The following is a contribution from a loyal DumbAgent fan. We are happy to feature it, not least because it ties to (and expands upon) our article on where Higher Education is headed. We have left the footnotes in, referring to his sources for dollar amounts, and while this article was not written by anyone at Dumbagent, we must say we agree with his points 100%. So enjoy:
Rich and Diane are very, very proud parents. Their three wonderful children had taken to heart their persistent reminders that nothing was more important than to do well in school, and were accepted into Cornell, Stanford, and Penn, respectively. With corporate boardrooms and the upper echelons of government from the President on down filled with Ivy League alumni, it was clear that in this day in age, a college education was no longer the catalyst for the American Dream—that required an elite education. (1). So there was no question that all three children would attend their respective universities, no matter what the cost.
And the cost was shockingly high, enough to cast a cloud of apprehension on the parents’ pride. Together, they earned $50,233 per year, a mirror image of the median household income and as middle as middle class could be. (2). They were therefore surprised that their annual gross earnings could not accommodate even a single year at any of their children’s’ universities. Once housing, food, and books were included along with tuition, one year at Cornell would cost $54,676. (3). One year at Stanford would cost $ 54,900. (4). And one year at Penn would cost $55,250. (5). In sum, to ensure that all three of their children obtained their elite Bachelor’s Degrees, the proud parents would have to spend no less than $ 659,304! And that was the minimum: in the 21st Century, it would not be surprising if one or more of the children decided to pursue post-graduate education, which, using the average cost per child per year, could raise the total to a range between $714,246 (one child completes an accelerated Masters program) and a staggering $1,318,608 (three children go to med school). Once taxes, pensions, and the general costs of supporting themselves and three children were taken into consideration, the proud parents’ college savings inevitably fell far below the university estimates. Who has this kind of money just lying around, the proud parents wondered, that they could simply write a university a check? They guessed only the obscenely wealthy, and they guessed right. Consequently, the proud parents lamented that we had come full circle: after opening the Ivory Tower’s doors wider than they’ve ever been in the twentieth century, college is again a pastime reserved for ultra-rich elites, as it was at our nation’s founding.
The proud parents’ neighbor disagreed, claiming, “college never has been more accessible.” And certainly, the neighbor was right. Yet the proud parents knew better. They understood that this enhanced access was made possible primarily by student loans. These lump-sum checks can seem quite appealing when they’re issued. The problem comes later, when graduates realize that, while the United States government has promoted college to the extent that a degree is now necessary to get a job stocking shelves at Home Depot, it has not really done much to make it affordable. Federally “subsidized” loans carry interest rates up to 6.8%. (6). And even then, they cap out at $18,500 per year, less than half the estimates given to our proud parents. (7). The rest must be funded with private loans, which commonly carry interest rates reaching 11.35%. (8). The result is mortgage-like debt on credit-card-like payment terms. Using a simplified but realistic example, assume that the proud parents saved enough to cover a third of each child’s education; the children must borrow the rest. Assuming further that they decline to pursue graduate education, each child, on average, will personally be on the hook for between $223,428.82 (standard plan) and $371.114.79 (extended plan). (9). Not something the proud parents want to leave their children with, especially considering that a college degree doesn’t buy what it did during the Greatest Generation. A cheaper education is an alternative, but not a plausible one for proud parents who want their children to reach the stars. Accordingly, the proud parents stand by their earlier lamentable conclusion, with two qualifications: to (I) provide your children to best education possible; and (II) do so without saddling them with debt that will haunt them until their own retirements, then yes, you have to be part of the millionaire elite. Way to invest in your future, America. Congratulations.
The author is well aware that the provided calculations—accomplished using simple arithmetic—omit myriad complexities, such as cost fluctuations, interest variables, and self-sufficiency. Nevertheless, the simplified calculations do the issue justice.
(1)http://www.theamericanscholar.org/the-disadvantages-of-an-elite-education/
(2)http://www.census.gov/compendia/statab/2010/tables/10s0675.pdf
(3)https://www.finaid.cornell.edu/costs/
(4)http://www.stanford.edu/dept/finaid/undergrad/how/calculator/input.html
(5)http://www.sfs.upenn.edu/paying/undergraduate-expense-budget.htm
(6)http://www.direct.ed.gov/calc.html
(7)http://studentaid.ed.gov/students/attachments/siteresources/At_a_Glance8.pdf
(8)https://www.studentloan.com/studentloans/genericAPRExamples/GenericAPRExamplesView.do
(9)http://www.finaid.org/calculators/scripts/loanpayments.cgi
