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The Cold Hard Facts about Financing a College Education

We got good news recently. My daughter received her acceptance to Rice University. This is a highly competitive process so she is thrilled to have gotten the nod. She will join her older brother there next fall. While my husband and I are thrilled since we both attended Rice as well, we are not overjoyed with the financial impact. Here is the deal. Sending two children to Rice will take up over half of our annual income. However, because we have been living frugally and saving for this expense since the children were born, we qualify for zero financial aid. That is nada, zippo, nothing. If we had skipped putting money into our nest egg and taken a few European vacations the picture would be very different. Like most other universities, Rice’s tuition has increased by a factor of twelve in the last 25 years. Rice’s tuition still falls below most other universities of its academic caliber. Still, I question how the income from these tuition increases has been managed. At this point, I think the tuition payments will be the last money I send to the school. They have seen the end of my contributions to the annual fund raising campaign. Our potential contributions to the school are going to replenish our retirement savings.

That is why this announcement by Harvard caught my eye.

The initiative appears to make Harvard’s aid to students with household incomes of $120,000 to $180,000 the most generous to be offered by any of the country’s elite private universities. Harvard will generally charge such students 10 percent of their family household income per year, substantially subsidizing the annual cost of more than $45,000.

I really appreciate this initiative because it bases financial need on the annual income and doesn’t punish families who live a modest lifestyle and save their pennies. And before anyone mentions it, I do know that perfectly good college educations are available for much less than $45,000 per year. My oldest attends Texas A&M and the cost there is less than half the cost of Rice. If we didn’t have the resources to send two kids to Rice without their graduating tens of thousands of dollars in debt, I would not even consider it. I am applauding my youngest’s fascination with Texas A&M since I am not sure the nest egg will hold out for a third child to go to Rice at the rate tuition is rising. I do not believe the benefits of a big-name-school diploma warrant mortgage-sized debt. Of course the irony is that once the savings are depleted, we will probably qualify for financial aid. Hopefully, more schools will follow Harvard’s lead and try to keep the tuition as a reasonable portion of annual income and not punish families that scrimp and save. If you have been socking money away for college understand that you will definitely be using it for college. Don't think there will be any left over for your retirement. That nest egg takes you out of the running for need based aid. Under the current system if you haven’t gotten around to saving for college, don’t worry. The FAFSA based system has money for you.


Anonymous said…
Yes we have 2 at University expensive..
Barb, sfo said…
In 2 years I will be figuring these very things out. "darned if you do, darned if you don't" I guess.... Congratulations to your daughter on her acceptance to Rice!
Catholic Mom said…
Thanks, Barb. It is an exciting opportunity. I guess I am just frustrated that the current system of assessing financial need rewards those who rack up debt and don't save and punishes those who strive to live debt free.
Rosemary Bogdan said…
This is so true. Notre Dame costs a similar amount. However, their scholarship allotment is more generous. Although we have a good income and substantial retirement savings my son received about half of the cost per year in scholarship money. Penalizing saving is ridiculous. I have wondered if families with mom at home may be penalized too...
Jim said…
Congratulations to your daughter, Dr. Hunnell, on being accepted to Rice University. Your husband and yourself have certainly raised some great children! Well done.

"Rice’s tuition still falls below most other universities of its academic caliber. Still, I question how the income from these tuition increases has been managed." -- Dr. Hunnell

I know very little about Rice and its financial affairs. That said, after a cursory review of Rice's web site, it would appear that Rice is doing an excellent job of providing financial aid to its poorer/middle-class students (e.g., students whose families have a tough time saving for anything because they are paying for things like clothes, food, mortgages, health insurance, etc.) Unless I am reading this wrong, for students from families with incomes less than $60,000 US (30,000 pounds UK) per year, "Rice will meet 100% of need eligibility without student loans."

Source: New tuition and financial aid policies!

Now while that may be of little comfort to yourself and your husband (or most others who often boast of living in "the wealthiest county in America"), Rice's commitment to its students from very modest means is, to me, certainly commendable and should be encouraged.

"The initiative appears to make Harvard’s aid to students with household incomes of $120,000 to $180,000 the most generous to be offered by any of the country’s elite private universities. Harvard will generally charge such students 10 percent of their family household income per year, substantially subsidizing the annual cost of more than $45,000." -- Dr. Hunnell

And how many billions of dollars have grateful alumni and others pumped into Harvard's endowment over the last few centuries -- an endowment, I might add, that provides Harvard with hundreds of millions of dollars in income each year, and which makes the tuition scheme mentioned above feasible? How many private universities outside of the Ivy League can boast of anything even remotely close to the size of Harvard's endowment? With all due respect -- and I have enormous respect for you, Dr. Hunnell! -- to intimate that other universities like Rice are doing something wrong because they are financially unable to offer tuition breaks for its students who hail from families that are, quite frankly, in the top 2% of wage earners is to come pretty close to being disingenuous. Harvard, Princeton, Yale, Brown and only a few others are, because of their enormous endowments, uniquely situated to offer tuition breaks that other universities such as Rice could never hope to offer its upper middle-class students.
Catholic Hubby said…
Guess what arrived in the mail today? Yep, it's Rice University's annual fund request. Maybe it is time for a second mortgage, time to stop eating, quit paying bills or...time to say no.

ps, does Rice still have the second largest endowment of any University behind Harvard?
Catholic Mom said…

The key here is "need eligibility". This is based on the FAFSA. This formula penalizes you for your savings. We have worked hard to live debt free. Another family with the exact same income but who has chosen to spend and accumulate debt will be eligible for need-based aid.

Here is the interesting thing. Rice was free until the late 1960's. If you got in, there was no tuition. Even when I attended in the late 1970's the tuition was only $2500 per year. It was always ranked as one of the top educations for the buck. I don't think that is the case any longer.

Be careful when you hear that the school is meeting 100% of student needs because this is based on what the school calculates your need to be. Rice thinks over 50% of annual income spent on college costs is acceptable.

My daughter was also accepted to Drexel and she was offered a 50% reduction in the tuition there. Their tuition is only slightly higher than Rice tuition. The calculation of need is not consistent from university to university.
Jim said…
"ps, does Rice still have the second largest endowment of any University behind Harvard?" -- Catholic Hubby

At $4.6 billion, Rice's endowment is certainly impressive but it nonetheless no where close to being second behind Harvard.

Source: List of U.S. colleges and universities by endowment

Incidentally, if you, "Catholic Hubby," are the hubby of whom I suspect you are, then I have an enormous amount of respect for you as well, Colonel. God bless.
Catholic Hubby said…
Thanks Jim, I recall from my student days hearing Rice was second. However, Jim you are right Rice is not even close but #19 on the list. And judging from the magnitude of difference, if it ever was #2, it has been down the list some time.

Interestingly, it is ahead of Harvard in the category of endowment size per student.

Yes it is I. Catholic Mom is off soccering and left the computer unattended. So I braved a visit and a comment to her blog.

Merry Christmas to all!

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