro (< 20) wrote:

A sorta/kinda related post on BNET:

"Want the American Dream? Don't Go to College"

http://www.bnet.com/blog/evil-hr-lady/want-the-american-dream-don-8217t-go-to-college/962?promo=713&tag=nl.e713

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#21) On October 05, 2010 at 10:41 PM, TMFRosetint (98.60) wrote:

I have more-or-less decided to stop attending college since I found out the opportunity cost was way too high relative to what I can achieve investing the money that I would otherwise allocate towards college, but that's because I'm fresh off of two multibaggers in as many years. If I don't get the job at the Fool which I applied for, I'll probably try to get a job at the local McDonald's or Wal-Mart instead, live as frugally as possible, and invest the remainder of my income. Based on what I have been able to calculate - what I believe reasonably conservatively - I should still be able to build a substantial amount of capital that way.

If my calculations turn out to be incorrect, I can always go back to school as I have more than enough money to do so, but I'd rather avoid doing that until I am no longer able to find securities trading hands at a substantial discount to their intrinsic value. In the scheme of my life, a few years of experimenting is not going to hurt that much one way or the other.

 In either case, I'd rather live in a manner that I have decided upon instead of just doing the same thing that everyone else is and what others would prefer that I do just because it's the popular thing to do. We only get to live once, unfortunately, and I'd rather live independently and succeed or fail by my own abilities instead of paying tens of thousands of dollars for what often amounts to little more than a union card. Some people may view that as idealistic, naive or lower-case foolish, but I think that the only way to be truly free is for a person to live his life in the manner he desires, the skeptics be damned.

My way of living is not for everyone, but I don't think their way of living is for me, either. So long as we each attempt to live in the manner we find preferable, I don't think there's anything wrong with that.

Best wishes,

Scott

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#22) On October 06, 2010 at 1:07 AM, RonChapmanJr (74.46) wrote:

Not necessarily relevant, but interesting, is that the top tier schools often have the best financial aid.  I finished my undergrad degree at Harvard with ~$9000 in loans.  That degree definitely made financial sense.  Students coming out of less respected schools with more loans are going to be in an extremely tough position.

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#23) On October 06, 2010 at 10:23 AM, mtf00l (45.85) wrote:

@stockmarket10101

As has been pointed out since your post, the opportunity to go to college never goes away unless you choose never to go.  If you have big dreams the time to chase them is when you have the least to lose. Before family, debt and "JOB" lock-in.

@russiangambit

I would be more curious how many French or foriegn students attend those "excel at marketing" schools and go on to better careers in their country of origin or any other country?

@HallShadow

Rock on! If things don't work out, there is always college!

@RonChapmanJr

I would be interested how your Harvard career has benefited you so far. What was your undergrad in and what are you doing with it?

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#24) On October 06, 2010 at 10:37 AM, TMFHockeypop (< 20) wrote:

Call me a curmudgeon, but colleges look more and more like country clubs

1.  You're not a curmudgeon ... you're just OLD ;-)

2.  You can go to college for $1,788 a year.  It's called a COMMUNITY COLLEGE.  If you're successful, or if your persistent and keep trying, you can be successful and get into most every big box university you want. 

 3.  I agree people are foolish to take on HUGE loans unless there is an ROI.  But, education on the whole beats the lack thereof.

4.  People don't need a formal education but they DO need to learn and think.  Of course it can be done outside of college, but the discipline, the time often in adolescence, the measurement of accomplishments, often the "union card" from the degree, all are important.

5.  All things being equal, tell your kids to go to the institution with less fun, more frugal, and without bells and whistles.  Don't you go to Starbucks, buy the latest cellphone, or buy clothes except at Wal-Mart.  We raised 'em.

 Hockeypop

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#25) On October 06, 2010 at 2:49 PM, Goofyhoofy (< 20) wrote:

Couple things. 1) Bringing up Bill Gates or Marc Zuckerberg as examples of what you can do without college is silly. You can find an exception to every rule, but dropping out of college likely ends up worse for most who do it, not better.

2) I worked in the radio industry. I could have had a lot of jobs without a college degree, and lots of my co-workers did. But when it came time to be promoted to a General Manager position, I guarantee it wouldn't have happened without the little piece of paper. My salary doubled, and my potential bonus more than quintupled (and I got it.) Not everybody gets there, and not everybody needs the piece of paper. But without it, there is a 'paper ceiling', with only rare exceptions.

3) Part of what you get at college is 'relationships.' There's a reason people go to Harvard and it isn't just for the teachers. Ever hear "it isn't what you know, it's WHO you know"? That's true at Harvard, obviously, but just as true (just on a different scale) at Penn State, Carnegie Mellon, or USC. People form lifelong friendships, and even give the benefit of the doubt to people from their alma mater 30 years later in life.

4) Stop whining that colleges today have better amenities than when you went. So do corporations. So does your church, probably. Colleges are as competitive as anyone else, and my dad's college didn't have a student union with a soda fountain but mine did. I just went back to mine, 40 years later, and they have an ice cream station and a (non-alcoholic) sports bar. So what?

5) There are other options to high-priced schools, many of which have already been discussed in this thread. If you can't afford a Mercedes you buy a Chevy, or maybe even a Kia. Community colleges abound, and on-line universities exist, too. More education is better. If you don't like the prices, find other prices. Don't throw away the concept of 'education'. That would be a tragic mistake. 

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#26) On October 06, 2010 at 3:26 PM, russiangambit (29.30) wrote:

> @russiangambit

I would be more curious how many French or foriegn students attend those "excel at marketing" schools and go on to better careers in their country of origin or any other country?

Let's put it that way - if I had to pick who to hire a top student from Ecole (#39 actually not #23) or from University of Illinois (#33) or University of North Carolina (#30), I wouldn't hesitate even for 1 sec. These 2 US universities are ranked higer but they simply not even close in reality in the quality of their graduates.

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#27) On October 06, 2010 at 7:47 PM, edbbear (< 20) wrote:

1)  Student loans to literally anybody for very large amounts is the biggest cause of the bubble. 

2)  A putrid economy with few other options means that more students are interested in prolonging reality for 4 years or (much more if they go to grad school). 

It all does depend on the individual.  What do you want to do?  What are your talents?  If you are bright and personable enough you may be able to overcome the debt load. 

3)  If we really are in a depression then even extremely talented people are going to struggle to find work.  Our economy is an absolute disaster. 

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#28) On October 06, 2010 at 8:38 PM, HarryCarysGhost (99.68) wrote:

I can give you the perspective of someone who never went to college.

In hindsight I would say it was a mistake. Don't get me wrong I enjoy my life,and I like my job, but it's not going to make me rich.

Since I'm not counting on Social Security my only hope for a comfortable retirement is through my stocks.

Also, sometimes I'll read a really intelligent article on the Fool, and even though I'd like to chime in I don't, because I know I'd come off sounding stupid.

So if I had to do it over again I would've went to college (and maybe just a little less partying :)

regards.

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#29) On October 07, 2010 at 12:23 PM, geneticbiscuit (98.27) wrote:

#11, 13:

Those rankings highly misrepresent the quality of undergraduate education - 60% of the score is determined based on research (publications and citations) which is perfomed primarily by graduate students, and only 30% based on teaching. 

There are many great small colleges out there that don't make the list simply because they don't receive huge amounts of grant money to have big research programs nor do they have graduate students to do the work...

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#30) On October 07, 2010 at 12:51 PM, mtf00l (45.85) wrote:

@HarryCarysGhost

Unless you are already retired, which based on your Social Security comment you are not, you can still go to college.  Nothing, and I mean nothing is stopping you but you.

That said not all college graduates "make it".  There are no guarantees.

As to the other rebuttal, Bill Gates and Mark Zuckerberg didn't drop out before they made it, they dropped out while they were making it.  As far as who they knew, they knew Harvard people. both men's partners and initial employees came from their friends, fellow Harvard students.

In most cases and jobs the degree from any other than an ivy league school is just a disqualifying tool. Used to reject you if the interviewer doesn't feel you will "fit in".  It will get you into some doors, then it becomes a cost benefit analysis.

Don't get me wrong, I'm not against college, just approach it as you would any other investment.  Think about it.

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#31) On October 07, 2010 at 1:49 PM, TMFBro (< 20) wrote:

"There's no such thing as a geyser scholarship." 

I suppose you were all smart enough to figure out that I meant "geezer" scholarship. Sorry for dashing Old Faithful's dreams unnecessarily. 

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#32) On October 07, 2010 at 7:46 PM, HarryCarysGhost (99.68) wrote:

@mtf001

Your absolutley correct, I could go to college if I wanted to. That was more of a reflecting on what might of been post.

Like I said I like my job and the people I work with so I'm not looking for a career change at this point.

What I have been thinking about doing is taking a few classes in finance, not for a degree, just because I enjoy it. But for sure it would be at a community college. I'm not paying those prices.That's ridiculous what college's are charging.

 And that may help me in my goal of not eating ramen noodles in retirement :)

Cheers.

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#33) On October 09, 2010 at 12:06 AM, TheClub55 (< 20) wrote:

End goverment back student loan program and allow loans to be discharged in bankruptcy... then prices will return to a reasonable level.

Its a simple solution, but the government would rather have dept slaves and overpaid union teachers (who vote).

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