Tuesday, June 1, 2010

Subprime College

A lot of ink is spilling about the value of a college education. Is it worth the investment? Are their cheaper alternatives? What is the true value of a "brand name" college versus a state school?

College can be a major factor in your future success, but at some level, the college you attend is a symbol of your historical performance, and not your future potential.

An exceptional performance in the first 18 years of your life can lead to a spot in a prestigious school, ranked ahead of most of its peers. The Ivy League is a throwaway example, but you could be focused on a smaller liberal arts education, a west-coast education, or an arts/music education, that would lead to different choices.

Forgetting that college does not guarantee future success is dangerous, and if you pay too much, beyond the realistic expectations of your family's future economic resources (income + savings), then you can find yourself in the same place anyone with too much debt and not enough income gets to, worse off than when they started. The colleges share some of the blame for this, just as the mortgage brokers and mortgage-issuing banks do in the housing crisis. In my opinion, non-profit college financial aid offices need to be held to a higher standard, if they want to keep their tax free status, then they are obligated to provide maximum disclosure on the real cost (loan + interest) and length of time you will be making payments both before and after a student accepts an offer to attend.


But, while freedom drives American prosperity, it exists ying and yang with responsibility, and the buck stops with students and their parents. Can receive a six-figure loan is not in any way the same as should receive a six-figure loan, and if nothing else, students/parents should know that the banker/non-profit college financial aid officer smiling at them from across the desk has no incentive to consider their long-term financial security, that burden is yours alone.

In many cases, not having clear, adult conversations with your college-bound children about your family's financial situation is a big part of the problem. This can be a sensitive topic, and those discussions are best left to another update.

Most parents want the best for their children, and the media, and your real-world social networks do a lot to enforce the perception that a school's name recognition has a powerful positive effect on opportunities available to your children. But the good news is that in all 50 of the United States of America, you can work within the confines of your financial situation and attain a college education that gives you all the skills you need to prosper, without a crippling debt load.

At the moment, the recession is making assumptions such as "name schools lead to the best jobs" subject to painful scrutiny. This is a good time to take stock of what a school's brand can really do for you, and think about the opportunities of a college education that does not come with a huge debt overhang.

What do you think, when does the value of a "brand name" justify the much higher cost and future debt of a private college education?

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