Dear Liz: This is regarding your advice to the would-be business major who was accepted at her dream college but who wasn’t offered much financial aid. I was dismayed that you suggested trading down without even knowing which college accepted her. If indeed she got into an Ivy League school, she would be crazy to give up the opportunity. If she is capable, she will be earning millions over a 40-year career. The $200,000 cost of her school would be a drop in the bucket compared with that. The top-tier schools in reality provide more opportunities for both graduate school and career advancement. It is all about “option value,” and these schools provide the greatest upside.
Answer: You may be overestimating the value of an Ivy League education. You’re certainly underestimating the risk of shouldering $200,000 in loans for an undergraduate degree.
A study by a Princeton economist found that those who are accepted at Ivy League schools, but who opt to study elsewhere, do just as well in life as those who graduate from top-tier schools.
If she stuck with her dream school, our student would quickly exhaust the low, fixed-rate federal student loans available to her. The maximum she could borrow under federal student loan programs would be $31,000. That means she would need to turn to private student loans, which tend to have variable rates that currently average around 12% and which have no caps.
Using private student loans to finance an education is equivalent to using credit cards — except unlike credit card debt, student loan debt generally can’t be erased in Bankruptcy Court.
A wiser course for this business major might be to find a more affordable undergraduate education and then seek out a brand-name MBA program. The return on that investment probably would be high enough to justify the cost.
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