Don’t cry for Stanford undergrads

By Felix Salmon
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.

16 comments

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Felix, I think you’re a little too sanguine about the prospects of everything working out fine for the typical Stanford grad. First, you fall into the classic trap of taking at face value the college propaganda, which makes it seem as though there is a benevolent financial aid wizard doling out the perfect price for every student and her/his family. There isn’t. There cannot be. Secondly, you buy the line that people who graduate from a prestigious school almost cannot fail. Also not true. So, to recap, middle class parents have good reason to fear the impact of putting their kids through college today, and no one should expect that a BA from a good school guarantees them anything. Sad, but true.

Posted by LadyGodiva | Report as abusive

A third category: students going to high priced private colleges that do NOT have the endowment or workplace name recognition of Stanford.

Richards’ daughter could easily get stuck with a $50k price tag if she isn’t among the 7% admitted to Stanford, and instead attends a second- or third-tier private university. She would be idiotic to make such a choice — since the public universities are just as good and much cheaper — but hundreds of thousands of students rack up large student loans doing exactly that.

Moreover, an undergraduate degree from a third-tier school isn’t worth no more than the paper it is printed on unless it is accompanied by skills that lead to productive employment. There are more humanities majors than there are jobs for them — and thus plenty end up working at Starbucks.

But Felix has it partly right. Those students who are admitted into a top-tier school have it made. They won’t be asked to pay more than they can afford. They can study whatever they like and still find employment on the strength of the name recognition of their degree (and perhaps the alumni network).

Posted by TFF | Report as abusive

Another thought to ponder….should you even bother to go to college at all, be it Stanford, or anywhere else?

Consider…if you go to college for four years, that’s four years you are spending money instead of earning it. In many fields, you would arguably be much better off as a 22-year-old with four years of work experience under your belt but no degree, as opposed to having a nice degree but minimal work experience.

And there is also the question of how much added value a Stanford degree is to someone who is already smart enough and hard-working enough to get into Stanford….chances are this person is going to be fairly successful whether or not she goes to Stanford.

Posted by mfw13 | Report as abusive

TFF has it right – it’s not the $60k/year for Stanford that’s the problem, it’s the $60k/year for Ohio Northern University (as featured in the NYT last week) that’s the problem. Stanford has the endowment to offer need-blind admissions; VERY few schools do. Stanford’s 7% admit rate serves as a high-pass filter that employers rely on as a measure of quality. Schools that charge the same, but don’t have the name recognition and selectivity (but really, mostly the selectivity), get zero recognition (as is rational) from employers.

Posted by jck1 | Report as abusive

mfw, a college degree makes it possible to leverage top talent into a really nice career — attractive for more than just the salary. Moreover, after taking generous financial aid into account, the top schools may actually be cheaper than lesser private schools. (A student of mine got accepted to Princeton off the wait list. Dramatically reduced her tuition.)

I understand there have been recent economic studies questioning the economic value of a degree? But you need to carefully consider their assumptions before you accept their conclusions. As with any research.

Posted by TFF | Report as abusive

3 points

a) As has been pointed out, at the top tier relatively few pay sticker price, and the signalling value of the top tier is a sound investment, even if, yes, said daughter becomes an elementary school teacher.

b) The-use-your-money-for-alternative-educa tion experience suggested by mfw13 above and others is plausible only if you have a clear alternative to college degree signalling. A friend did a 4-year cheap local state school and is pulling $100K+ as a 25 yr old because he has a provable skillset–computer programming–that employers can immediately ascertain his value simply by browsing his Github account. If you have an alternative way of accessing the social capital that a top-tier degree provides–good on you, but don’t be shocked when the pedestrian, backwards world doesn’t “get” your awesome well-roundedness.

c) In this era of assortive mating and companionate relationships, some fathers would consider sending their daughters to Stanford the best hedge money can buy. As the F. Scott Fitzgerald quote goes, marrying for money is crass, but go where the money is and marry for love.

Brian

Posted by BrianTimoney | Report as abusive

When the talk is about financial aid, why do so many people see discount, and I see price obfuscation? And Felix, you’re simply being disingenuous when you note that over half of the Stanford student body receives financial aid, and the average aid amounts to around $41K, because that include a hefty dollop of loans that must be paid back. I thought you were the finance writer here.

There are good reasons for a student of modest means to attend Stanford, but it’s a very individual issue. Being able to effectively interact in a hotbed of innovation and leadership has lifetime value to those who can take advantage of it. However, at 18 I had neither the world view nor the personality for such an environment to work for me.

Posted by Curmudgeon | Report as abusive

You don’t necessarily need to qualify the choice for Richards’ daughter as a “less prestigious private school”. I’ve been looking closely at this since this choice — and the financial burden — is looming for my oldest son. If he were able to get into Princeton (as low a chance as Stanford), it would cost us substantially less than him going to one of the University of California campuses.

Princeton and a handful of other places, like Stanford, are so phenomenally wealthy that they can provide enough financial assistance even for comfortably middle class families that they become less expensive than public universities. I’m not sure about Stanford, but 100% of Princeton’s financial assistance is outright grant — there are no loans.

As many of the other commenters have pointed out, it’s only the very wealthiest universities that can do this. Based on the calculator on their website, for example, NYU — a very good university — would cost us just about full whack, while Princeton would give us $40,000.

Posted by lknobel | Report as abusive

A related issue is the topic of so-called “open source” education, and some of the disruptive trends noted by Clayton Christensen. I summarize here: http://wp.me/pJhAL-bE

Posted by Curmudgeon | Report as abusive

lknobel, one could perhaps argue that NYU is worth the money. But Ohio Northern?!? They cost just as much as NYU or Princeton — apparently with minimal financial aid available — and I had never heard of them before the NYT article. Perhaps they have a strong regional reputation? Or perhaps a student would receive just as strong an education attending one of Ohio’s state universities? I still maintain that it is the second- and third-tier private schools where the cost is most questionable.

And Curmudgeon, “price obfuscation” is a good way to put it. Nobody knows what they are paying until they receive their financial aid package, LATE in the decision-making process, and by then the emotional ties have begun to form. Even then, financial aid can sometimes be negotiated. Not sure what the solution is to that?

Posted by TFF | Report as abusive

As a tuition-paying parent, I’ve learned some things about that the undergraduate tuition market.

1) Colleges want to admit students who are significantly better than the average admitted student (based on academic performance or other factors important to a particular shcool), and they are willing to pay.

2) Colleges practice price discrimination: they have a prohibitive sticker price, but the actual net offer price is based on their estimate of your ability/willingness to pay.

3) For several good reasons, colleges offer debt instead of direct financial aid to the greatest extent possible.

So, an outstanding student with a highly paid parent can go to an Ivy League school, but must pay full fare; or attend a second-tier private school at half-fare, or a third-tier school with a full scholarship.

Admission and financial aid offers from a particular school can often be predicted based on how the studeant’s SATs/GPA compare with the average admitted student. If you are at the top of the curve, you will probably be offered merit aid, if you are at the bottom, you probably won’t be offered admission.

Good students can actually get a good education anywhere, including on-line. The student is way more important than the school, and the “best” schools do not necessarily have the best undergraduate teaching. OTOH, the one’s fellow students at the very best schools tend to be remarkable people who have already done remarkable things, and are likely to do more in the future.

Students at top schools have better opportunities for internships, lab research, etc. through the activities/connections of the faculty and alumni.

Whether it is better to be an average student at a top school, or an outstanding student at an average school is an interesting question for which there is probably no definitive answer.

Posted by axolotl | Report as abusive

TFF and Curmudgeon – good points regarding price obfuscation in higher education. There are lots of parallels in pricing of higher education and healthcare, which both feature dramatic differences between “list” price and the actual price paid by most people. In both sectors, third-party payments also account for a significant chunk of the money spent, be that health insurers, or a combination of grants, parents, and student loans at subsidized rates.

Beyond pricing, there’s the additional parallel of most universities and hospitals being “not for profit”, but a bit different than traditional charitable not for profits in that universities and hospitals don’t just rely on donors but generate large revenues from providing services, which makes them a peculiar hybrid in between a for profit business and a charitable organization. Between that model and the payment/pricing model, they have the incentive and resources to pursue expansion without taking a hard look at costs.

Put all of those factors together, and it’s no surprise that inflation in the cost of healthcare and higher education dramatically outpaces most other parts of the U.S. economy.

Posted by realist50 | Report as abusive

“…you will find it much more at the University of Phoenix..”

No kidding. You, and everyone else in the financial press should do exposes on UofPhoenix until that its principals are in prison for systematically defrauding the federal government.

OEDB used to have U of Phoenix’ graduation rate (number of 4 year degrees granted in 6 years) listed. It was 4%. That’s right. Not a typo. 4%. Yes, four percent.

University of Phoenix’ founders figured out how to game the system. They figured out that by deliberately focusing recruitment on those least likely to succeed, they would not need to deliver much education. U of Phoenix has had multiple lawsuits over things like paying $20 per person to homeless alcoholics to fill out paperwork for Pell grants and student loans.

No, they haven’t reformed. They have just put a damper on the worst of their criminal abuses. Their tuition is high. Their educational product is piss-poor. And they prey on the most vulnerable who most need education. They claim that they “give the poor a chance” and that the massive failure rate is just a result of the demographic they work with. But both are false.

Rather than give the poor a chance, they strip-mine them of any chance those folks had by making them ineligable for Pell Grants and further student loans at an honest institution.

Rather than give them a chance, University of Phoenix takes a demographic similar to, or better than, that which Wayne State has served for decades and kicks them in the teeth by failing them out with no help. But Wayne State has a completely normal graduation rate of 60% or so. University of Phoenix lies.

Lying and stealing at arms length from the federal government using dupes has made the founders of University of Phoenix into billionaires. Their campaign contributions have protected them. But they are nothing but con men in suits. This is outrageously criminal because when people come to an educational institution for help they are uniquely vulnerable.

To cap it all off, University of Phoenix’ PR flacks trumpet that they, unlike all those public universities, are just honest businessmen offering an honest value. They point at public colleges and decry their “cost to the taxpayer.”

How dare they. They are the greatest cost to the taxpayer of any school. They steal from the taxpayer by leaving hundreds of thousands of “students” defaulting on loans that they arranged. AND THEY KNEW MOST OF THOSE WOULD DEFAULT. It is their strategy for enriching themselves.

These “for-profit” universities ONLY exist because of federal grants and federally backed loans. When they fail to educate their students, they are stealing from the taxpayers.

Throw them all in prison, and sieze their assets to pay for what they have done. That is the only right thing.

Posted by BrPH | Report as abusive

I think the problem is that Felix is UK educated & the US system is a bit confusing. “Financial aid package” includes student loans – he’s assuming it’s only grants and scholarships. So yes, Stanford students can take on sizable debt – that’s part of that financial aid package! Further debt comes from private loans & parent loans. Also, “parents earning the median US income are expected to pay zero towards tuition” – true, but 1) that leaves room and board, and 2) they may not be *expected* to cover tuition, but if they can’t or won’t, the difference is made up by loans.

And there’s a nasty issue lurking in the assumption that Stanford kids can handle loans because they’ll get high-paying jobs. The social concern is that it’s increasingly necessary to take Wall Street-type positions after graduation. That sucks. Sending larger amounts of our best & brightest to finance jobs is a real problem. Those jobs aren’t really creating much value & we could really use those people in more productive sectors – whether it be technology, teaching, public service, etc. As things stand, it’s much easier to pursue those careers if you 1) are male, unmarried, no-children, and/or 2) come from money and don’t have student debt. Can you pursue journalism if you have high debt and can’t afford lengthy unpaid internships? Can you hell.

So yes, this is a really unpleasant problem.

Posted by Dilettante | Report as abusive

BrPH-

Your argument is without merit.

While University of Phoenix’s degree completion rate is assessed by the federal government’s Integrated Postsecondary Education Data System (IPEDS), as is every other accredited educational institution, the system does a poor job of capturing the nation’s next generation learners, who comprise the majority of the University’s student body. IPEDS counts only those students who complete their entire degree program exclusively at one institution – without transferring any credit from another institution – and graduate within 150 percent of the normal completion time. Generally speaking, these conditions exclude most students who do not go directly from high school to college as well as those who work full time. According to the American Federation of Teachers, “students still enrolled after 150 percent of expected graduation time represent a growing trend in higher education.” As such, the number of students who qualify for inclusion in IPEDS decreases each year, particularly in the current economy, where more students cannot afford to continue their educations uninterrupted. University of Phoenix’s completion rates for associate degrees is 26 percent for those students graduating in three years and 31 percent for students who take more than three years to complete. For bachelor’s degrees, the University’s completion rate is 36 percent for those students who graduate in six years and 39 percent for students who take more than six years to complete. At the graduate level, University of Phoenix’s completion rate is 55 percent for students who graduate in three years and 63 percent for students who require more than 3 years to complete.

Moreover our students consistently let us know how satisfied they are. While this is not an academic measure, it provides insight into how best holistically to meet the needs of this new majority population. University of Phoenix student satisfaction surveys over the last year showed that students rate all categories well above average, ranging from 91-96 percent satisfied. The University also uses an external measure of student satisfaction, the National Survey of Student Engagement (NSSE). In each of the ten relevant categories polled, students rate the support and instruction at University of Phoenix higher than the national average response rating, with the highest rating going for institutional contribution to their knowledge in the area of “thinking critically and analytically.”

I would also encourage you to see our point of view in the attached link: http://chronicle.com/article/U-of-Phoeni x-Graduation-Rates/131559/

I am available to discuss these issues with you at your convenience.

Chad Christian, Director, Public Affairs
University of Phoenix
Phone (206) 554-1220 | email: Chad.Christian@apollogrp.edu

Posted by Chad_Christian | Report as abusive

If I may question one comment Felix stated in his above article… “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.”

I realize that it has been some time since I have been out of college (graduated in 2008) however I had to prove to the federal government that I was not receiving any support from my parents to exclude their income. My parents together made $85,000.00 which is well with in the limits of what Felix stated. My problem was for some time I was forced to use their income as mine because they were supporting me for a semester. Due to their income bracket I was not offered any Federal or state grants. I was however offered federal financial aid which I could borrow the money and pay back with interest.

So when I finally was able to use my own income $25,000 – $30,000 a year I thought fantastic I may get some more additional help. However again I was denied any Federal or State grants but was still offered the federal loans. I am not sure where Felix is getting his information because in my experience of working my way through 10 years of college I have to pay back the 42,000 K in student loans I took out and if my parents would have paid for it then they also would have also paid every penny and then some.

My issue is that regardless of what school you attend…look at the types of jobs are these kids able to get? For the majority of the college age kids they are looking at jobs that are paying 35,000 K – 55,000 K a year. This is excluding any computer programing position where they usually make 65,000 K – 75,000 K starting. For me when I graduated from college I was making 15,000 K more then what any company would offer me in my field. I was not going to take a pay cut just to work in the field of my studies. The average income in the united states is around 60,000 K and with the average student loan debts in the united states totaling around 40,000 K that is a 66% debt to income ratio!!! I mean the housing market only allows a max of %52 percent debt to income ratio to purchase an house. However no one is regulating the schools and how much they can charge. This my friends I believe is the problem. By no means I am asking for the government to start regulating the universities however why not have them (the universities) use some of their “sports income” to assist with paying for other parts of the university other then sports. This may not solve all of the universities problems however the ones that have VERY large sports programs it would help a great deal.

Posted by docdages | Report as abusive