Paying for College

The Cost and ROI of College

In case you aren't familiar with that term “ROI" in my title, it stands for “Return On Investment." An old adage says, “You get what you pay for," meaning that more expensive goods and services are probably of better quality than those that are cheaper. But, when it comes to higher education, is that true?

I received two very interesting emailings from Russell Schaffer of Kaplan Test Prep. His mailings are usually concerned with issues of general interest to parents and current and prospective college students. The two issues these updates highlight are the results of surveys concerning:

– Parents and high school counselors questioning the value-for-cost of college (there's that “ROI" concept again), and

– Parents making significant financial sacrifices to pay for college.

I want to take a look at these survey results today. Perhaps you parents may find yourself in agreement with some, or even all, of these findings.

First, let's see some of what Russell has to say about that value-for-cost/ROI aspect of college.

… With the average annual sticker price of college hitting $19,548 for in-state public college and $43,921 for private college, joint research from Kaplan Test Prep and MONEY magazine conducted among both parents and high school counselors finds that many aren't convinced about the value-for-cost of college today. According to the Kaplan/MONEY survey of over 500 parents of prospective college students, just 21% agree that “the cost of a four-year college degree today is clearly justified for the value it delivers."* Fifty-eight percent disagree, while 21% aren't sure if the value is worth the cost. In a separate survey conducted among 235 high school counselors, 37% feel strongly that “the cost of a four-year college degree today is justified for the value it delivers.

A reason behind the reservations about value-for-cost may be the immediacy of the financial pressures college costs bring — in the same survey of parents, 60% say that thinking about how to save for college is “more daunting" than thinking about retirement. In fact, data shows long-term value in significantly higher lifetime earnings and lower unemployment of college graduates. According to a 2014 study by the Federal Reserve Bank of New York, those with a bachelor's degree earn about $1 million more than high school graduates during their careers, while data from the U.S. Bureau of Labor Statistics shows the 2014 unemployment rate of college graduates to be almost half that of high school graduates (3.5% versus 6%).

“We know from talking to parents and high school counselors that the takeaway isn't that they don't believe in the value of a college degree — they're really concerned about the high sticker price. This is understandable since for many, it's a hefty investment that brings immediate debt but not necessarily immediate return," says Michael Boothroyd, executive director of college admissions programs, Kaplan Test Prep. “But it's important to recognize that college is a long-term investment that realizes itself over time — not only in higher income potential and lower unemployment rates, but also through other benefits such as making connections, fostering intellectual and social development, and broadening perspectives."

Ironically, for a majority of counselors, understanding the value of a college degree is an infrequent topic of discussion raised by parents: just 12% of high school counselors say that it is a topic of discussion that “always" comes up with parents, though another 30% say it “often" comes up. By contrast, 22% say the topic “rarely" comes up; and 4% say it “never" comes up. A third (32%) said it only comes up “sometimes."

“The cost of college can seem intimidating, but the last thing parents and students should do is despair and give up," says Greg Daugherty, education editor at MONEY. “There are many top-notch colleges that provide generous financial aid packages, help students graduate with little or no debt, and launch them into successful and productive careers." …

Next, as an extension to those thoughts, let's take a look at a few aspects Schaffer found from the parental perspective.

Families are cutting back on vacations, setting aside less for retirement and holding off on car upgrades in order to afford their kids' future college costs, according to a new survey by Kaplan Test Prep and MONEY magazine of 539 parents of prospective college students.* Among the ways parents plan to budget for this pending investment in higher education:

  • Putting the Kids to Work: Almost two-thirds (64%) of parents say that their child will have to work part-time or even full-time to help them cover the costs of college.
  • Fewer Vacations: Sixty-two percent of parents say that they'll have to cut back on vacations over the next few years to cover future college costs.
  • Less Money Set Aside for Retirement: Sixty percent of parents say they will be saving less money for retirement. In a separate survey question, 60% say that thinking about how to save for college is “more daunting" than thinking about retirement.
  • Deferred Investments: Home repairs or that new car may have to wait until after college costs come off the budget, as 62% of parents say they will have to scale back on major investments.
  • Moonlighting: Over a quarter (27%) of parents say they or their spouse will find a second job to cover their kids' future college education.

“Parents understand that their children's education is one of the most important investments they can make, but for most families, covering that kind of cost requires years of planning, as well as financial sacrifices," said Lee Weiss, vice president of college admissions, Kaplan Test Prep. “We encourage parents and their children to be as honest and open as possible about how they plan to cover college costs, which may help them avoid unpleasant surprises and sticker shock by the time senior year comes around. We also encourage families to set aside time and focus early on looking into scholarships, as there's a lot of scholarship money available for those who put in the effort to earn it."

“The fact that a majority of parents say they'll be saving less for retirement because of their kids' college costs is pretty worrisome," said Greg Daugherty, education editor at MONEY. “They may be acting nobly, but the decision could come back to haunt them when it's time to retire. It could haunt the kids, too, if they end up having to help support their parents."

New data shows that college costs are continuing their upward trajectory. The average sticker price at an in-state public college is $19,548, including tuition and fees and room and board and average private college tuition stands at $43,921. …


Also, for some counterpoints (and confirmations), take some time to explore these highly interesting, and sometimes contentious, discussion threads on College Confidential:

College is not a commodity

The economic value of college majors – new study

The real value of college

Hidden costs of college

Underestimating the true cost of college

Cost of college has risen over 400 percent in 25 years – that is outrageous


Finally, if you've missed some of my previous posts about college cost and value, here are a few you may care to visit:

Estimating The True Cost of College:

What to Do about the Cost of College:

College Prestige: Cost vs. Value:


Be sure to check out all my college-related articles at College Confidential.