Choosing a College You Can’t Afford
By Joe Messinger, CFP®
March 26, 2020
This title seems to go against everything we share at Capstone. We always talk about the importance of choosing a college you CAN afford. Occasionally though, we come across a case where a family really should choose a college they can’t afford, and we help them make the careful adjustments to make it a reality.
What do we mean? When would you pick a college you can’t afford?
Well, we don’t mean merely choosing an expensive college based solely on name-brand alone. Going to Harvard to obtain an education degree is not worth the investment if you are paying full price (over $73,000 per year in 2019). An elementary teacher’s salary averaging $45,248 will not be enough to justify the cost to attend Harvard and will likely leave a student in massive debt.
You need to understand the payoffs and the benefits of your school choice.
We’ll say it again…don’t be blinded by the name. However, a few expensive colleges may be worth the extra cost depending on the outcome you are seeking. For instance, students interested in working on Wall Street that attend Harvard have a better shot at getting into a very lucrative field because of the connections they form at Harvard and its name recognition in the financial sector.
Engineering students at MIT also will have the potential for a more lucrative path ahead. Bottom line, certain institutions are worth the premium, but you need to do some serious contemplation to make sure you couldn’t receive a similar outcome somewhere else.
What is the desired outcome of a college education?
Answer this question truthfully. If the priority is an education at an expensive college because the career goals are best met by that college, understand you will have to make trade-offs in other areas to make it happen.
Recently, the federal government’s College Scorecard tool incorporated top fields of study at each school along with the median earnings in those degrees one year after graduation. Only data from students who received federal financial aid like student loans or federal grants is included in the calculation–so keep that in mind. The Scorecard can be a tool to get an idea about earnings after graduation from the schools you are interested in.
Think about the value quotient.
Value quotient is when you evaluate the combined effect of the quality and the cost. It is the ratio of a solution’s desired effect (a specific career) to its undesired outcome (the cost). No one can decide for you. Our goal is to make you understand the impact of that decision.
Hope is not a strategy.
Families need to understand that money has to be part of the equation. Parental financial needs (retirement!) must be weighed against a student’s desire. Too often, we see parents steamrolled by their kids into making a poor choice. Have the money conversation with your child. With clarity on the process, you can both be on the same page to make smart choices.
Still going with the expensive college?
We understand. We get it. Your student has been accepted to Harvard. (An amazing accomplishment…over 1,800 valedictorians are turned down by Harvard each year.) Your student wants to be a Wall Street whiz. You have trust that the value of the financial degree will outweigh the cost to you now.
You still need a plan.
We still want to minimize the student loan debt and ensure a comfortable retirement. In the context of a comprehensive financial plan, we sometimes find that parents are in great shape for retirement, but have a big gap when it comes to paying for college.
Most financial advisors would tell you “there is only one way to pay for retirement and lots of ways to pay for college.” We couldn’t agree more. But if helping your kiddos get a great education is paramount, perhaps families can reduce their annual 401k investment and decide to work for a few more years instead of retiring early as they hoped. Understand where you are as a whole, and incorporate the college choice into the larger financial plan.
One last soapbox from us…
If your gifted student was accepted into Harvard, practically every school would love to have your student attend their college instead. And many will have lots of money to offer them. Harvard and other exclusive colleges do not provide merit scholarships. If you earn more than $250,000, you will probably not be eligible for any financial assistance from Harvard. We encourage families to visit the net price calculator on the institution’s website to get an idea of what the out of pocket cost will be to attend.
We hear stories all the time about students who were accepted to those exclusive schools, but chose to attend a state school or less well known private colleges instead because of full ride scholarship offers. (Nice little piece from a student about how he chose Ohio State over Harvard.)
Struggling with the draw of the name brand versus the pull of the more affordable price tag? A great book for you to read is “Where You Go Is Not Who You’ll Be: An Antidote to the College Admissions Mania,” by Frank Bruni.
Ok…off our soapbox.
Have you made your decision?
Originally published 11/2017