It's an exciting time for high school seniors. Soon, the college-bound will be reaching into their mailboxes, hoping to pull out an acceptance letter from the schools of their choice.
Oh, the anticipation... the excitement... the thousands of dollars about to be borrowed.
Yes, going to college is an exciting experience, but it's also an expensive experience. To cover those expenses, many 18-year-olds will have to take on huge debts before they've even begun their careers.
Blame the continually rising price of tuition, and the American willingness to pay for it, no matter what.
Late last year, the College Board (known mostly for administering the SAT) announced that the average annual tuition at a four-year public institution for the 2002-2003 academic year rose to $4,081, a 9.8% jump in one year. The cost of tuition at a four-year private institution rose to $18,273, a 5.8% hike. Tack on another $6,000 to $8,000 annually for fees and room and board.
On top of those increases, many schools hiked their tuition in between semesters. The biggest culprit is the budget crunch faced by most states. They've had to cut the amount they can devote to higher education, passing the shortfall on to students in the form of higher tuition.
For the majority of students, higher tuition means more debt.
According to "Student Loan Debt Is a Ball and Chain for Many Graduates," a report from the States Public Interest Research Groups (an alliance of state-based public-interest advocates), 64% of students must borrow money to attend college, with the average loan weighing in at $16,928 -- a figure that has doubled over the past decade. For 39% of borrowers, school loan debt consumes more than 8% of their incomes, an amount deemed "unmanageable" by the loan industry.
Now, we're not suggesting that kids shouldn't go to college. The average college grad makes 80% more than the average high school grad, which adds up to $1,000,000 more in income over a lifetime. And an education means far more than a better salary. How can you assign a dollar amount to the broadened intellect, heightened curiosity, expanded opportunities, sharper communication skills, and body piercings that might result from attending an institution of higher education?
So, if a borrowing money is the only way to go to college, then in most cases, it's a worthwhile investment. But, if there's a choice between two or more schools, and one of the differences between attending one over another is having to borrow thousands of dollars, families should strongly consider whether the debt-laden degree is the right choice.
As mentioned in a previous article on whether a high-priced college is worth the price of admission, opinions are mixed about whether a big-name, big-ticket education directly results in a big-ticket income. Surely, an Ivy League name at the top of a résumé can only help. But if you were (or are) an employer, on what would you base your hiring decisions? Chances are, a person's experience and interviewing skills will play a bigger role than where that person went to college.
Also, when it comes to income, most jobs pay within a narrow range; even if an employer did want to pay more for an Ivy League graduate, there's only so much the boss could offer. A teacher with a degree from Harvard will not earn five to 10 times more than a teacher with a degree from a state school, even though the degree cost five to 10 times more.
This all assumes that the quality of education at schools doesn't vary as much as the price, and that's certainly not true. That's where the real cost-benefit analysis comes in. As one reader wrote:
I'm quite sure I'll never recover (financially) the difference between my MIT education and the one that I could have gotten from my local state school, but I don't regret it for a moment. My immersion in that environment is a large part of who I am today, 15 years later. I consider the investment worthwhile; life is a one-shot deal, and regrets are often more expensive than financial liabilities.
Indeed, a college education is about more than money. If you decide to take on larger loans in order to attend the school of your choice, we won't argue with you. Just make sure you're making the decision with your eyes wide open.
Finally, if money must be borrowed, the student should take out the loan, not the parents. Why? Because the loans offered to students (Stafford, Perkins) have lower interest rates and more deferment options than those available to parents. It's also possible the student will take a job with an employer that will pay off the loan. And a student is more likely to be able to deduct the loan interest from his taxable income.
For more about the costs of college, check out The Motley Fool's Guide to Paying for School: How to Cover Education Costs From K to Ph.D.
Robert Brokamp is a co-author of The Motley Fool Personal Finance Workbook.