Is college the right choice for you? We'll provide guidance on how to make better financial decisions when it comes to going to college.
We’re going to talk about becoming “good with money” today. Which is tricky, because Americans hate talking about money.
Survey after survey shows that we’re more comfortable discussing our marriage problems, mental illness, addiction, race, sex, politics and even religion than we are talking about our finances, causing us to lie to our friends, our children, and even our significant others about our saving and spending habits.
This anxiety only really starts to make sense once you look at the shocking statistics around saving and personal finance in this country.
A staggering 69 percent of us have less than $1,000 in savings in our bank accounts, and 45 percent have nothing saved. Another survey found that up to 78 percent of Americans could be living paycheque to paycheque.
And that’s all data that came out before the COVID shutdown, during which up to 47 million of us have already lost our jobs.
If you’re like most Americans, chances are you don’t have very much saved and that you might not be making very much either.
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Earlier this year, college enrollment experts announced new data that sent chills through the spine of every university president in America.
After growing steadily for years, FAFSA applications plummeted by more than 350,000 students, indicating that hundreds of thousands of middle and low-income families were considering putting off college this year.
Another survey found that up to 40 percent of college students might take a gap year this year.
Can you really blame them?
Deciding whether—and where—to go to college was already a tough decision before COVID hit and sent everyone to Zoom University.
The price of an American college degree has skyrocketed in recent decades, rising eight times faster than wages have since the 1980s and fuelling a national student loan debt crisis.
Today over 44 million Americans hold a total of $1.6 trillion in student debt, roughly the GDP of Russia. Given the sorry state of the American employment market, you can bet that many of those grads are wondering whether it was all worth it.
Should you follow in their footsteps, or is now a good time to re-evaluate your plans for college?
If you’re confused by your options, the first thing you need to know is that you’re not alone.
America’s postsecondary education system is a clusterfuck that makes no sense to the average person.
Much like our healthcare system, there are so many different kinds of postsecondary institutions charging different students different prices for different services—all doing so in slightly different ways in each state—that navigating it all can feel impossible.
In this guide, we’re going to try to untangle that web, explore why tuition has gotten so expensive, and lay out what exactly you can do to avoid making college a financial mistake.
Cost of Attendance (COA) is the number you’re looking for here: it’s the average amount of money a student must spend every year to enroll and complete a year of studies at a postsecondary institution without any financial aid (i.e. grants, scholarships, etc.).
The three largest components of COA are usually tuition and fees, room and board, and course materials and supplies:
This is how much you pay to stay in an on-campus dormitory, residential college or apartment.
Most larger public universities will also publish an estimated cost of living off-campus that takes into account local rent prices (if you’re planning on living off-campus, you’re probably also going to log onto the local rental listings and do your own research).
According to a 2019 report from the College Board, the average annual cost of room and board at a private university is $12,990, while room and board at public universities is $11,510.
These can vary a lot depending on which courses you’re taking, whether you’re willing to hunt around for used textbooks, and how strict your prof is going to be about allowing used textbooks in the course.
The College Board says you should budget $1,240 annually for books and supplies.
Some living expenses that you should be wary of when budgeting your college degree include:
Most guides to saving money in college focus on these expenses—which is fair enough. It can be easy to lose track of your finances when you’re having fun at school.
But if you’re like most students living within their means, living expenses are not the problem when it comes to college affordability. You have to spend a lot of money on living expenses to even touch the largest expense on our list...
Tuition is the total amount you pay for all the course credits you’re taking that semester (Harvard charges an average of $1,492 per course credit, for example, and most Harvard courses are 3-4 credits).
Fees include any dues you owe to your student union, clubs or societies, your student health insurance plan, access to amenities, etc.
According to U.S. News & World Report, students at U.S. colleges and universities will pay the following in tuition and fees in 2020-2021:
Public, out-of-state: $21,184
Public, in-state: $9,687
A private education is expensive, as you might expect.
But going to a public school out of state is more than twice as expensive as staying in-state—why? Because in-state tuition is subsidized by your tax dollars.
It makes sense that a private university education would be expensive—but what’s the deal with those sky-high out-of-state fees?
Isn’t a public education supposed to be affordable?
Well, it used to be. Just 20 years ago, students at public universities paid an average of just $12,000 total for tuition, room and board.
Then at some point, these schools started acting less like public institutions focused on learning and more like businesses.
They did this for three main reasons: cuts to education, the competition for students, and easy student loans.
Before WWII, most Americans didn’t go to college. That was something a select few, usually white, usually male, almost always rich people did.
Then after the war, big public programs like the G.I. Bill, the National Defense Act of 1958 and the Higher Education Act of 1965 made college accessible to millions of Americans.
In a world increasingly defined by science and technology, postsecondary education became a priority for federal and state governments.
A college education slowly transformed from something you were lucky to get to something most Americans were expected to get.
Then, at some point near the end of the 20th century, state governments decided that financing public universities was no longer a priority, and state budgets for universities started to shrink—and then collapsed entirely after the 2008 recession—leaving universities starved for cash.
Then something unusual happened.
Instead of cutting costs or becoming more efficient, universities increased costs in an effort to attract students from out of state and international students, who usually pay triple the tuition that in-state students do.
“Nearly every state shifted the responsibility of funding higher education from the state to students over the last 25 years,” researcher Michael Mitchell, an expert on postsecondary state spending, explained to CNBC last year.
Running a public university became less about educating students in-state than it became about doing well in the rankings, competing with elite institutions, and becoming attractive to students who could pay more.
As universities turned into businesses, they had to start marketing their services, and marketing can get expensive.
Think about how any business tries to win customers. Your rental building might offer you a shared common room, a nice gym, and other amenities. Maybe your job provides you with lunch everyday.
It’s the same with universities, but on a much larger scale. They might try to win your tuition dollars by offering things like:
The value that these things bring to the educational experience is questionable, but they are catnip to visiting parents and high school seniors deciding where to spend their tuition dollars.
How are all these out of state students affording the out of state tuition that pays for all these shiny new stadiums, dorms and dog washing stations?
The answer is: easy loans.
Most universities in the U.S. are tax-exempt nonprofits, which means that it’s relatively easy to borrow money from the federal government to attend them.
It’s gotten so easy these days that consumers will often mistakenly assume private loan providers like Sallie Mae are themselves government-owned.
Because of how relatively easy it is to do, borrowing a bunch of money to attend college feels like a safe thing to do.
So really, the American college system has turned into the perfect financial storm. It’s a system that...
Think about it this way. Would a bank ever give a $100,000 loan to an 18 year old with no job, no down payment, and no credit history? Absolutely NOT. They’d be too risky to lend to, unless they have some type of collateral. (In this case, it’s the government.)
When the COVID shutdown hit, many of the extras we discussed above suddenly went away, and millions of college students had to face the fact that they were paying a lot of money for not that much.
Things probably won’t be as bad when students eventually return to campus, but now is probably a good time to think critically about what all those tuition dollars are getting you.
Let’s start with what your tuition is literally paying for: the course credits that will eventually show up on your transcript that you can then take to other universities and institutions to get a graduate education or a professional degree.
Most well-paying jobs still want to see a Bachelor’s degree on your resume before giving you an interview, so in some sense you’re also paying for that when you pay college tuition: a chance at a decent job.
The problem with looking at your coursework as an investment in this way is that many of these post-college jobs and programs usually have very little to do with your actual college coursework.
(Most law schools will accept Engineering or Science degrees just as easily as they accept prelaw students, for example.)
What you’re actually paying for when you pay tuition—and what your future employers assume your college degree is giving you—is some baseline level of life experience and education that you simply can’t get outside of college.
Does it really though?
It really depends on how you define “education” here.
If you mean training in a specific field, like software development, graphic design or accounting, a college degree might not actually be your best bet.
(Most university computer science departments focus more on theory than they do on teaching you how to code, for example.)
If you mean an old-school liberal arts-style education, where you read a bunch of difficult literature, study philosophy and become a well-rounded renaissance man, a big public research university probably isn’t your best bet either.
Most colleges today offer you something between vocational training and a general education:
For the most part, different people get different things out of a college education.
Coursework might benefit some people, but most of us attend college for much vaguer reasons.
Maybe we see it as a springboard to a career, or we have a vague interest in some field and want to learn more about it.
Maybe we go because we feel like we have to, or simply because we can’t think of anything better to do.
This is where the “life experience” part of college comes in—the part that went away during COVID and that college viewbooks are eager to tell you about.
Student clubs and extracurriculars, social events, a vibrant campus culture—these are all nice things to have at a school, and they can even define your time on campus.
They’re also the hardest part of the college experience to actually quantify and predict before you actually set foot on campus, which again makes them difficult to plan for or think of as an investment.
College allows young individuals to live on their own and grow as a person.
This life experience is important, but at what cost?
Maybe the easiest to quantify part of campus life is the network you build while you’re at college.
Although this is more true for schools where you live on campus than it is for larger commuter schools, alumni networks can play a huge role in your career, helping you secure job opportunities and build lifelong relationships.
Then again, most college alumni will tell you that most of this relationship building doesn’t happen in class.
It happens when you take initiative outside of class—to join clubs and extracurriculars, get involved in campus politics or initiatives, participate in rec sports and social events, etc.
Once again, the thing you’re getting out of college—relationships, valuable alumni connections, opportunities—isn’t exactly what you’re paying for.
As we’ve seen, many of the benefits of attending college don’t have very much to do with the actual coursework you’re paying for.
Could you get just as much life experience and build just as big a network by skipping college altogether?
This became a hot topic of discussion back in 2010 when Silicon Valley entrepreneur Peter Thiel announced a fellowship that would give talented high schoolers and college students $100,000 to drop out of college and start a business.
Given how expensive college is and how little the benefits of a college education actually have to do with your coursework these days, it can be tempting sometimes to look at college as an either-or thing.
Either you believe in the idea of post-secondary education, or you think the traditional college-career path is useless and you're better off just immediately entering the real world.
For most people, however, life is a lot more complicated than that.
Sure, getting a bachelor’s degree from a four year college might not immediately set you up for a lifetime success.
At the same time, so many of the educational and “life experience” aspects of college are intangible. It’s impossible to predict how you might benefit from those things without actually experiencing them yourself first.
Our advice here is: if you’re worried about the time and monetary cost of college, you’re far better of trying to find ways to find a less expensive college education than you are dropping out altogether.
There’s no question that paying full-sticker, out of state tuition is expensive.
At the same time, the post-secondary landscape is very different in all fifty states. Going to college might still be a good idea—even an affordable idea—as long as you’re willing to do a bit of digging and be flexible about your options.
Here are some steps you can take to clarify things and make a better decision about whether, and where, to attend college:
Many of the affordability problems we’ve discussed here come from students paying out of state tuition.
One way to avoid this, and to immediately cut your potential student debt in half (or more) is to stay in state.
By all means, apply to the Stanfords, the Ivy Leagues and small private colleges first—most of these schools have really generous financial aid packages that are worth gunning for.
But if you get turned down by your first choice school and have to decide between staying in state and spending three times the tuition at a slightly more prestigious school elsewhere, resist the temptation and stick with the lower cost option.
It might seem tempting to go to the more recognizable, name-brand school. In fact, you could probably make the case that name brand and prestige is what universities are actually selling you when they charge those exorbitant out of state and international tuition fees.
(Places like New York University, where undergraduates will pay $78,742 for a single year of schooling this year, are infamous for this.)
But even if getting into a prestigious, name-brand school is a priority, you’re almost certainly better off going to a less expensive school first and trying to transfer later (see the 2+2 approach below).
And remember: the difference between your local state school and the out of state school that caught your eye might simply come down to slick marketing.
If you’re undecided about whether college is a good fit, by far one of the best things you can do is speak to someone who’s done it before.
When your local state university sends alumni to your high school, go to those information sections and ask them questions. Tell them about your goals, and ask them about their own experience and what they go out of college.
If your high school doesn’t do college events, try seeking your local college fair. Events organized by National College Fairs can bring together representatives from hundreds of schools.
If your high school has a guidance counselor, take advantage of them. These people help students decide whether they want to go to college for a living, and they probably know better than anyone else what the best options are for a post-secondary education in your state.
One of the easiest ways to save on tuition is to do your first two years of college somewhere inexpensive—like your local state college, or even a community college—and then transfer to a larger institution for the last two years of your bachelors.
America has some truly excellent community and city colleges, and you’d be surprised by how many students successfully use them as a springboard to bigger and better things.
Enrolling in one saves you money, class sizes are usually smaller, and admissions officers at larger universities often look at community college experience as a positive in a transfer application.
If you’re passionate about a career that doesn’t require a bachelor’s degree—like graphic design, software development, cosmetology, or a trade—don’t let peer pressure to go to college be the reason you’re not pursuing it!
In recent years, there’s been a movement in the tech industry to support this type of education. Examples include:
Remember that there’s a whole universe of online courses that can provide you with skills, from learning how to make money from Youtube, to photography, to running a business. (When you evaluate these options, just remember to make sure you’re paying for a skill that will earn you money.)
If you’ve considered all of the above options and are still undecided, there’s no shame in putting the decision off for a year (or more).
Regardless of whether you use it to work and save money for school, travel, or study, gap years are great because they give you perspective.
A lot of the pressure to attend college is social—many of us go simply because other people in our graduating high school class are going.
Stepping out of that environment and taking time to think about what you want could be just what you need to make a clear-headed decision.