I was so astounded by the clip I found in a blog post on TheDigeratiLife.com, about a student who incurred $275,000 in debt going to New York University (NYU) in New York City, that I had to turn my comment on the site into a blog post.
The student in the clip (Ryan) definitely made some wrong decisions from a financial perspective. He turned down a full scholarship at another school to go to NYU in the middle of Manhattan. NYU is a great school, but it’s not worth paying over a quarter million dollars more than another school, provided that school is at least an average school.
Many pick the best school they get into and go there, so Ryan is not unusual. It may be based on prestige or the belief that they will get a better education, be more employable, or make more money. However researchers have found that when you look at students of similar abilities and aptitudes, on average, students that go to less prestigious schools are just as employable and make as much money as students who attend more prestigious schools.
In a time when college costs are more than ever, Ryan had a chance to go to school for free. Even if it is a below average school that you are comparing to NYU (based on some criteria such as ranking, reputation, or actual quality), you really have to weigh the pros and cons of going into all that debt. A second mistake Ryan made– he could have gone to NYU for closer to $200,000 in debt, even with interest, by borrowing less and spending a little less to live on while at NYU. He could have spent under the NYU estimated expenses, but instead he was over by over $50,000 over 4 years even using the 2010-2011 NYU student budget (NYU states that undergraduate tuition for 2010-2011 will be $37,485. The total cost of Room and Board (on/off campus) $18,512.00, Books and Supplies $800.00, Transportation $684.00, Personal Expenses $4,315.00, Basic Health Insurance $1,376).
After 2 years out of school, Ryan has only paid off about $12K. His NYU degree did not keep him from being laid off from his employer and he lives in Pennsylvania above a gas station with roommates and commutes to New York 2 hours each way everyday for his current job. He does this to try to stretch his budget. At least he is young and has time on his side, although at his current pace he will be close to 50 years old before his loans are paid off. I really can’t blame him for his choice (although I don’t know what his alternative school was), but even he regrets his decision given all of this debt. He admits that while he did the math, he did not care about the cost before he decided on NYU.
I can relate, but only a little. I had debt when I graduated from law school (a long time ago), but it was only around $65K, even though the estimated cost per year for law school for room, board, tuition, fees, living expenses, was about $33,000. I probably made it on about $28,000 per year. I also worked during the summer, saved as much as I could, and tried to manage my debt. I took out as few loans as possible and received some financial aid. I felt that I had to get a high paying law firm job and I was lucky to get one. My income, budgeting, frugal ways, and money management, helped me reduce this debt.
Like any other consumer purchase, you need to consider several factors when choosing a college: the academics, the faculty, the students, class size, social life, location, etc. Just remember to factor in the cost and really sit down so that you and or your child at least know what you are getting into financially before you make your college choice.