Don’t buy an education you can’t afford

Dear Liz: Please make me feel like I’m doing the right thing. My daughter happens to be very talented academically and athletically. She will graduate from one of the best prep schools in the country. She also plays ice hockey and is being recruited by some of the best schools. However, we are of middle-class means. We were given outstanding aid from her prep school, which made it very affordable. The net price calculators of the colleges recruiting her indicate we won’t get nearly the same level of support.

We have a lot of equity in our home and about $25,000 total in college funds for both of our children (we also have a son in 9th grade). We make about $185,000 as a family and pay about 12% to mandatory retirement and healthcare accounts. I’m hoping by some magical formula we can beat the “calculator” but I’m not so confident. So please tell me that paying for an elite education is worth our sacrifices. Our daughter has worked very hard to put herself in a position to gain entry into these schools, but I just need an expert to make me feel better.

Answer: An expert who makes you feel better about buying an education you can’t afford isn’t doing you any favors.

So let’s do a reality check. The amount you have saved for both your children would pay for a little more than one semester at most elite schools, which run around $60,000 a year these days. If she finishes in four years, that’s a price tag of about a quarter of a million dollars.

Of course, most college students don’t pay the sticker price for college. They get some kind of help. You, however, can’t expect much of that help, since you’re really not “of middle-class means.” At your current income, you make more money than about 95% of American households. Financial aid formulas don’t particularly care that you may live in an expensive area or that you prioritized spending over saving, only realizing too late that you can’t afford the schools your daughter wants to attend.

The exceptions may be Ivy League schools, many of which have committed to capping tuition costs even for upper-income families. If your daughter gets into one of those schools, she may have a shot at an affordable education.

Other schools may be willing to give her “merit aid” to induce her to attend, especially if she’s an outstanding hockey player and they want outstanding hockey players. But you’ll still be left with a sizable bill and only one way to pay for it: borrowing, either from your home equity or via federal student loans. Your daughter can borrow $5,500 in federal loans her first year, but as parents you can borrow up to the full cost of her education from the federal PLUS loan program.

Which leads to the question: Is taking on up to a quarter of a million dollars in debt for an undergraduate degree a sacrifice or is it insane? Before you answer, consider that some research shows that students who are accepted to elite schools, but attend elsewhere, do just as well in life as people who actually attend those elite schools. (The exceptions are kids from lower-income families, who actually do get a boost in life from attending elite schools. Obviously, that doesn’t include your child.)

Also consider how you’ll feel about making payments of $1,800 a month or so for the next 30 years to pay for this education. And how you’ll feel telling your son, “Sorry, kid, we spent all the money on your sister. You’re on your own.”

The picture may not be as grim as all that. You may get a better deal from one of these schools than you expect. But you should start managing your daughter’s expectations now and look for some colleges you can actually afford in case the dream schools don’t come through for her.


  1. Frugalista says

    Well said! A friend of my son has a student loan totalling more than $100,000.00 and her monthly payment is $1,200.00 for 20 years. I certainly would not want my son to start his adult life strapped to this kind of payment. Shame on parents who feed into unrealistic college choices for their children and fail to educate themselves on these matters.

    • Parents need to keep in mind that no one will prevent them, or their children, from overdosing on student loan debt. Lenders don’t take into account your ability to repay. They know they can chase you to the grave.

  2. I’m astonished that someone would use the term “of middle class-means” to describe an income of $185,000 per year. Thank you for pointing out to her how ridiculous that statement was. Now, back to my REAL middle-class existence…

  3. Would it change your answer any if she was pursuing a higher paying job or grad school, like a doctor or engineer?

    • Possibly, Jaime. If she were attending grad school, the daughter could borrow up to the full cost of her education using graduate PLUS loans. If she could expect to make more than she borrowed, in total, within a few years, it may be a gamble worth taking. If she fails to get the degree or fails the bar (for example), she would be in a world of hurt. But I can’t imagine a scenario where it would be a good idea to take on six-figure debt for an undergraduate degree, no matter how swanky the school.

  4. Thanks for for saying that attending your local state university DO NOT condemn you to a life of mediocrity. I went to a midwestern state university, was commissioned an officer in the USArmy (what do you have to say about that, John Kerry?), and worked my last tour in the Pentagon with graduates of MIT and Stanford…to name a few. On more than one occasion, I had to correct one of these elite hot shots because there was an error in a briefing slide or information paper or contractor product.

    It isn’t where you go to school, it is the person who goes and how much effort you put into it.

  5. Another possibility: They could cut their other spending.

    Sure, wealthy people who go to non-elite schools do just as well monetarily as wealthy people who didn’t. But there’s a lot more to an education than just income.

    I say, if you think it’s worth the sacrifice, then make the sacrifice. We started saving at our kids’ births so that we’ll be able to fund the full cost of an elite education. There’s no way on earth I want my kids to go to school at the state flagship where I teach. The education they get is nowhere near the quality of the elite SLAC I went to for my own education. (But yes, the school produces good worker bees who don’t know how to question.) That would be different if we lived in Michigan or California or New York, but we don’t.

    I felt bad for my friends with the new cars, designer clothing, and annual vacations who worked hard and didn’t get to go to the school of their choice. I didn’t get any of the stuff, but I did get a great education. The sacrifice was well worth it.

    • If you can pay cash for something, then you can afford to buy it. Saving for a college education in advance is very different from taking on loans to pay for it afterward. Parents shouldn’t talk themselves into life-strangling debt on the idea that they’re making a noble sacrifice. Their kids won’t appreciate it when the parents are old, broke and dependent on them for handouts.

  6. I would think that there must be grants available regardless of parental income levels. But aside from that, I would say kids are on their own. Hmm Pay kids education, or retire?
    They can get a good education for a lot less, and handle the costs on their own too.
    I say retire.

    • Actually, loans have replaced grants in most student aid packages. And all financial aid is pretty much dictated by parental income. Retirement savings should come first, but high income parents could be doing their kids a disservice by not saving for college.

  7. @lizweston
    Presumably they don’t need 185K for bare necessities each year. They can cut spending and pay for school out of cash flow and reasonable loan loads. They can reamortize their mortgage if part of the reason they have it mostly paid off is because of pre-payments. They can sell things (though probably not the house just in case they’re eligible for any aid). They can do the things that lower income Americans do. (Alternatively, they can take on some consulting or ask for raises.)

    We make less than they do and are able to spend(save) 30K/year on our children’s education (12K to 529s, 8K to private school, 10K to daycare). But we don’t take fancy vacations and our cars are old and we don’t eat out a ton. We think that sacrifice for our kids’ educations is worth it. Note I am not saying that they should have sacrificed in the past here– that’s a sunk cost. I’m saying they can sacrifice *now*. And with spending, not with enormous loans.

    From the post it isn’t clear to me that the sacrifice she’s talking about making is taking out large loans. It may be not going to Hawaii and not upgrading the SUV and cooking food at home for the next four years. You know, things that people who make less than 6 figures do anyway. They can slum for a few years for the purpose of this investment.