The “Price” You Pay for College
College graduate holding diploma
Do you have young folks in your life who might go to college one day? I highly recommend a book called “The Price You Pay For College” by Ron Lieber, a New York Times journalist. Read on for some highlights.
What was college like for you?
Did you go to college? Looking back on that time, with the years of life experience you have now, what stands out in your mind about your college days?
Regardless of whether you attended or graduated from college, how do you feel about the educational path you took?
What do you hope for the educational experience of the children in your lives?
My niece headed off to her first year of college last fall. She was very engaged and excited about the process, and I got to hear first-hand as she toured schools, completed applications, and made decisions. It made me reflect on my own college experience.
Personally, I attended a college that turned out not to be the best fit for me either socially or academically. I received academic scholarships that covered much of the cost so financially it seemed like a good choice. But I’m pretty sure that if some of my classmates remember me at all, it was due to my shaved head and brightly colored peasant skirts, and not for any significant impact I made on their college experience. I had an amazing sociology professor, and an inspiring English professor whose lessons stay with me today and still strongly influence how I see the world and how I communicate.
It’s clear that the college experience changes us in some formative way. Not only the education itself, but the choices we make as young adults on our own for the first time.
The Purpose Of College
There’s a fantastic book called “The Price You Pay for College” that I highly recommend to anyone who has a loved one in their lives preparing for college. It’s not too early to read this book, even for those of you with pre-teens!
Ron Lieber, the author of “The Price You Pay for College”, frames the purpose of college in three areas:
Mind blown and grown – new experiences, opportunity for learning new things
Finding your people – kinship, finding the people who may relate to you in a different way than those kids from high school who may only have had their location in common with you
Getting a job – according to ssa.gov research, men with college degrees “earn approximately $900,000 more in median lifetime earnings than high school graduates”, while women with college degrees earn approximately $630,000 more than high school graduates
If I think about my own college experience in the frame of each of these above areas, I am neutral in the first area of “mind blown and grown” – my college felt like attending a suburban high school, but there were a few standout professors and classes. In the second area of “kinship”, I still have a couple close friends from college, but while I was in school it was clear that my path was different from most students, so I have to say that area was probably a fail. Regarding the “getting a job” aspect, I have had success there, and I believe this is due in part to my college experience – my double majors in Sociology and English have served me well in every job and career I’ve had, including my favorite job of being a financial planner and running my own business.
How would you say your college experience measured up in these three areas?
When you’re talking with a young person about what to look for in a college, these three factors can offer perspective on what might be the biggest decision a young person has ever made. It’s probably a more helpful framework than the simplistic categories of “party school”, “Big 10 school” or “Ivy League”.
Paying for College
USA Today created these charts in 2023 that show the cost of one year of tuition and fees at colleges, based on whether they are private, public out of state, or public in state. Notice this doesn’t include the cost of room and board. Tuition and fees range from $10,000 to over $42,000 for one year!
Ron Lieber proposes a framework for how to pay for college, using a model of thirds, and assuming you have a few years to prepare. If you need $100,000 to pay for college (assuming state school type costs of $25,000 per year for four years):
one-third or $33,000 paid from income, including expectations that the student works part time and summer jobs
one-third paid from savings
one-third paid from loans, both student federal government loans and parent plus or other parent-derived loans
In this framework, your annual income would be able to afford an annual cost of about $8,250 ($33,000/4 years=$8,250). If your income and family budget doesn’t make this possible, are there changes you can make now to prepare? Ideas could include family budgeting, getting extra income through side gigs or a better paying job; your child working through the summer and part time while in school.
To cover the savings requirement in the above framework, you’d need about $33,000 accumulated in savings for college. If you saved $150 per month starting at your child’s age 1, assuming an 8% investment return and 3% inflation rate, you could have the savings needed. Or, you could save $333 per month for 8 years if you started at your child’s age 10.
Keep in mind these examples are for illustration purposes only. Check your state’s university tuition and room and board costs, as prices vary widely across the country. And as always, talk with your financial advisor about your personal situation.
Student Loans
There are different types of loans available to fund college, and each comes with different terms – who is offering the loan; who is responsible for paying back the loan; the length of payback period; interest rate; and monthly payments.
Read more here about federal government-sponsored loans. Dependent students can receive up to $5,500 in unsubsidized loans for college in their first undergraduate year. The total amount over four years that the student can borrow from the federal government is $27,000. The student can qualify for subsidized loans if their family income is low enough, otherwise they will receive unsubsidized loans. This is usually the first type of loan to consider, since the interest rates and payback terms are among the best available. Plus, these loans may qualify for federal student loan forgiveness programs.
Students may also receive private student loans, where the student borrows from a credit union, bank or Sallie Mae. These loans are usually co-signed by the parent which means the parent is also responsible for paying back the loan.
Next are parent plus loans, where the parent is the borrower. These loans are federally sponsored education loans, but have terms based on the credit qualification of the parent.
There may be other sources that parents can use to access personal loans not specifically for college. This includes home equity loans, 401k loans, or other personal loans through a bank. These loans are not federally sponsored, and depend on the assets and credit score of the parent. Their interest rates and repayment terms are typically not as beneficial as federal student loans.
Talking to Students About College
Ron Lieber offers recommendations about how to talk to students about college. The bottom line recommendation: early and often.
Start with a savings account in the student’s name. He mentions that kids are 6x more likely to hit their goal if they have a savings account. He recommends telling your kids that you are working on a goal for college, and that you expect them to help fulfill that goal.
When students start looking at colleges, let them know the amount they can expect you to contribute, and talk about any shortfalls and how to overcome them.
Get the student involved in making responsible and realistic choices, knowing that every family’s circumstances are different.
Lieber suggests that leaving home for college is not some kind of entitlement. Instead, schools like to see engagement and effort, and so do parents! If the student participates in activities and puts forth effort in school, that can literally pay off in terms of merit aid that can make the college of their choice more affordable. Which means the student has more options. Parents should decide how to approach this topic with their student.
One way to get more financial support for college is through merit-based aid that rewards students with good grades, good test scores, or good athletics/extra curriculars. But for students who are already motivated and focused, letting students know about this type of aid may add undue pressure. For students who aren’t working that hard, maybe telling them about the benefits of merit-based aid might motivate them to do better. There can be a significant financial difference in merit-based aid between a 3.6 and 3.8 GPA, for example.
There is so much more good information in the book. From Lieber’s view, it’s clear that the “price” you pay for college is not only a financial price. Emotional, educational, and social aspects, as well as long-term future outcomes, should be considered in that “price”.
