How College Gets Paid for: An Open Letter

I wrote this letter to one of our children when they were preparing to select a college. I have attempted to anonymize it.

BSU is “Big State University.” This was a bigger state school they were interested in.
BSU College: is a specialized school within that university
SSU is “Small State University.” This was one of our home state schools.
Other terms have been replaced with a description in brackets, like “[some dollar amount]”, “[your sibling]”, etc.

(Clearly, since I discuss a sibling’s experience with college, it wouldn’t be hard to rule one of my kids out. I understand that.)

I am happy to report that after reading this letter, discussing the decision with us, and going on some campus visits, my child selected Small State University which will give them a great education in the program they want. With some work over the summers, they will likely emerge from college with little student debt, and maybe even none at all.

This is Creative Commons licensed in the public domain. Do whatever you like with it. I hope it helps you in some way.

Dear [child]:

We’re writing this letter to explain your college situation. There is important information in this letter, so read it twice. Think about it for a week, then read it a third time.

Some of the information in here might seem negative. We don’t mean it to. But there are some harsh realities about college that you need to understand. We want to make sure you understand everything now, so that you can make informed decisions over the next year.

Here goes –

To get a college degree, there are three challenges:

Getting accepted to a college
Paying for college
Completing the curriculum and graduating from that college

We’re not concerned about #1. You have good grades and will complete a good application. You will likely get accepted by multiple colleges.

We’re also not concerned about #3. You’ve been a good student, and we have every expectation that you’ll graduate just fine.

This letter is all about #2: how college gets paid for.

College is expensive. We don’t want to scare you, but it’s likely the top one or two most expensive things you’ll buy in your entire life. It’s unfortunate that you have to make decisions about a purchase like this when you’re only 17, but here we are.

The cost of college is split between a bunch of things:

Tuition
Textbooks and other fees
Room and board (at the college itself)
Other living expenses

This is important, because some people think college is just about tuition, but it’s not. There are always extra costs, and during this time, you have to live. You have to have a roof over your head and food to eat. So, you have to support yourself away from home, plus pay for one of the most expensive purchases of your life at the same time.

We want to give you a clear idea of what this looks like for a four-year degree.

Your cheapest option is a state university in [our state]. This is your “baseline” – the most affordable thing you could do. You should really compare every option to this and consider the difference in cost compared to the benefits you’ll receive.

So, we’re going to compare costs between that and your dream school of Big State University.

With no financial aid, this is what your raw expenses would look like –

Small State University will total about $92,000 ($44,000 of this is tuition)
Big State University will total about $180,000 ($100,000 of this is tuition).
…and just for fun, Harvard would total about $280,000 ($180,000 of this is tuition)

One point should be clear: different colleges have different price tags.

The above numbers mean BSU will cost $88,000 more than SSU. And this matters – a lot of students think they just need to get into “a college” without considering that there’s a shocking difference in how much College A costs over College B. The difference in cost is very real, and it has to be paid for. Paying more for college is fine, so long as you get something of value for that extra money – and we’ll discuss this more below.

Colleges don’t want you to completely understand the enormity of the cost. They’ll never quote it outright. They hide it as best they can. For example, they only quote the number “after expected financial aid,” etc. They go out of their way to hide the total costs – you have go looking for these numbers.

They do this because the number is legitimately terrifying. Maybe not for high school students, because you have no frame of reference, but your parents know how big this number actually is. The $180,000 price tag on BSU is more than we paid for our house.

The money to pay for college will come from five combined sources:

Money from your family (this is us).
Financial aid from the school itself. They don’t give you this money, they just reduce your tuition costs.
Grants or scholarships from other sources. There are organizations that provide scholarships for various reasons. You have to apply for them, and they’re competitive.
You, in the form of money you get from working during school, or any savings you have.
You, in the form of debt you’re willing to take on and pay back later.

Let’s get family money (#1) out of the way –

Your parents will be giving you $[amount] for college (not per year; that’s in total).

This number sounds random, but it’s not – it’s the same amount we gave [sibling], proportionately increased for the amount that tuition has increased since they went. Tuition costs are going up sharply, every year. We did the math, and the amount we gave them back then is equal to $[amount] today.

In practical terms, this means that when the bills related to school start rolling in, we will contribute about $[amount] every school year towards them. When we use up that number for a given year, we will stop paying until the next year.

As for financial aid (#2), we feel like you’ve understood that your financial aid depends on how good your high school grades are, how good your ACT score is, and how good of an overall application you can put together. Financial aid will probably be your biggest source of school funding. The strength of your application is very important here.

We can’t really predict scholarships (#3), but this is important. You Mom saw the other day that there were 67 different scholarships you can apply for. Every dollar that someone gives you, is a dollar less that you have to pay. What you need to do is apply for as many scholarships as you can, because it’s free money.

This will take time to do, and you need to commit this time. Over the next year, you should be filling out scholarship and grant applications. Think of it like a well-paying part-time job. You’re spending time do it, but you will get access to money that will more than compensate you for that time.

(Financial aid and scholarships together are huge – [a friend’s son] got so much aid and scholarships that he only has to pay $3,000 per year in tuition to go to [a prestigious school].)

For your investment (#4), you do not have any savings, but I trust you would be able to get a part-time job during school, which would cover some of your living expenses. Additionally, during the summer, if you come home and work hard, you can probably make $5,000 or so to save for expenses in the next school year. This would be a huge help – that’s $20,000 over four years.

(Your brother worked hard one summer and saved $7,000 before going back for senior year. Because of this, he didn’t have to work at all during their senior year. This is a very good thing to do.)

Which brings up to student loans (#5). We’re gonna talk a lot about this, because it matters –

You could probably attend any college, no matter how expensive, by just taking out a ton of student loans. They’re very easy to get, so you could find money to go to any school by just signing your name on enough loan applications. And a lot of people do this.

But it isn’t smart.

Understand that a college doesn’t care about your financial future. They don’t really care if you graduate or not, and they don’t care if you’re weighed down under tens of thousands (sometimes hundreds of thousands) of dollars in student loans.

Why don’t they care? Because student loans are special – they’re guaranteed by the United States government. If you don’t pay, the government will pay, and then the government will come after you. So, colleges love student loans. They want students load up on them, because every dollar a student borrows is another dollar the school gets, and they don’t have to worry about ever getting paid back.

Understand that when a school helps you get a loan, that doesn’t mean this is a good idea. The school is not getting this loan for because they think you can pay it back. They don’t care. They want you to get a loan for one reason: to pay them. What happens to the loan – or to you – after that is not their problem.

(We are not saying that everyone who works at a college is a bad person. But colleges are businesses. They can’t worry about you personally. You are a business transaction to them.)

Student loan debt can be crippling. Students often don’t realize how much debt they’re taking on, because a lot of the loans are “deferred,” meaning you don’t have to pay them back until after you graduate (however, the interest starts adding up right away).

It’s not uncommon for students to work and work to get a degree, without even knowing how much debt they owe. All this time, they kinda know in the back of their mind that they’re racking up a lot of money in loans, but they’re trying not to think about it. Then they graduate and find out they owe tens of thousands of dollars more than they thought they did.

Worse, sometimes they can’t get a job. So, they have to defer the loans – ask for more time before they start making payments. All this time, interest is adding on and adding on. When they finally run out of options to put the debt off, they might find that they owe 2-3 times more than they originally borrowed.

This debt can be confusing, because people don’t take out one loan. They take out multiple loans, and they all come due at different times with different due dates and payments. But know that a day will come, when you’re 23 or 24 years old, when you’ll have to start writing a check every single month to a bank somewhere. You get your degree from a university in a few years, but you’ll be sending money to a bank for a decade or more.

I repeat: this will happen. No matter how much a college tries to minimize the cost, or how they try to distract you with stories of how you’re going to get a great job, or how much they brag about how fun your four years there are going to be, or how long until you can delay the moment when you have to start paying – you will pay for what you borrowed, probably more than once, when you count interest.

There are millions of people in their 20s and 30s right now who have just been destroyed by student loan debt. They sometimes don’t pay it off until they’re in their 40s.

And even when they manage it well, it’s still a lot. Look at your brother – he wasn’t dumb, but went to an expensive school, and transferred once which caused them to lose a bunch of financial aid. The biggest expense he pays every month is a student loan payment. This payment is more than his rent.

Someday, your friends are going to take a weekend trip to Chicago to go see Hamilton or something. When this happens, you want to be able to do that, and not be stuck at home because you can’t go with them and make your student loan payment for the next three months.

College is fun, but it only last four years. You might be paying off the loans for three times as long. And while you absolutely want to have fun in school, don’t do it in exchange for being shackled to a massive pile of debt until you’re in your 30s.

So, you need to make a smart choice of college, and you need to justify any extra expense over your baseline (again, your baseline is SSU), because you will pay this extra expense. The money we are paying is a set amount, no matter where you go to school.

If you pick BSU and it’s $88,000 more than SSU, you will pay this $88,000. We’re not saying you can’t or shouldn’t go to the more expensive school, you just need to ask yourself, “is the extra expense worth it to me?”

So, why would you pick one school over another? A few reasons:

You think you will get a better education there
It specializes in the program you want to learn
It’s a prestige school, so something like Harvard or Yale
It’s inexpensive because of cheap tuition, or it’s close to family so you can live at home, etc.
Intangible reasons – you just like the campus, your parents went there, you’re a fan of the sports team, whatever

Let’s consider BSU against these criteria:

BSU will give you a fine education, but so will any other school, so this isn’t really a differentiator. You get out of college what you put into it, and no college is magically better than another. You could go to the most basic school in the country, work hard, and get a better education than a slacker at Harvard.
BSU has the BSU College, which is selective, but will this actually get you a better job? Meaning, will someone notice that you went to BSU College and be more likely to employ you because of this? Probably not. A credential like that is something that helps you get into a graduate school. I doubt any prospective employer outside of BSU’s state would even know what BSU College is. Most employers just want to know that graduated with a relevant college degree of some kind – they don’t really care where you went to school or how good the program was there.
BSU is not a prestige school. It’s certainly a fine school, but no one is going to give your resume a second look just because you went there. It’s a fairly average state university.
BSU is not cheap. Out-of-state tuition is expensive, and you will be far from home.
BSU has a lot of intangibles. You like the campus, you want to be warm, and you want to get away from home.

BSU is about $88,000 more than SSU. You need to acknowledge why you want to go to BSU, and you need to ask yourself, “are those reasons worth $88,000?,” because you will pay this $88,000, one way or the other.

Eighty-eight grand is a lot of money. That’s about half of a house. You’ll be paying that money back for a decade. We know you want to get away from the winters, but do you want to pay $88,000 for that? (And there are warmer schools that have in-state tuition, so there are other options.)

What this means is that even if you get accepted at BSU, you need to evaluate the financial aid package, compare the final cost to your baseline, and ask yourself what you could do with the difference if you had that money in your pocket.

We feel like BSU is a “reward school.” If you have a fantastic ACT, GPA, an application, you might get rewarded with enough financial aid to attend there at basically the same cost as SSU. If you don’t have these things, you can still go, but you have to pay for the difference out of your own pocket, and we don’t feel that it’s worth it. But, as we’ve said, this is your decision.

With any luck, you’ll get a huge financial aid package from BSU, and none of this letter will matter. Our fingers are crossed.

We want to stress that we’re not trying to scare you with this letter. It might seem scary, but that’s because this is very serious. There are a lot of people who made terrible choices about college finances who say, years later, “I wish someone would have explained it to me” or “I was too young to make good decisions about this stuff.”

Just this week there was an article that talked to people who felt “crushed” by their student debt. The opening quote was:

“You will forever be a slave to something you signed your life away to when you were a stupid 17 or 18-year-old.”

We don’t want this to happen to you, so we’re explaining this in the most basic terms we can come up with, without sugar-coating anything.

College is expensive, and student loans sometimes feel like magical, pretend money – you can get as much as you want, and you don’t have to pay it back right away. It just falls from the sky.

But it’s not magic. It will get paid back like any other money you borrow. And we’re not exaggerating when we say that it can completely change the course of your life if you’re not careful with it.

(Like we said at the beginning, keep this letter, and read it again in a week.)

Love,

Mom and Dad