In my Wednesday review of Ron Lieber’s college-cost book I promised my own streamlined take on how to think about higher education. One of the great shortcomings of Lieber’s book is that it’s focused on parents: the “You” in the title refers to you, the parent, rather than “You,” the student. Unless you plan on taking your children’s tests for them, “You” the parent are mostly irrelevant to the process, so this post is intended to be read and digested by “You” the student.
Where to apply
There are a handful of schools that it’s worth applying to if you stand even a chance of admission, but it’s truly only a handful. If you have a GPA above 3.8, an SAT score above 1550, and an interesting life story, you should apply to Stanford, Harvard, Yale, and Princeton, removing any of the four you wouldn’t attend for other reasons (if you grew up in New Jersey you might eliminate Princeton, for instance). You shouldn’t plan on being admitted, but it’s a cheap ticket with somewhat better odds than the lottery: even a 5% admission rate is thousands of times higher than your odds of hitting a Powerball jackpot.
Next, apply to the top one or two public in-state colleges and universities. You know these better than I do, but in California it’s UC-Berkeley and UCLA, in Maryland it’s College Park and Baltimore County, in Virginia it’s UVA and the College of William and Mary, etc. If you come from a state without nationally-recognized public colleges and universities, then you may skip this step, unless you plan to remain in the state or go to graduate school (if you go to graduate school no one cares where you went to college).
Specialized areas of study
Finally, you need to decide if there’s a specialized course of study you want to pursue. It may sound obvious, but colleges and universities are divided into departments: not every department exists at every school, and not every department offers courses in every specialized subfield.
For example, if you want to become a biomedical engineer and spend your career working on artificial vaccines to fight the next plague, you need to apply to schools with biomedical engineering programs. That means MIT, Cal Tech, Johns Hopkins for elite students, or Georgia Tech, Michigan, or Arizona State for residents of those states.
If you want to achieve language fluency, your options are likewise limited to Middlebury College or one of the schools in the federal Language Flagship program. That’s not to say you can’t or shouldn’t take language classes at other schools, just that those classes will not get you anywhere close to fluency, which requires a specialized program built around it, in the same way that anybody can take a class in draftsmanship but architecture is the science of making sure the resulting building doesn’t fall down.
I am deliberately avoiding the pernicious tendency to tell you to pick a “valuable” major that is going to speed you along your career path or accelerate financial success. I am simply telling you to be aware that if you have specific interests, you should apply to schools that serve those interests. I don’t think the close study of Latin and Greek classics in the original is a particularly remunerative field, but if that’s the field of study you want to pursue, you should apply to St. John’s College in Annapolis, Maryland, or Santa Fe, New Mexico. If you don’t, you won’t have the opportunity to study what you want to study.
Finally, you can and should line up your applications with your qualifications so you’re not wasting application fees.
Where to enroll and what to pay
There is (almost) no such thing as a “merit scholarship”
If you went to high school in the late 90’s or early 00’s, you may recall the groaning shelves in your counselor’s office filled with 3,000-page tomes describing various “scholarships” you could apply for. You may even have shown up to scholarship night at the local Elk’s Club to sing and dance for the Pachyderms. Rid yourself of these disgusting thoughts immediately: your starting point should be, there is no such thing as a “merit scholarship,” in the sense of your academic achievement being translated through some kind of rigorous process into money that you can use to pay for college.
Now that our minds are clear, there are two exceptions: some individual universities have separate scholarship applications for specific pots of money. It’s absolutely essential to differentiate these actual scholarships from “merit discounts,” the grants off the sticker price that universities give students with good grades and test scores in order to attract them.
For example, like literally every university, the University of Montana has a pool of money it calls the “Academic Achievement Scholarship” in order to reduce the sticker price for high-achieving in-state students. But they’re crystal clear, “Montana residents are automatically considered for this merit scholarship when they apply.” This is a merit discount: they offer lower prices to high-achieving students than lower-achieving students because lower-achieving students are less likely to have alternatives.
On the other hand, the University of Montana also offers something called the Presidential Leadership Scholarship, which requires a separate application to the Davidson Honors College. Most colleges no longer have these separate scholarship applications (instead they “holistically” evaluate every applicant for merit aid), but if you’re applying to a school that does, make sure you apply.
The second exception is National Merit Scholarships, but we need to be very clear in our terms here. National Merit Scholarships are at their core a weird branding tool, which essentially give schools an opportunity to target marketing material at promising students after they take the PSAT in their sophomore or junior year of high school. At the overwhelming majority of colleges and universities, there is no such thing as a National Merit Scholarship in the sense that matters: a National Merit Scholar who would otherwise receive $10,000 in grant aid instead receives $9,000 in grant aid and a $1,000 National Merit Scholarship.
There are a very small number of schools that, in order to boost their statistical rankings, really do offer scholarships to National Merit Scholars, and if those schools fit your other needs, you should certainly apply. Some of the links on this website are a little out-of-date but should give you a general sense of which schools this applies to.
Where to enroll
Fortunately, because of all the work we’ve done above, this is the easy part. Since you’ve only applied to schools you’re willing to attend, attend the school with the lowest out-of-pocket cost. This is relatively easy to calculate, but there are a few traps here. Your out-of-pocket cost is correctly understood as your total cost of attendance minus grant aid.
School are pretty good about calculating your total cost of attendance, which typically consists of tuition, room and board (for on-campus students) or estimated food and housing costs (for off-campus students), books and equipment like computers, and mandatory fees.
Schools are pretty bad about calculating your aid. You can typically split an award letter into four buckets:
- First are grants like federal Pell and SEOG awards, institutional need-based aid, and institutional “scholarships” like those discussed above.
- If you qualify, you’ll see a federal work-study award.
- You should also see some combination of “direct” (i.e. federal) subsidized and unsubsidized loans.
- And finally there may be a remainder called something like “family contribution” or “PLUS loan” amount.
Ignore the last three. Your out-of-pocket cost is your cost of attendance minus your grant aid. All else being equal, attend the school with the lowest out-of-pocket cost.
Of course, all else might not be equal. A lot might have changed since you put together your list of schools in November and you receive your financial aid award letters in May, and the school with the lowest out-of-pocket cost may not be on your list anymore. That’s totally normal. But among the remaining schools, the ones you do still want to attend, pick the one that will cost you the least.
How to pay
Now let’s look at #2-4 on the award letter.
Work-study awards are not financial aid. This should be obvious, but tuition is due at the beginning of each term while money is only received for work as it is performed (and usually several weeks after that). Mechanically, work-study income cannot be used to pay for higher education. Don’t get me wrong — it can be used to pay for lots of things! It just can’t be used to pay for higher education.
I have no serious objection to taking out direct subsidized student loans (at the school with the lowest out-of-pocket cost). These loans don’t incur interest while you’re enrolled, have a low fixed interest rate (currently 2.75%) and a low maximum of $19,000 over four years of higher education and $23,000 total.
Direct unsubsidized loans are a slightly worse deal, since interest accrues while you’re enrolled, but have an even lower maximum of $8,000 in total borrowing, so if you exclusively take out direct loans, you’ll graduate with “a bit” over $31,000 in student loan debt. Even better, these loans are eligible for income-based repayment (IBR), which limits the percentage of your income you’re required to pay each year, and extinguishes the loans entirely after 20 years.
What happens if, after applying grant aid and direct federal loans, there is still a remainder? This is where schools expect parents and other relatives to chip in. The three ways to do so are by contributing current income, spending down savings (whether through specialized accounts like 529 plans, Series EE savings bonds, or withdrawals from brokerage or retirement accounts), or taking out additional, parental loans.
Fortunately, solving this exercise is simpler than it looks:
- 529 plans offer tax-exempt internal compounding of dividends and capital gains, but the tax benefits (if any) are only realized on withdrawal. If an account’s value at any given moment is less than the total contributions to that account, the entire balance can be withdrawn tax- and penalty-free. If on the other hand an account has gained value, then all withdrawals are made proportionately from contributions and gains, whether or not they are used for eligible educational expenses.
- Current income can be used to pay for higher education expenses, but it can also be used to contribute to taxable or tax-advantaged investment accounts (or for current expenses).
- Direct PLUS loans have a fixed interest rate and repayment term between 10 and 25 years (30 years if the loan is consolidated and income-contingent repayment is chosen).
What this gives you is a huge amount of optionality across the three choices, because in any given year, you can use them in any combination. If in year 1 a 529 account is showing large gains, then it can be aggressively spent down tax-free. If in year 1 a 529 account is showing large losses, you can take out a direct PLUS loan to cover that year’s educational expenses, and give the 529 balance time to recover. Likewise, if in year 4 the 529 account is still below water, it can be cashed out tax- and penalty-free to repay any PLUS loans taken out in the preceding years.
PLUS loans offer one additional form of insurance worth considering: they’re extinguished on the death of the borrower (or the student). This gives a kind of asymmetrical information advantage to people who either become parents later in life or who become ill after their children enroll, since the borrowed money never has to be repaid by anyone.
How to attend college
This, ironically, is the part that Ron Lieber gets closest to right, despite not being the focus of his book. To get the most out of your higher education:
- spend as much time as possible;
- in the smallest classes possible;
- with as many tenure-track faculty as possible;
- while completing your degree requirements as quickly as possible.
Obviously on the one hand this is a “wisdom to know the difference” kind of situation. If you’re a biology major, you’re going to sit in some extremely large biology lectures because that’s how introductory biology is taught. But even if your degree requires some large introductory lectures, I guarantee there are classes in your department and in other departments, that have small faculty-taught seminars with no prerequisites. The second you arrive on campus, find the interesting ones, take as many of them as possible, and make yourself obnoxious.
There are two competing forces in American culture regarding higher education. An enormous marketing machine is dedicated to convincing you that higher education is a “mood,” what matters is how you “feel” and how good a “fit” you are. The other, equally absurd force wants you to believe higher education is “career training,” where you learn “marketable skills” and “invest in your human capital.”
The point of this post is to convince you that higher education is neither a mood nor an investment. It is much more like a trip to Disneyworld. Everyone pays a different amount and everyone has a different experience, based on the amount of work they’re willing to put into planning, preparation, and execution. And just like planning a trip to Disney, your goal should be to pay as little as possible for the most rewarding experience you can possibly have.