As a parent, there are many decisions you need to help your child make. One of the more complex and important is where to attend college. There is an overwhelming amount of information out there to sift through and many factors to consider. Based on my experience with my own kids as well as helping clients, here are my top three financial considerations to work your way through how to help your child choose a college.
Financial Factor #1 – Average Annual Cost of College
If you’ve started looking at colleges, you may be experiencing “sticker shock” when seeing annual tuitions of $40,000, $50,000 or even $60,000 for many schools. However, the important financial consideration is not these college “sticker prices,” but instead the average annual cost of college for each institution you’re considering. The average annual cost is effectively the money parents and students are actually spending to go to college their after all financial aid is factored in.
The US Department of Education has a College Scorecard to help parents and students start their research on schools. This website will provide you with the average annual cost of each college in their database.
Here’s a great example. Based on tuition prices, you’d say in general that Ivy League schools are much more expensive to attend than a state school. If you use the College Scorecard link listed above and compare Penn State (my beloved alma mater) with say Cornell University, you’ll find that the average annual cost of Penn State’s Main Campus is $27, 032 versus $26,484 for Cornell.
You read that right – the average student at Penn State is spending more to go there than is the average student at Cornell. This is despite a sticker price of about $35,000 for Penn State for in-state residents and $47,000 for out of staters versus a hefty $64,000 list price for Cornell. Many prestigious universities have large endowments and great financial aid packages, so be sure you’re looking at the average annual cost of the college when comparing schools.
Financial Factor #2 – Freshman Retention & Graduation Rates
This factor many be a little less obvious than factor #1; however, it’s a good idea to select a college with a high freshman retention rate and graduation rate. This is a general indication of how happy students are to be there, but also is a big indicator of how likely your child will be to get through school in four or four and a half years rather than transferring and taking longer or, worse yet, not graduating at all.
Once again the College Scorecard from the US Department of Education can help you with these two metrics.
Financial Factor #3 – Average Starting Salaries of Graduates
This is the outcome we’re all looking for as parents. Helping your kids get a J-O-B and be able to support themselves upon graduation. It can be the most gorgeous campus with the best football team, but if you get to the end of the road and you’re working at Starbucks and are $30,000 in debt, your child would probably have been better off attending community college and working part time along the way.
However, if instead you’ve spent somewhere between $100-$150K, but your child lands a job right out of school earning $75,000, you’re probably feeling like that’s money well spent, right? That’s why when looking at schools you should also look at the average starting salary of typical graduates from the institution.
Heading one more time to the College Scorecard, let’s compare some schools that my daughters are looking at right now – Penn State, the University of Delaware, Stevens Institute of Technology, Vassar and the University of Rochester:
Not surprisingly, the school with the lowest average annual cost (University of Delaware) provides the best “value” at $3.39 for every dollar spent annually on tuition.
However, Stevens Institute comes in second at $2.69 despite having the highest average annual cost. Based on this metric, Stevens is actually second best of the bunch in terms of bang for your tuition buck!
Note that there are lots of factors that muddy the waters here. For example, if you’re in-state at a state school, your annual costs will be lower, if a school graduates mostly technical majors or is close to a major metropolitan area, their average starting salaries will be higher, etc. As a result, these comparisons are most meaningful for schools that are similar across most of these dimensions.
Once you’ve had some initial discussions with your child about college majors, size of school and location and have narrowed your list somewhat, use the three financial factors listed above to give your child the best chance of successfully graduating with a great job without breaking your parental piggy bank!