The New York Times has a great Op-Ed today about the Expected Family Contribution (EFC) calculation, which I recently encouraged all parents with college-bound kids to check out.
My main take-away from looking at my own family’s EFC estimate on the College Board site was jaw-dropping because there is Just.No.Way.
Where would an ordinary (non-wealthy) family be able to come up with that kind of cash to pay for college? Every year? For just one kid?
The answer, of course, is that very few families can come up with that kind of money, so students and their families take out extraordinarily large student loans.
The New York Times Op-Ed explains the pernicious effect of the federal government-calculated EFC. When all families receive a ‘government number’ it sets an artificially high floor for college tuition prices.
The Op-Ed also explains why some high-priced private universities may offer cheaper educational access to students than public universities, via the private universities’ generous financial aid packages.
The article also helpfully reviews some of the not-applicable, and not-generous, federal grant money available to families.
Finally, the Op-Ed recommends that Congress drastically cut the EFC by 75%, to reflect the fact that tuition cost hikes since 1980 have drastically outstripped inflation.
This proposal will not go over well in higher education circles, to say the least. Fortunately for colleges and universities, according to the article, they have spent a half-billion dollars lobbying Congress in the past 5 years, the eighth-highest special interest category.
Please see related posts:
College Savings and compound interest
Interview with College Advisor Part I – The insanely rising cost of college
Interview with College Advisor Part II – is the 4-year college financial model broken?
One source of college costs: administrators!
New York Times on funding your 401K Account vs. 529 Account
And another NYTimes follow-up on the confusing issue of FAFSA – determining the expected cost of college.
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2 Replies to “College Costs Op-Ed in New York Times”
Would you be inclined to perform a discounted cash flow analysis on this? For example, if a family was sending their child to college this fall, AND they were fully able to pay cash (from an educational tax deferred plan) what would their monthly contributions look like for the previous eighteen years?
Assumptions – gross household income in 2014 is $100,000, and was steady but averaged at 2% less for each previous year.
Total annual academic expense: $40,000 year one (includes living expenses). Expense increased by 3% each year.
Student earns degree in 4 years.
Returns would track S&P 500 (or other index) to keep it simple.
18 years ago, this disciplined family started stocking away $X each month in preparation?
Here’s a first approximation of an answer: