Don’t cry for Stanford undergrads

June 4, 2012
Carl Richards is worried about the cost of sending his daughter to Stanford:

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Carl Richards is worried about the cost of sending his daughter to Stanford:

One of our daughters decided a long time ago that she was going to Stanford. I’ve been careful not to crush her dream, but there’s a reason why they say reality bites.

Let’s say she manages to get accepted. (Stanford’s acceptance rate is 7 percent, so I know it’s a long shot for anyone.) According to Stanford, the costs for a typical undergraduate student adds up to $58,846 per year. That’s over $200,000 for an undergraduate degree, and that doesn’t even account for the next several years worth of inflation…

College students now say that being financially secure is their most important life goal.

See the issue here? On one side of the argument we’ve been taught that getting the best education money can buy is the best investment you can make. On the other side sits the fact that the skyrocketing cost of education can be a major hurdle to the thing that we say we value the most, financial security.

Richards is right that college-tuition inflation, and its cousin student-debt tuition, are real problems. But I think his example is ill chosen.

For one thing, the “typical undergraduate student” does not pay $58,846 per year. Not even close. That headline cost is covered by four parties: the student; the student’s parents; the government; and Stanford itself. Parents earning the median US income are expected to pay zero towards tuition. There is no parental contribution at all for parents earning $60,000 per year or less; parents earning $100,000 a year or less aren’t expected to cover any tuition. Federal and state grants, as well as needs-based scholarships, should cover all of that.

As for the student’s contribution, it’s generally around $5,000 — calibrated to be payable using income earned in the summer and during the academic year. “You may choose to cover part or all of your expected contributions with student loan funds”, says Stanford — but that’s not designed to be necessary.

According to its latest filing, Stanford extends financial aid to 3,560 of its 6,889 undergraduates — that’s more than half of them. The average financial aid package for each of those 3,560 undergrads? An impressive $41,919. And that’s far from everything: another 30% of students get other forms of assistance, like athletic scholarships. Add it all up, and just 20% of students get no aid at all; it’s reasonable to assume that a large chunk of that 20% are foreign students, bringing the percentage of domestic students paying full whack even lower.

All of which is to say that the chances of Richards’s daughter graduating with an undergraduate degree from Stanford in one hand and a massive student debt in the other are extremely slim. If you’re fortunate enough to get into Stanford’s undergrad program, you’re fine. It’s not your student debt that we’re worried about. Even if you do leave with a typical student loan balance of $23,000 or so, it’s still no great hardship to take that elementary-schoolteacher job and repay your loans at the same time.

The problematic student loans aren’t the ones going to Stanford undergrads, nearly all of whom have lovely white-collar careers ahead of them. Instead, the problematic loans fall into two other categories: perpetual students who rack up enormous debts by piling one graduate degree onto another; and poorer adults taking out loans to go to vocational colleges which are often run on a for-profit basis and which have enormous drop-out rates.

In general, even with massive rack-rate inflation, if you take out a loan to get an undergraduate degree and you end up getting that degree, you made a good financial decision. The bad decision is if you take out a loan to get a degree and then you drop out: college dropouts are, statistically speaking, no more employable than if they’d never gone to college at all, and yet they often have massive student-loan debts all the same. Or, you take out massive loans to get things like law degrees, only to find that the demand for lawyers is not nearly as big as you’d been given to believe.

The cost of going to Stanford is high, but it’s not really a problem for Richards’s daughter. Richards himself will be expected to pay a substantial sum, since he probably earns north of $100,000, but it’s unlikely to be significantly more than he’d pay to send his daughter to a much less prestigious private school. And in general the plight of Stanford undergrads is pretty much at the very bottom of things that America needs to worry about. Yes, there’s a student-loan problem in America. But you’ll find it much more at the University of Phoenix than you will at Stanford.


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