Would You Turn Down All 8 Ivy League Schools?

That’s what a high school senior named Ronald Nelson did to accept a free ride at the University of Alabama. While very few students will be in Nelson’s enviable position, many families will have to decide between a more expensive higher-ranked school and a lower-ranked but less expensive school. With both education and student loan debt increasingly important factors to many young people’s financial well-being, this is not always an easy decision to make. Here are some things to consider:

1)      What’s your out-of-pocket cost?

Few people actually pay the sticker price to college so you need to compare what you’d actually pay after calculating in scholarships and financial aid. The Ivy League and other top schools generally don’t give merit scholarships (just getting in is essentially a merit scholarship) but they do tend to provide a lot of need-based aid. Fortunately, schools typically post “net price calculators” on their web sites to estimate how much you’d actually have to pay out-of-pocket.

In Nelson’s example, I entered what little information I got about him in the article (lives in TX and will have a sister in college at the same time) into Harvard’s net price calculator. At the median income level of about $50k a year and few assets outside of retirement accounts and home equity (which are generally not counted), a Harvard education would only cost him about $4,600 a year. At that price, it would arguably be a steal! However, the article says that Nelson received only minimal financial aid from the top schools, indicating his family has considerably more income or assets so he would have to take other considerations into account…

2)      How would you pay for school?

Like many families, Nelson’s is too well off to qualify for significant need-based financial aid but not enough to pay for the full cost of school without taking out student loans. If he were to borrow half of the $260k it would cost to attend Harvard for four years, his monthly payment would be about $1,500 for 10 years at a 6.8% interest rate. That’s a pretty hefty burden on any new graduate and he would end up spending about $50k on interest.

If your child is in a similar situation, they might want to think twice before taking on a large student loan debt. If they don’t have scholarship options, they should consider at least starting at a state school or community college. They can always apply to transfer later and the degree they get will be from the school they graduate from. For example, President Obama started at Occidental College before he transferred to Columbia University and those first two years didn’t seem to hurt him.

3)       What do you want to do after graduation?

If Nelson wanted to be a teacher, an expensive Ivy League education would probably amount to nothing more than bragging rights in the teacher’s lounge (which in turn would just alienate his colleagues). On the other hand, if he wanted to go into a field like investment banking or consulting, that Ivy League pedigree could carry real weight in landing a job with a top firm. In this case, Nelson’s plan is to go to medical school, where just having an Ivy League degree is much less likely to get him accepted than a high GPA and MCAT scores. If he does go to medical school or any other type of graduate school, that school is likely to matter a lot more than where he went to undergrad. (Obama’s graduation from Harvard Law mattered a lot more than that Columbia undergraduate degree.)

Yes, education is important but Nelson was right not to just pick the most prestigious school he got accepted to. That could have ended up being an expensive decision he would regret for years to come. As with any investment, the cost and returns matter, even if that means turning down all 8 Ivy League schools.

 

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