Tag Archives: debt

In a sign that a tremor is turning into a rumble, the Times on Sunday asked on the front page of the Week in Review: Is going to an elite college still worth it? Young adults, and their parents, are beginning to wonder whether that high tuition is worth it when young Ben or Molly finds him or herself living back home and thinking that the unpaid internship looks pretty darned good about now.

Normally, when I scoop up the morning paper from the hallway floor where it lands and see a headline this like blaring back at me, my heart sinks. With “Not Quite Adults” about to drop in a week, my first reaction is, ‘oh no, now I’m going to have to defend our book against this article, too.’ But while I stood there reading as my latte steamed (yes, I’m a latte-drinking, city-dwelling liberal), my mood perked up. They were running through the very argument we make in our chapter on education. Rex was going to be spared my rant on this particular morning.

Basically, what the article and our chapter says is that, yes, Harvard and Penn and Brown do pay off, sometimes handsomely, down the road. Graduating from the likes of Penn or Smith earns you about 40% more ten years later than the grads of the “less elite” University of Illinois or Rutgers. So it would seem that the money sunk into the high tuition is indeed worth it.

The article, like our chapter, also notes that too often, parents and young adults fail to consider these long-term payoffs when they grouse about the debt they hold. The cost of college is not a short-term payment, but rather one that pays off much farther down the road, like a mortgage instead of a car payment. So while Molly or Ben may not yet have found a job, they probably will, and the payoff of that elite degree is going to boost them into a more comfortable living–all else equal. (That same argument, by the way, holds for any college degree, at least for now.)

But there’s some important caveats to that scenario. As we point out in Not Quite Adults, there’s an issue of what economists call “selection bias.” Who’s to say that the same kid who made it into Harvard wouldn’t have done just as well at U of I? After all, getting into those elite schools is no easy task. You have to be pretty sharp. And won’t that same intelligence and ambition get the person noticed on the job and propel him or her up the ladder quickly–thus leading to more income? So is it the degree itself that results in the income difference ten years later or some inherent quality that got the young adult into Harvard in the first place?

Research would suggest that it’s the latter. Kids who get into Harvard have a skill set, drive, intelligence to make it anywhere. Indeed, when researchers compared young people with similar SAT scores and class rankings, half of whom went to an Ivy school and the other half who went to a state school, they found few differences in earnings. So it would seem that kids who are bright enough to get into Yale are going to use those same attributes on the job, regardless of where they go to school.

That says to me that if you don’t have money to burn and you’re not going into a field, like finance, that hires based on school reputation, then why not go to a cheaper school and spare yourself the big bills? Or as we suggestion in NQA, you can pay the price of a Mercedes if your budget allows, but a Corolla will get you there as well.

This is particularly true if the young person wants to go into fields that don’t pay high salaries, like teaching or social work. In other words, college still pays, but only if families are strategic in their choices and honest about the future paths their son or daughter want to take.

The Times article also notes that in life satisfaction, those who go to the elite schools fare no better, and actually worse, than those who went to less prestigious schools. Perhaps, they suggest, the higher expectations of an Ivy League sets one up for a harder fall when those high expectations butt up against reality.

Or as Scott Thomas, a sociologist who studies this sort of thing put it, “prestige does pay, but prestige costs, too.” One of our interviewees may have said it best. Jamil, a first-generation immigrant from India, was a smart kid with his sights set on medical school. For his undergrad work in pre-med, he chose the local University of California over elite Northwestern.

“We all wanted to go to the schools that would give us that decal we can put on our car,” he says. “You know, Harvard or Northwestern.” But to his parents, the school was not important; the education was what mattered.

“Looking back, they’re right. I didn’t really sacrifice anything by taking the route that I did. You know, maybe life in Chicago would have been different from life in Riverside, but I don’t know if that justifies spending my parents’ money that they could be using, say, for their retirement, or paying off their house.”

I had a conversation about this with one of the economists who is part of the Network on Transitions to Adulthood–the group whose research we based our book on.  She was on a train back to Princeton, where she worked at the time (she’s now on the Council of Economic Advisers).  Sure, she said, kids who do well in Harvard will likely do well on almost any job–it isn’t the elite education that will catapult them to success. But, she said, there are intrinsic things that Princeton and Harvard and their ilk provide–namely, connections. That is what parents pay for when they fork over $50,000 a year. And of course she’s right. It is those connections that vault people into positions of power and prestige.

But, for too many families, striving for that opportunity is costing them an arm and a leg. It’s putting their retirement, their own futures in jeopardy. I suspect that as the middle class continues to hollow out, the stakes will feel higher and higher, and more people will sense that they have no choice but to sink themselves into deep dept if their children are to be allowed into the club. Sad, really. Maybe it’s time we stand down in this arm’s race and dial down our expectations of what the “good life” is. Of course everyone wants a shot at the keys to that special club. But if we redefine was success is, then there will be keys to many clubs within reach, and we’ll all be able to retire a lot earlier and our kids will be a lot happier.