Money Isn’t Everything: When It’s Worth Taking On $50,000 Or More In Student Debt
By Maggie McGrath
April 4, 2014
Much of the discussion over the $1 trillion (and growing) outstanding student loan debt in the U.S. creates the impression that taking on debt to finance a college education dooms you to a life of regret and ramen noodles. After all, in one recent survey a third of millennials said they would have been better off working than attending college and another 45% said their degree was only “somewhat of value.” On websites devoted to higher education and student loans, grads share student debt sob stories. “Surviving, but barely,” reports one. “Was college a waste? I recently received my bachelors in business and ask myself this question daily now that the debt of student loans has consumed my life,” grouses another. Even this New York Times column by Nobel Prize-winning economist Joseph Stiglitz carried the grim headline: “Student Debt and the Crushing of the American Dream.”
Given all that, if you’re a high school senior looking at financial aid award letters and realizing that the unrealistically large expected family contribution your first choice college expects from your parents means you’ll have to borrow big bucks, you might assume the “right” decision is to turn your back on your dream school. Indeed, as Forbes contributor Lucie Lapovsky reports here, last year, 57% of students, the highest share on record, chose not to attend their first choice school. But that’s not always the right decision.
The general rule of thumb dictates that you shouldn’t borrow more in loans for your undergraduate degree than what you expect to make your first year out of school. Indeed, going beyond that amount could mean debt payments that take a huge chunk out of your monthly budget after graduation; and even for the lowliest starting salaries (see: writers, artists, teachers, social workers), going beyond the expected-starting-salary figure could mean taking on private loans in addition to the federal loans you’re maxing out, a financial decision that comes with its own pros and cons. (Among the cons: private loans, unlike direct loans from Uncle Sam, aren’t eligible for income contingent repayment and your parents will have to agree to cosign the loan and put themselves on the hook for the debt if you cannot pay.)
But sometimes borrowing more than your starting salary can be worth it. Indeed, there can be good academic and personal reasons to borrow more for the right school.
Take the case of Annie Gudorf, who graduated last May with $70,000 in student debt and 11 months later says she has no regrets. As a high school senior, her college choice came down to Marquette University, in Milwaukee, and Loyola University in Chicago. Hailing from a small town in Ohio, Gudorf knew that after graduation, she wanted to work in public relations or marketing and that she wanted that job to be in a big city – specifically, Chicago. Problem was, Loyola would cost her $5,000 more per year, meaning an extra $20,000 in debt.
But Loyola was a much better fit with Gudorf’s academic, professional and personal goals, and she decided that since she would need to borrow $50,000 over four years at Marquette, she’d take on the extra $20,000 in debt to made sure she got what she wanted out of college. “I put a lot of thought into it,” she says. “Where could I get the most out of it? Which school is going to let me come out better in the end?”
Once she made the decision, Gudorf didn’t agonize over it. Instead, she worked every minute to put herself in the best possible position upon graduation. “I didn’t take one elective, because I knew that if I took an elective I’d have to take summer class,” she says. And she did a ton of internships in Chicago, starting her sophomore year.
One of those internships led to her current position as media relations specialist at Walker Sands Communications; by December of her senior year of college, she knew the job was hers. And while the grace period on that $70,000 of student loans just ended in November – an event, she admits, that prompted a bit of a freakout – her monthly debt payments have not eclipsed her gratitude for the education and opportunities she received at Loyola.
“In the end, I’d never say I regret taking on the debt,” she says. “Now it’s the normal thing, everyone has debt.”
Corryn Muench, who graduated from Marietta in 2012 with roughly $68,000 in student loans, was faced with a similar choice between affordability and opportunity, though the gap was more extreme than Gudorf’s: the Kentucky native could have gotten in-state tuition and scholarship money from Eastern Kentucky University and graduated with less than $20,000 in debt. “But at EKU I would have had to create my own major and navigate things on my own, and it was worth it to have a curriculum that was already built, plus a secondary degree that I had my eyes on,” she says of Marietta, which ultimately awarded her a BFA in graphic design and a BA in advertising and public relations, degrees she puts to good use at her job as a digital & design marketing manager at Campus Living Villages in Houston.
Muench was not without her doubts about the level of debt she was taking on for these degrees, though. She admits that during her sophomore year, she even looked into transferring to a public college right outside her hometown. “I really considered it, even applied, but when I found out none of my credits would transfer – it was a waste of time and money,” she says. “In hindsight I’m so glad I did not transfer. I’d probably still be in school right now. The degree they offered was a five year degree, and they weren’t going to take any of my credits.”
Instead, the resources at Marietta – plus her own determination to make every credit hour count – ensured that Muench graduated on time, after just four years. Looking back, she credits Marietta’s small class sizes and professors that really pay attention to students and their success.
“I had professors where if there was someone missing class, he would have people calling them, asking, ‘why aren’t you in class?’ They’re people who care you’re going to succeed,” she says.
Ben Miller, a senior policy analyst in the education policy program at the New America Foundation, says this commitment to helping kids finish their degrees in four years is a huge selling point – and, given the choice between a school with a high four-year completion rate but a hefty side of debt versus a school with a lower four-year completion rate but less debt, it might be better to go with the pricier school.
“A school might cost $5,000 more a year but it’s worth it. It might actually be a better deal because you’re more likely to finish,” he says. “Picking a college is hard because there are so many dimensions. But there could be instances where the college is so cheap, the odds of finishing are so low that you might be better off spending a little more money to improve your chances of finishing.”
There is research to back Miller up on this. A July 2013 study out of the Georgetown Public Policy Institute noted that the 468 most selective colleges spend anywhere from two to almost five times as much per student, and that this “higher spending in the most selective colleges leads to higher graduation rates, greater access to graduate and professional schools, and better economic outcomes in the labor market, when comparing with white, African-American, and Hispanic students who are equally qualified but attend less competitive schools.” The study goes on to say that greater resources in these 468 schools “confer substantial labor market advantages, including more than $2 million dollars per student in higher lifetime earnings, and access to professional and managerial elite jobs.” (And, it’s worth adding, careers that bring personal and social fulfillment.)
Graduation rates aren’t the only metric to pay attention to, adds college consultant Nancy Griesemer, founder of College Explorations. To get a sense of the quality of the school, check out the freshman retention rate. “That’s very important. Some colleges will tell you they don’t like the way that number is computed,” Griesemer says, “but if it’s low, that tells you something.” Not only does a low freshman retention rate mean the school’s doing something to turn off a large number of students, but it also means that you risk paying for a fifth year of college, because often, transferring to a different school means an extra semester or two to make up for credits that aren’t compatible with the new school. And as Muench found out when she was investigating a transfer, that fifth (or worse, sixth) year can add a significant financial burden.
Miller notes that when comparing schools of similar academic quality – say Cornell against Dartmouth, or Clarkson University against Duquesne – the “odds of finishing” metric isn’t as relevant, because you’re likely looking at schools that have similar means of helping you finish in four years. However, if you’re comparing a Clarkson to a Cornell, the equation shifts from weighing completion rates to comparing the brands as a whole.
“I think name recognition probably is somewhat worthwhile,” Miller says, noting that employers can be unsophisticated in their hiring. “Paying a lot of money to go to a private college that no one’s heard of is probably not the greatest investment.”
In an era where the value of even going to school is constantly questioned –a Google search of “is college worth it” yields 1.5 billion results –and when student loan debt outweighs credit card debt in the U.S., you risk making yourself unpopular if you stand up in defense of not just the degree, but the debt too. However, David Wilezol, the guy who literally helped write the book on the value of higher education – “Is College Worth It?” which he co-authored with former secretary of education Bill Bennett – is willing to do just that.
“There are some schools where it can be worth it to borrow more than might be [acceptable] otherwise. There’s a certain list of schools out there whose names ring out among employers and ordinary people alike,” Wilezol says. “If you’re going to borrow $60,000 or $70,000 to study computer science at Stanford or English at Harvard or Columbia, I think people will honor the name on that diploma in ways they might not otherwise from other schools.”
Even personal finance guru Ramit Sethi, a guy who makes his bread and butter telling people how to protect their bottom lines, has admitted, “I wouldn’t take on $40k of debt to attend Chico State. Actually, I wouldn’t pay $10 to go to Chico, and I would rather send my daughter to a Chinese prison than the 4-year gangbang that is ASU or UofA. But I would easily pay $40k to attend a top-tier school like Stanford, Harvard, or Yale because of the education, caliber of peers, and opportunities available at schools like this.”
This is not to say that you should absolutely borrow as much as possible to go to the school with the highest name-brand value that accepted you. Part of the reason Gudorf and Muench have been able to handle their monthly payments is because they each created a plan and ruthlessly stuck to it, refusing to pay for summer classes or a fifth year of school and taking advantage of every networking and internship opportunity so that they’d be well positioned to get jobs in their desired fields (which, they did). In short, they maximized the opportunities and resources their schools offered them. So yes, a school’s name might open doors, but the qualities that contribute to that school opening doors –a strong alumni network, a good career services center, the quality of the education and the happiness of the students who are enrolled – are just as important, if hard to calculate in the same way you would a net price. Even so, there are certain questions you can ask and categories you can analyze that can help illuminate a college’s worth before you are blinded by its net price.
Many of the experts interviewed for this piece said that colleges can fudge the “where our graduates are working!” report that most career services compile by omitting the number of students who declined to answer or who are unemployed, but you can still get a sense of what the school can do for you by asking, “who shows up at job fairs?” “what kind of recruiters come on campus?” and, “do you have connections in [insert desired field of work here]?”
As for those prestigious alumni networks, college consultant Griesemer says they’re important but are hard to assess. “Virginia Tech has a wonderful network within Virginia, but the University of Michigan has an amazing national base of alums,” she says. So you have to ask yourself, are you happy staying in state or do you want to stretch your wings and move to other areas of the country? And then you ask the college, “where do graduates end up? Do they have opportunities outside of the state?”
Nat Smitobol, an admissions counselor with IvyWise, cautions high school seniors not to get starry-eyed by celebrity or billionaire names on the alumni lists, because there’s a difference between visibility and connectivity. “If you go to NYU and you’re in the film business and Martin Scorsese went there, you’re not going to reach out to him to get a job,” he says. Instead, what you want is an active alumni network that will actually help you get a job, and one way to assess that activity, Smitobol says, is to assess the school’s endowment per student body: take the dollar amount of the school’s endowment and divide it by the number of enrolled undergraduates, and you have a sense of the resources that school is able to devote to each student – and, in turn, one measure of what alums and generous donors are giving to the school.
Or, you could jump straight to Matt Schifrin’s Grateful Grads Index, which estimates a school’s return on investment by weighing not just how much money alums are giving, but what percentage are giving back. The list is a great way to see which schools have inspired a lifetime of loyalty from their alums by providing their students not only with monetary success, but also career satisfaction and fond memories of their undergraduate years.
And of course, there’s Payscale’s annual ROI report, which assess the cold, hard cash: the earnings – both 20-year-earnings and year-over-year return-on-investment rate – that alumni rake in as compared to the cost of attendance. This year’s tool is interactive and especially robust, as it allows you to sort schools based on factors like major, type of school (public, private, etc), and by housing situation (on-campus, off-campus, at home), which allows you to robustly assess the scenario most resembling the one you intend to create for yourself in college.
Even after you’ve evaluated all of these factors, there’s still the question of how you feel like you fit at a school, socially, academically, even politically or religiously if that’s important to you. “It’s a very personal decision. Like anything you spend a lot of money on you have to make a decision, is it worth it to you?” Griesemer says.
“It’s not as black and white as just comparing numbers,” says Matt Mendolera-Schamann, a 2006 graduate of St. John Fisher in upstate New York who doesn’t regret for a second the $35,000 in student debt he took on. And, he has a good way of putting his educational debt load into perspective. “If you’re taking on $20,000, $40,000 in debt, remember that most people spend that much on a wedding,” he says. “You’re going to get a lot more out of your college and a lot more time to pay it off than one really big party.”