Ask Carrie: Carrie Schwab Pomerantz - The Personal Side of Money

College Finance: Is a Private College Worth the Cost?
by Carrie Schwab-Pomerantz, CFP®, President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.
January 20, 2010

Dear Carrie,

My daughter will be a freshman in September 2010, and while we wait to learn where she's been accepted, we're wondering your thoughts on public versus private colleges. The tuition difference is enormous; is a private university worth all that extra money?

—A Reader

Dear Reader,

Paying for college is always a hot topic, but you've raised a particularly interesting aspect of it: Is there a way to compare the value of a private college versus a public university? As you point out, the cost difference can be substantial: a year at a private school can easily top $50,000, while a year at one of the publicly-funded university in a student's home state can be less than half that—and sometimes considerably less.

There is no question that college is an investment in a child's future. But it's not the kind of investment where you can easily calculate a rate of return or even measure the value in any rigorous or analytical way. I think it would be somewhat foolish, for example, to try to figure out if a degree from Harvard translates into better earnings power. When it comes to determining earning potential, I believe that other factors are much more important than where someone goes to college—things like ambition, work ethic, and career choice, for example. (However, in researching this column, I discovered a website that tries to assess a person's creditworthiness and income potential by using factors like college choice, test scores, grades, and major; you can check it out at HumanCapitalScore.com.)

In other words, I don't think you can quantify the dollar value of your education investment. But private education is extremely costly, so by all means try to understand what you're getting—rather, what your daughter is getting—for the money to see if it makes your decision-making easier.

  • First, talk to your daughter about the kind of academic and career paths she envisions. An ambitious student with extraordinarily high career aspirations may find the challenges of an elite school to be just the ticket. And some schools do present networking opportunities that can be invaluable for some professions. If your daughter wants to work in the White House someday, an Ivy League education may be worth the investment; but if she wants to become, say, a dentist, the cachet of an elite institution may not matter as much.
     
  • Second, find out what kind of environment will be the most appropriate for your child. Would she thrive in a big, bustling university? Or a more community-oriented smaller school? Does she crave the excitement of an urban campus or the quieter pleasures of a college in a small town? These aspects of the college experience may be more important than the public/private divide—and may help you figure out a more suitable (not to mention more economical) alternative to a private school.
     
  • Third, and I think most important, explore with your daughter what a college education really means. Yes, it's preparation for a career, but it's so much more than that. College is preparation for life. It's where she’ll start to learn how to make her way in the world and how to be self-reliant. And college is one of the best ways to broaden her horizons and explore new subjects, an experience that can transform her goals and ambitions forever. To my mind, the school that's best equipped to do that is worth the cost.
Remember, too, that few people pay the "sticker price" at college these days. Some of the better-endowed schools are very generous to families with low or moderate incomes, and, according to the College Board, more than $168 billion in financial aid is doled out each year. So the gap between public and private may be smaller than you think.

I believe that most students can get a great education at a wide spectrum of colleges. At the end of the day, the name on the sweatshirt is less important than a student's enthusiasm, love of learning, and study habits. So I'd focus on the college's culture and how it meshes with your daughter’s needs.

The bottom line is that when it comes to choosing a college, don't only look at the price tag. Look instead at what kind of institution will serve your child best. Good luck—to you and your daughter!

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction and investment strategy for his or her own particular situation. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

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The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

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