January, 2012 |

Is college a worthwhile investment?

College planning is a regular part of our business here at Vaerdi. And with college costs on a never-ending upward slope, one question we deal with quite a bit is this: Is an expensive college worth it?

I don’t think any single study is going to give you a useful answer. Why? Because the biggest variable in the decision isn’t the college. It’s your kid.

Here’s why:

There’s no doubt that there are lots of other possibilities for your money besides paying extra for an Ivy League-type school. That money’s going to come in pretty handy for your own retirement. You could also use the money as a gift to your children to start their own businesses, or as a down payment to help them get into that first home. For lots of kids, it makes great sense to join the military and come back, Post 9/11 GI Bill in hand, to pick up most or all of their college costs. (Incidentally, a six-year enlistment gives the family that much more time to save money!)

Social Capital

On the other hand, there’s also no doubt that a degree from Stanford, Yale, Harvard, Cornell, Georgetown, or other top-tier university has substantial value for some people. Why? It’s not the education so much. We’ve all known some pretty dumb Ivy League graduates – and Ivy Leaguers have known more than most. The real key to these schools is social capital. There is no doubt that many of tomorrow’s leaders in business and government will come from a handful of these schools. Over the coming decades, this year’s elite university graduates will be in a position to hire and award contracts to hundreds of thousands – perhaps millions of people. Those whom they went to school with will have the inside track. Students who go to Ivy League schools are also more likely to have parents and aunts and uncles who went to these schools – and who are themselves in senior leadership positions in industry and government. When you pay extra to send a child to one of these universities, you are making an investment decision: You are deciding to convert financial capital into social capital.

That’s where you have to make a decision as a parent. How likely is your child to be able to convert that social capital back into a career advantage, sufficient to recoup your family’s investment? Does she make friends easily? Does your son like being around people? Are they active in social activities in high school? Are they natural leaders? Career opportunities don’t come from the want ads anymore – they come from your Outlook list of contacts. If your child is the type to leave college with a huge list of people to call, then it’s more likely that investment in an elite school is going to pay off.

If your child is more solitary, then networks have less of an opportunity to work on her behalf. In this case, you might be better off saving on tuition, and maybe having enough left over for her to pursue an advanced degree that will help her compete for more lucrative career opportunities later.

This may also be true if your family has other sources of social capital, and your child has many other ways of making these connections.

Consider the Career or Major

Another factor, of course, is the intended career field. A public school teacher from Oregon State University is going to make the same amount of money as a teacher from Harvard, and a lieutenant in the Marine Corps with a commission from Oregon State’s Naval Reserve Officers Training program is going to have the same basic pay as a lieutenant from Yale. In other fields – business, politics, law, finance, sales, and many others, the network of very affluent families your child has a chance to build at an elite university is of immense potential value.

The bottom line: Your child is by far the most important factor in the decision.