Financial Planners Won’t Fix the Cost of College

Blogs, Letters & Testimonials

January 29, 2020

By: James Murphy

Financial planners who equate the cost of college with published prices at highly selective private universities and believe that any student debt is bad or argue that college is a bad investment are wrong. Dangerously wrong.    

This opinion can be particularly harmful to first-generation and low-income students who, already facing steep challenges to attending college, might think they are sound.  

They are not.  Take for instance this very bad tweet below about the price of college that went viral earlier this month.

The author, Barry Ritholtz, shared a table that appears to have originated on Reddit “coolguides.”  The table compares tuition and fees at NYU in 1980, when they were about $5,000, to 2016, when they were almost $50,000.  Using the minimum wage from those years, the maker of the table calculates that in 1980 someone would have had to work 40.8 weeks at minimum wage to pay for NYU in 1980, but today the same would take 169.2 weeks.

A ten-fold increase in tuition? While the minimum wage has barely doubled?!? No wonder millennials are so angry. As Ritholtz put it, “An ongoing source of millennial frustration + anger is the expense of basic opportunities today vs prior generations. Data explains a lot of politics + generational angst. If you cannot afford tuition, what sort of economic mobility is there?”

There is much to agree with in Ritholtz’s sentiment, and I do not doubt at all that he is on the side of millenials.  But his example is all wrong. 

To begin, Ritholtz uses NYU as his example of how much college costs. A private university with a twenty percent acceptance rate in 2018 in one of America’s most expensive cities is a very odd example to use to make a point about the cost of college.  That’s like using Canada Goose jackets as your example of what a coat costs.  

Ritholtz also fails to take into account the unusual transformation that NYU has undergone since 1980. Back then, it was a commuter college competing with the CUNY system and other local private colleges for students in the five boroughs. After initiating a campaign to make itself over in 1984 and raising over a $1 billion along the way, NYU transformed itself into a very selective & expensive college in the 1990s. NYU’s transformation isn’t unique–Northeastern pulled off a similar trick–but it’s very rare and makes it an outlier, rather than an example.

The even bigger problem with the NYU table is that it only looks at tuition and fees, which are only part of the actual cost of attendance that also includes room and board, books, transportation, and more.  

So doesn’t that make RItholtz’s point stronger, if tuition is just part of the real cost of going to college?

Not really. Perhaps because he deals with wealthy clients, Ritzholtz misses that many students do not pay sticker price for college. Indeed, at most higher ed institutions the average discount is over 50%.

That’s even true at NYU, according to the federal government’s College Scorecard. The average cost of attendance for NYU was $40,336, which is much higher than the average cost of attendance for private universities in the US, which is about $27,000, but still less than the list price used in the comparison.

The average cost of attendance at public four-year colleges and universities, where almost  two-thirds of all postsecondary students at four-year schools are enrolled, is even lower yet at around $15,000.

If someone’s dream is to go to college in New York City, there are many less expensive alternatives. According to the College Scorecard, the average cost of attendance at the CUNY system’s Baruch, Hunter, and City Colleges is between $2,000 and $3,000.  Columbia University’s average annual cost is $16,000 less than NYU’s.

Source: College Scorecard

The College Scorecard is also instructive on which of these colleges will provide the best return on investment. If you’re a financial planner, you might expect NYU to lead to better financial outcomes than a degree from CUNY, but newly released data show this not to be the case.

Source:  College Scorecard

The range of first-year salaries for graduates from NYU is similar to that of Hunter College grads and not as large as that of City College grads. Granted, this is new data based on a very short period of time, but it does challenge the notion that paying more gets you more when it comes to college.

College is expensive. We as a nation need to work at making it more affordable. State funding has not kept pace with the rise in costs, and Pell Grants have not kept pace with the rise in total price. These problems need fixing, but using flawed charts pulled from Reddit is not going to help. 

It can, in fact, hurt because these simplistic takes on the price of college, like those terrible articles that come out several times a year about “the most expensive colleges in America,” frighten people off from even applying to certain colleges, if not college full-stop. A report from the Jack Kent Cooke Foundation suggests that low-income and first-generation students are particularly susceptible to sticker shock.

The problem of talking only about sticker prices is compounded by financial advisors, like David Ramsay, who tells students they should pay for college in cash, with no loans. Few students but very wealthy ones can follow this advice, which is why it should be ignored. The return on the investment in college remains good, on average, even when students need to take out loans to pay for college, as many do.  In fact, there is evidence that borrowing too little might be an even larger problem than borrowing too much for many working-class students, as students’ financial stress or need to work more hours per week compromises their academic work. 

So, the next time a financial advisor on social media seems to have a solution to the problem of student debt or the cost of college that is simple and clear, keep in mind that it is also probably wrong. 

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James Murphy is a Senior Policy Analyst with Education Reform Now.