Weighing Price and Value When Picking a College

The Wall Street Journal
June 14, 2009

By SUE SHELLENBARGER

Facing shrunken savings and borrowing options, parents and students are making some tough trade-offs in choosing and paying for college, suggesting some shifting attitudes toward higher education may endure beyond the recession.

Old dreams of adult children earning degrees from elite, door-opening colleges or “legacy” schools attended by relatives are falling away in some families, in favor of a new pragmatism. Other parents and students are doing a tougher cost-benefit analysis of the true value of a pricey undergraduate degree. As parents wrestle privately with such emotional issues, many say they wish they’d begun years earlier to assess their values and priorities, long before their children’s college-decision deadline was upon them.

Tough College Tradeoffs

Throughout her childhood, Sarah Goldstein imagined attending New York University, says her mother, Rose Perrizo of Sharon, Mass. Sarah’s grandmother is an NYU alum; Sarah lived near campus with her parents when she was small. “In her mind, Sarah was always headed there,” Ms. Perrizo says.

But as Sarah’s college choice loomed last year, Ms. Perrizo, a real-estate appraiser, and her husband, Richard Goldstein, an attorney, “were agonizing over whether to pay $52,000 for one year at NYU, or $18,000” at their state university, Ms. Perrizo says. Both regard a bachelor’s degree as “only the beginning” of higher education for students like their daughter, who is interested in international studies; they hope to help with her graduate-school costs.

Finally, they sat down with Sarah and gave her a choice: They’d pay her way at the University of Massachusetts, or half her costs at NYU and she could borrow the rest. Sarah chose the debt-free route, but she was upset. The choice “was really hard,” she says; her peers, disdainful and heedless of costs, asked, “why would you want to go to a state school?” But after a successful year in the honors program at the University of Massachusetts, she is happy with her choice. Looking back, Sarah says, “it wouldn’t have made sense to pay $50,000.”

Ms. Perrizo says Sarah has learned an important lesson. “It’s like shopping at Loehmann’s vs. Bloomingdale’s. I’m teaching my daughter to be a good shopper and to pick value.” Ms. Perrizo’s only wish is that she had started talking about college costs earlier.

Such thinking challenges what Joseph Losco, an expert on the history of education, calls “one of the strange things” about the economics of higher education: “Universities and colleges don’t compete on price.” In fact, some college administrators fear lowering their sticker price will hurt their image, says Dr. Losco, chairman of the political science department at Ball State University, Muncie, Ind. Consumers have been complicit, largely because of what Ms. Perrizo calls “the baby-boomer notion that parents should give it all up for the kids.” In a May 2008 survey of 720 parents of college students by Gallup and Sallie Mae, a student-loan company, 46% said they had never, at any point, ruled out any colleges for their kids based on costs.

But now, “families are much more price-conscious and value-conscious,” Dr. Losco says. A soon-to-be-released Sallie Mae-Gallup study of 1,600 college students and their parents, conducted in March and April, says parents are increasingly anxious about tuition—and students are more skeptical about the value of a degree, compared with the survey from a year earlier.

Chelsea Thomas’s family was proud when she enrolled at Amherst College, in Amherst, Mass., and had an academically rich freshman year. Having a child at Amherst confers “bragging rights,” says Suzanne Thomas, Chelsea’s aunt who shares the college costs with the student’s mother.

When Chelsea’s scholarship expired after her first year, the family faced coming up with $26,000 to keep her at Amherst. That would have meant digging deep into savings that had been set aside for retirement, says her mother, Shelley Thomas.

Whatever It Takes

Relatives and friends pressured them, saying Chelsea “should do whatever it takes to continue” at Amherst, says Suzanne. Instead, the family decided that Chelsea would be happier as a financially independent young adult living close to family. Chelsea returned to the family’s home in Boulder, Colo., last year and became a partner in the real-estate-investment business that her mother and aunt own jointly.

Now 20 years old, Chelsea co-owns two rental houses and is working on a bachelor’s degree at a nearby public university. Chelsea says she misses her Amherst friends and the stimulating campus environment. Still, she adds, a degree from a top school “is worth a lot, but it’s not worth that much.”

Such thinking bucks the cultural view that an elite college degree is “the gold standard for both parents and students ... validating their worth in society,” Dr. Losco says. Now, more “parents are saying, ‘I don’t have the money to get you where you want to go,’ ” he says.

Even when the economy picks up, some of this new price-consciousness is likely to endure. The engines that have enabled college costs to soar—easy credit, home-equity loans and growth in savings—have stalled. Total college costs are already up 67% in the past decade at private colleges and 84% at public four-year universities, based on College Board data, and graduates’ wages haven’t kept pace.

Parents and students are borrowing less for college, the forthcoming Sallie Mae study shows. The percentage of students from middle-income households who are attending state schools is rising, and more lower-income students are enrolling at community colleges, the study shows. “We would expect to see an even greater shift” next year, a Sallie Mae spokeswoman says.

Even for savvy parents who anticipated the costs, the trade-offs for a top-tier education can be steep. Pam Mousseau recalls hearing when her oldest daughter was a baby that a college education would cost $50,000 a year by the time she finished high school. Her daughter is now 19 and a sophomore at a private university, and the cost at many schools has indeed risen to match that earlier projection.

Promises Made

Nevertheless, Pam and her husband, John, have promised their three daughters that they could attend “the best school they get into,” according to John, a portfolio manager. The girls work and will probably take out modest loans, but their parents will pay the lion’s share.

“We always figured we would find a way to do it,” Pam says. The Mousseaus have refrained from taking equity loans against their 91-year-old Maplewood, N.J., home, conserving their borrowing power for college. The kitchen has a 1940s-era Magic Chef stove and ancient cabinets with multiple paint layers. “Some parts of the ceiling have fallen down,” Pam says. But redecorating is on hold. They drive two old cars and haven’t bought a third, even with four drivers in the house. And they’re bypassing vacations they used to take, skiing or relaxing in beach-side rental homes.

“Sometimes I think, ‘I’m 53 years old. Can’t I have a decent kitchen?’ ” Pam says. “But it’s momentary.” She and John both graduated from private universities with their parents’ help, and they want to do the same for their kids. “I’m glad to make the sacrifices,” John says. But with seven years of helping with college tuition ahead, he adds, jokingly, “check back with me in a few years, and see if I feel the same.”

Write to Sue Shellenbarger at sue.shellenbarger@wsj.com