Recently my Alma mater, Pacific Lutheran University was prominently listed in an article in Entrepreneur as the #2 school for the highest paid graduates in the tech industry. Woot Woot! Other universities were more common amongst the tech employers (Microsoft, Google, etc.) but Pacific Lutheran University and Seattle University had the highest paid graduates working in tech. The article did not specify how much more they were paid than graduates from other universities. This may be an instance where the expensive education pays off. I think this is more or of a rarity than the norm. Generally young people going into college have no idea how the tuition differences between one university and another may affect their financial future. That certainly was not on my radar when I was making my college choice.
I chose this private university knowing I wanted a degree in nursing and this school had a fantastic reputation. Did it pay off in the long run? I don’t feel I can make a case that it did. The university may have gotten me in the door to interviews, but that didn’t get me the job, nor did it get me a higher paying job than if I had gone to a state university. Caveat here, a degree in nursing is very different than the tech industry, nurses in Washington State are mostly unionized therefore salaries are set by union contract so there is no room for salary negotiation. I came out of school with $15,000 in student loans, which seems like nothing now compared to what students are coming out of college with these days. At the time it felt like a gigantic amount. My spouse also attended this university and he came out with $20,000 in student loans. Together we had $35,000 in loans. There are amazing nursing programs at state universities that I could have chosen and come out of college with much less debt or possibly even no debt at all.
I do not plan on encouraging my kids to attend a private university unless they are set on a particular career path and the private university has a program in that field of study that will give them an edge in their careers. By this I mean an edge in salary, employ-ability, potential for promotion or some other significant benefit. Otherwise, a state school makes more sense. There were kids who were at the expensive private school and were “exploring and finding themselves”, aka they had no idea what they wanted to do with their lives. That is fine and actually quite a normal young adult attitude, but don’t blow $100,000-$300,000 on a private school education while you are exploring. A student I knew majored in fine art at my university, because they liked art. They had no plan to become a full time artist, and had no long term plan in general. This individual graduated with me and last I heard they were working at a gelatto stand. I bet it is hard to pay off that debt while working a minimum wage job.
If you are considering what college to go to or have kids who are considering private vs public universities, consider the opportunity cost for that extra debt. Is it worth starting your adult life in the hole, with expense that will take you up to 20 years or more to pay off to go to that private school? The dorms and food and teaching are from my perspective, not better than a public school. There may be advantages that are worth the higher tuition, so be clear on what you are spending that extra money for. What potential investment income are you giving up by having to spend your hard earned money to pay off that debt? My student debt payments were about $150 per month. If I had invested that $150 per month in the stock market and had 6% returns, in 20 years the investment would grow to $70,186. I used 20 years as a time frame because that was the typical student loan repayment time period when I graduated. How is it possible that $150 a month invested can end up at $70,186? Compounding interest! The compounding interest data came from moneychimp’s compound interest calculator. You can play around with it by following this link:
Back to the idea of the lost investment income potential. It took my husband and I 2 1/2 years after college to save enough to buy our first house. It took us another 6 years to buy the second house and turn the first into an investment property. If I had chosen a path that had me graduating college with little or no debt, I might have started the path of real estate investing much sooner and would likely be at a place where I could retire early now. Let’s say I only invested that $150 a month for 10 years, using the same formula ($150/month, 6% interest), in 10 years I would have $25, 148, which is a 20% down payment on a $125, 740 property. If I invested the full 20 years, that $70, 186 we looked at above, would be a 20% down payment on a $350, 930 property. None of that investing would be possible if that $150 per month was allocated to paying off student debt.
Young people need to know what the consequences are likely to be for their financial future if they spend huge amounts of money on college. I was given very little information about my student loans, and had no context to make sense of what little information I was given. For example-how much was I likely to have by the end of 4 years if I chose private vs public university? What is a typical monthly payment on that size of student loan? How does that compare to my projected salary in my projected career? How do banks view your debt load (including student loans) when they are deciding whether or not to give you a home loan? What are alternatives for what that money could do for you if invested? We are sending kids in to make the decision about where to go to college (or whether to go to college) with some of the most crucial information missing!
This is a case study in my experience and what I would do differently. I realize that everyone has a different experience, but I hope this gives you some information to think about if you are considering college or have someone in your life who is making the college decision.