How Important Is The Sticker Price?

A couple of interesting items have come up in the past few days on the cost of college as well as the pay off that college provides to its graduates. The Associated Press revealed the results of a report by the Sallie Mae foundation, which showed that when looking for a college, 40 percent of families don’t limit their school searches based on cost. As the article points out, consumers often let cost dictate where we go looking for a car or a house, but this consideration doesn’t necessarily come into play when choosing a university. While someone who can’t afford to buy a Mercedes isn’t likely to go test drive one, students and families seem prone to do so when seeking the higher education equivalent of a Mercedes. And some buy. To paraphrase the report, middle-class students said that they attend private four-year universities at the same rate as more affluent students. But studies done here at Public Agenda suggest that not everyone is willing or able to spend beyond their means. In our report “Life After High School: Young People Talk About Their Hopes and Prospects” nearly six in 10 black and Hispanic students said that they would have chosen a different school if money weren’t an issue. This suggests minorities are unwilling to spend beyond their means or at the least are trading down. But is this a good idea?

An article published in Business Week Online suggests that the price you pay at the door is only part of the equation. Perhaps families are wise to ignore cost especially if their child can get into a school with a prestigious reputation. After all, the better the reputation, the more you stand to make. According to data from PayScale.com, top earners from the Ivy Leagues can bring home $326,000 a year, compared to top earners from a respectable public university who make around $124,000. Clearly that extra cash would be helpful in wiping out those student loan debts, assuming the student becomes a top earner. Career also matters, of course. Many positions pay more than others, so this too should be taken into account, but don’t limit your thinking to those careers that pay the most right out of college. Business Week reveals that those with liberal arts degrees such as economics and finance have higher salaries over the long run than those with technical skills. The mathematically capable student who chooses to pursue his passion for history may be making the financially sound choice. According to the article, parents should also consider the leadership potential of their children before settling on how much to spend, as those who end up in management positions take home the largest paycheck.

Regardless of what the right amount of debt may be for a given family or career path, Time magazine reports on the absolute wrong way to pay for it. According to another Sallie Mae report, one in five parents and about a quarter of students charge tuition expenses to a credit card. Parents and students almost unanimously understand that they will be stuck with high interest rates, but upon examining the report (available here), almost half of all credit card use was for emergency costs. So, to a certain degree, people understand the dangers of using credit cards in college but they may often feel their hand is forced. Ideally, it will all be water under the bridge by the time they’ve reached that top paying management position.