• Fall is in the air, and – for 12th graders across the United States – there’s much more going on than fantasy football and homecoming plans. Being a high school senior, or a parent of one, is truly a whirlwind. Life is changing so fast.
• If you’re a student reading this, take a moment to breathe. If you’re a parent, give your student a moment to breathe. Be a source of strength, not anxiety. Take the time required – together – to fully understand your options and to make the first major financial decision a great one.

What is that “first major” financial decision?

It is what happens after high school, of course.

Millions of high school seniors submit applications to colleges and trade schools ranging from Maui to Maine. According to the BLS, 61.8% of recent grads enroll in some form of higher education. What follows is the first real commitment new grads will make - personally and financially - to a path that will impact the rest of their lives.

College and other forms of higher education are often thought of as a guaranteed path to economic success. But this is an oversimplification.

Advanced degrees can be a great opportunity, but there is no guarantee.

The nuances matter. Tuition costs matter. Student loans matter. And expected earnings from the degree or certification being pursued, relative to student loans, matter.

In this multi-part series of The Personal Finance Project, we’ll examine several aspects of this 1st Major Financial Decision.

Beyond the obvious, one benefit of the Information Age is access to more data, and data that goes deeper. In this edition, we’ll get into: Average Net Price, Net Price by Family Income, Median Debt, Default Rate, and Instructional Spending per Student – and walk through them together.

Metrics to Know

Tuition

The sticker price for instruction at a school. But not the only cost. Room & board, books & supplies, activity fees, moving expenses, and travel can all add significantly to the total cost of higher education, beyond tuition.

Average Net Price

How much does it really cost to go to a school? Not everyone pays “sticker”, so why should you? Net Price is arguably the best estimate of what a typical student actually pays to attend a school for the most recent year. It factors all major costs (Tuition, Room & Board, Books & Supplies, etc.), then subtracts non-loan cost offsets (scholarships, grants, tuition discounts, etc.).

Net Price by Family Income

Net Price by Family Income provides additional insight. Generally, data shows that students from higher-income families tend to pay a higher Net Price at most institutions. However, the level of cost discounting for lower income families varies greatly – some schools are much stingier toward non-affluent students than others - so it pays to explore a large number of schools to identify those willing to give you the most generous offer.

Instructional Spending (per Student)

If you were paying $30,000 a year for college, but your school was only spending $3,000 of that on instruction, how would you feel? Exactly. Instructional spending (per student) can help give you another angle on a school’s value proposition.

Median Debt

What is the amount of debt a typical alum of a school ends up carrying? Good information to know in advance.

Default Rate

Is a school a good financial decision for its students? If loans are needed to attend, are they worth it? Troutwood includes Default Rate data in our College Explore Tool because it gives a sense of how many students who attend are unable to earn enough income, after attending, to manage their student loan payments. According to Credible, the median Default Rate for all schools is around 10.8% - and an astonishing 15.6% for students who attend private, for-profit schools. Buyer beware!

While Troutwood does not recommend any particular schools, we are concerned when we see schools with high Default Rates and like to see numbers < 5%. Our general feeling: schools with lower Default Rates appear to do a better job of making good on their implied promise to help students attain positive financial outcomes. Factors are complex but, if you are considering a school with a high Default Rate, do your research, ask questions about why the numbers are poor, and use it as leverage to negotiate for grants and scholarships if you still have your heart set on attending that school.

An Example – Indicators of Value

The Massachusetts Institute of Technology (MIT) is world-renowned as a great school and the numbers back it up. Although Tuition is published as $59,750, thanks to generous aid, the Average Net Price is substantially lower. Compared to College Scorecard’s Average Annual Cost (Net Price) of $5,084/yr, MIT provides $80,756/yr of Instructional Spending (per Student). Net Price is greatly reduced for students from lower income families – a great indicator of the school’s financial strength and commitment to providing aid. The Median Debt Upon Graduation is just $14,768, with a typical loan payment of $157/mo. The Default Rate of 1.1% means very few students have trouble handling their loans.

Not everyone will attend MIT, but the data insights are instructive in showing what a great value looks like.

An Example – Cause for Concern

On the other end of the spectrum, there are schools with astonishingly different metrics. Without naming them, consider these data points: Average Net Price = $17,157, Instructional Spending (per Student) = $7,400, Median Debt Upon Graduation = $37,500, Typical Loan Payment = $387/mo, Default Rate = 18%.

Question: If you are thinking about committing years of your life, depleting your savings (or your family’s savings), and borrowing thousands of dollars… what do you expect in return from the school you are considering?

Value Yourself!

There are over 5,000 colleges and over 7,000 trade and technical schools in the United States. If higher education is the path you want, take time to look at many. Gather the facts. Comparison shop.

Be thoughtful and selective. You are worth it.

In our next edition of The Personal Finance Project, Your 1st Major Financial Decision – Part 2, we’ll go deeper into the economics of college decisions, including illustrations of Opportunity Cost and Financial Considerations After Graduation.

Troutwood

A financial plan for life