College Choice: Affordability is Critical

Written by Greg Houser, pictured above on left with brother Pete Houser on right.

College is a life-changing waypoint on the journey of life. Countless studies have shown the positive impact of higher education; conferring knowledge and enriching graduates with relatively higher incomes which altogether benefit our society. However, it is not enough to be qualified for this opportunity. Prospective college students must carefully weigh their decision on school choice not only in terms of perceived benefits but also the costs incurred. Is it worth the cost? In other words, is it affordable?

Students and parents should frame the question of college affordability in terms of the relationship between benefits and costs; what I call, “Return on Education” (ROE). Benefits or returns would include qualitative and psychic factors including: school reputation, academic strength in the desired discipline, teacher to student ratio, face-to-face teacher accessibility, school policies on teaching vs. research, size of the student body, campus location and ambience, campus social life, proximity to cultural institutions and events, notable urban or natural attractions, networking and internship opportunities, alumni mentoring, etc. The quantitative element, determining your subsequent earnings power, requires a studied and critical look into the future. The costs or investment in education would include tuition, fees, required study materials and devices, living expenses, travel, etc. Obviously, there is much to be considered if you are determined to be resolute in your decisions about which college is preferable and how you are going to pay for it.

Many of these considerations in the ROE relationship are subjective and what is lost in mathematical precision can be overcome with a rigorous process; yielding a range of outcomes respective of best case and worst case assumptions regarding career prospects and remuneration. It’s really like preparing for a test: inquire, review and analyze. Importantly, this “test” will have a profound influence on one’s life for years to come. Just be confident that your assessment of the ROE ratio yields benefits that exceed costs.

A fortunate few can pay for college with some combination of family financing, personal savings, scholarships, grants and on campus or off campus jobs. Most will need to incur some amount of student loan debt to afford college but it is imperative to exhaust all avenues of potential non-debt support before borrowing. Critical resources available to you are your school’s Guidance Counselors and College Admissions personnel for schools where you are applying. Also, research the many scholarships available for need, merit, ethnicities and specific academic majors. Beyond your high school scholarships available, check out community foundations, private foundations and college alumni. Also, you should be able to access critical information on your future ability to pay off student debt obligations through College Admissions and Career Placement officers. Remember, we are in the era of Big Data so your target schools should be able to answer many questions regarding their graduates’ post-college success (by major) respective of employment and income.

Flat out, college is very, very expensive. Tuition cost growth (inflation) has soared: four times greater than general inflation (Consumer Price Index) since 1979. Annual tuition costs for in-state public colleges is $11,000 and $23,000 for out-of-state; while a whopping $38,000 for private schools. The sobering analogs are that student debt is now $1.75 trillion (second only to home mortgage loans) – a doubling over the last 10-years and equating to an average loan balance of $40,000.

In a relevant twist on the famous Latin admonition, “buyer beware” (caveat emptor), borrower beware (caveat qui mutuum accipit)! While student loan borrowing certainly enhances college affordability, for many, it has become an egregious burden with negative ramifications for job mobility and advancement – even affecting home ownership and family formation. Illustrative are recent, cautionary headlines: The New Student Debt Crisis and High Debt Hamstrings New Professionals. None of this negates the necessity of student loans for many, if a college education is to be realized. It is the amount of borrowing that is critical. So, how much debt is advisable relative to a conservatively-derived expected salary given your targeted schools’ empirical record with graduates, your hiring desirability, markets chosen and strength of employment with preferred employers? Unfortunately, there is no universal, one-size-fits-all answer. The Rule of Thumb is that your total debt should not exceed the average of your first 2-3 years of annual income. In your accumulation of student debt, be prudent, be judicious and be mindful that college affordability is of paramount importance when making your school choice.

Greg is a lifelong member of the Multnomah Athletic Club and a past President of the Multnomah Athletic Foundation. He is a graduate of the University of Oregon and received an MBA from UCLA. Now retired from a 45-year career in the investment management industry, his interests include investing, writing essays and philanthropy. His passion for scholarship is highlighted by the establishment of the Houser Scholarship with his brother, Pete. In partnership with MAF, responsible for administration, the Houser brothers grant 2-year college scholarships to deserving Lincoln High School graduates.