Top Colleges Are Too Costly — Even for Parents Making $300K

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More than three decades ago, not A Raja Viswanathan was a student in India hoping to get a graduate degree in mechanical engineering in the United States.

I applied to a bunch of schools in the US for my graduate studies from India and I got admission into one of the Californian schools, actually to Stanford University.

Not A Rajan got what seemed like the opportunity of a lifetime, but then came the price.

Tag for graduate studies. They said, all told, it will come to fifty two thousand dollars, and at that time it was more than our house itself. So even if my father sold off the house and was prepared to live in these streets, it would not be possible for me to attend.

His family couldn't foot the bill. So not A Rajan chose a more affordable path. He got his Masters from the University of Maryland and later an MBA from the University of Michigan, two state schools, and for the last thirty three years nat Rajan has lived in the US. He and his wife raised their family in the suburbs north of Los Angeles, today, he says, their after tax take home pay is about one hundred and eighty five

For graduate studies, I can understand taking out a loan, but for undergrad I want them to graduate loan free.

But both boys had a prestigious and expensive private school high on their lists, the University of Southern California.

We kept an open mind, saying, if you get in, then we will consider definitely. But because it is a private schools how are we going to pay for it? Was the question which was always lurking in the back of our minds.

Their older son wasn't accepted to USC. He ended up going to UCLA last year. Their younger son, Ayush, got some news.

So he called us on the phone and he was all excited and he said, diamond and I'm in. Of course, there was a packet which I've been mail after that. I still have the letter.

That acceptance letter also contained other information that not a Rajan says, dampened their excitement pretty quickly when.

We saw that the estimated tuition plus living expenses came to around ninety seven thousand dollars per year. Then we knew that it was not something that we could accomplish on our own, so it would be more than roughly around fifty five percent of the tekon PI.

The school did offer Ayush some financial aid five thousand dollars a year.

But ninety two to ninety seven thousand I didn't see much of a difference.

The family appealed, explaining that their older son was in medical school and between his living expenses and what USC was going to charge for Aush to go there, the family would end up spending seventy percent of their take home pay on the boys' education. But no luck.

We had probably around five ten minutes of conversation at best.

So not A Rajan and his wife began running the numbers to see whether they could pay for USC. Ayusha's college savings account certainly wasn't going to cover it.

Now.

Arajan took out a loan on his four oh one K, but that's still wasn't going to be enough, they wondered, what more they could do. Could they sell their home, maybe move to a less expensive state. And as the cost of college rises, middle class families all over the US are asking these kinds of questions. I'm David Gera, and this is the Big Take from Bloomberg News Today.

What they look at is their tuition costs and additional fees like books, room and board and things like that, and so they call that the cost of attendance or the sticker price. That number nowadays is ninety five thousand dollars for some colleges, one hundred thousand dollars for others. That price kind of scares a lot of people when they see it, and colleges are always adamant about telling people that with financial aid, most people don't actually.

Pay that what percentage of students end up paying that full sticker price.

In reality, half of students pay that price. That's still a lot of people. Well, when you're talking about ninety five thousand dollars at some of these schools, when.

You look at that sticker price, how do these colleges and universities justify the cost being as high as it is.

Colleges will say inflation has made the cost go up.

For sure.

COVID wasn't easy for these colleges as well, and they'll say that that's what it takes to educate their students. The way they justify the price is through financial aid. That's how they say, we have these wealthy students that can then help us educate these less wealthy students. But they're reaching kind of a breaking point where even the students that are considered wealthy in the college's eyes don't feel like they can actually afford to pay that big sticker price.

I also asked Paulina how colleges and universities determine how much financial aid to offer.

So when students are applying for financial aid. Everyone uses the application for federal aid culture. I remember that, yes, So basically what happens is families put in information about their finances, how much money their parents make, are they from a home with parents that are together or divorced, your home equity, any investments that you might have, to try and create a picture of what this family's income looks like. And then the fastest spits out a score

There are all sorts of tools that help students and families figure out how much college will cost. Paulina and Francesca took two of them, a calculator called my Intuition and another called Meadow, and use them to show how financial aid gets distributed.

Readers can go to our story and you can select your income. We have eight income profiles ranging from seventy five thousand dollars to four hundred thousand dollars and see the college is stacked up against each other and how much you would pay after financial aid and get arrange.

So you look at it more holistically, So who's benefiting from financial lad or getting most of it? And what's the point at which it begins to kind of diminish or go to zero.

Basically, when you make seventy five thousand dollars household income, you pay around ten percent of your income towards college costs. But then once you hit one hundred and fifty thousand, you start paying twenty percent of your total income. And families making anywhere from two hundred thousand to four hundred thousand are expected to pay the same financial burden. So that's like twenty percent across the board.

I asked this selfishly as a New Yorker in a city that's very expensive to live in. Is that something that they take into accounts or of what the cost of living is like in a particular geography.

So, actually, most schools don't make regional adjustments. So you could be making three hundred thousand and for a family in a Midwest town where I'm from, like Tulsa, Oklahoma, you are pretty wealthy and probably have enough money left over after your living expenses, maybe to pay for a ninety five thousand dollars education, but three hundred thousand for a family in New York, very different cost of living.

All of this, Francesca says, leaves a lot of families in the financial middle feeling squeezed.

So the people that fall in the middle that didn't get enough aid but then can't afford to pay the full sticker price, those are the families that are really feeling like they need to either take on loans or squeeze their finances to really go to these colleges that they've dreamed about going their whole lives.

Conventional wisdom used to hold that for people on lower incomes, public universities were the best option, with much lower sticker prices for in state students than their private rivals. After the break, why that's not necessarily the case anymore, and why the data show it might be a better idea for people from more modest backgrounds to aim for private schools.

From those two analysis, surprisingly we found that public schools can actually end up being more expensive because they have less resources. A family making seventy five thousand dollars ends up paying twenty three thousand dollars for a public in state public education, whereas a private school that has a lot of financial resources they would pay just eight thousand, So they'd pay three times more at a public school.

The ethos has been private school might be inherently unaffordable, go for the in state school. But what you've found kind.

Of, yeah, it totally it reverses that. But I mean there's a little bit more nuance to the math. So once you start making two hundred thousand dollars, a public school actually does start to become cheaper because you know, public schools overall, their sticker price tuition tops out around thirty thousand dollars, right, whereas if you're looking at a prestigious private school, you can be close to paying one

Paulina and Francesca found a clear correlation between the size of a school's endowment and how generous that college or university is with its financial aid. If you're from a low income family and you get into an ivy, you get significantly more assistance, But Francesca says most applicants to ivys, regardless of income, don't get in.

These students are left to decide between a handful of schools where up picking what school might give you the best financial aid feels a little random, and students have no idea how these schools calculate their financial aid, how they land at these numbers, So it kind of feels like Russian roulette deciding what school might be more affordable on the line.

In real terms, what does it mean for families who are kind of convincing themselves of the worth of these institutions and trying to make that math work. I mean, we're talking about a pretty substantial percentage of income in a lot of cases that would be going toward paying for college or university.

We actually did a project last year looking at the return on investment of college degrees. We analyzed over fifteen hundred schools, and that took into account, you know, the factors that a lot of families are thinking about today, which is, you know, how much am I actually going

Did reporting this story change your sense of that story?

Even like five ten years ago, whenever a student would get into that Harvard or into their dream school, I feel like often parents would say, you know, no matter the cost, like this brand name degree is going to be worth it. We'll take on whatever debt, We'll take on a parent plus loan, do whatever, like this will help you achieve the American dream and to climb the social ladder. But I think these days, because people are questioning the value of a college degree, it's a little

It was a dilemma that's surprised not a Raja and Viswanathan's son, I USh after he got into USC.

I mean, of course I knew that college cost something, but you know, it never really registered that that was like a thing that I needed to consider when I was making a choice of college. Like you know, I guess I sort of assumed that because students were able to go to these places, you know, I would be able to go to these places.

I Ush's parents tried to find a way to make the numbers work, but the math was brutal, just like back when not Aajen got into Stanford more than thirty years ago.

Does any of you going to be impossible for us to foot the bill? It hurt me quite a bit, was very very shocking for me to have to live through that moment again.

As a student. You spend so much time applying to these universities, writing those essays, you know, getting letters of recommendation, doing all of these things, and then you put in all that effort, you get accepted, You tour the campus,

Is now studying neuroscience. Like his older brother, he wants to become a doctor. In the meantime. To keep expenses low, I usually lives in a triple a dorm room he shares with two other students. He chose the school's most affordable meal plan. His dad says that all Ayusha's college costs are around thirty thousand dollars a year. That's a third of what USC would have cost.

A sticker shock. Seeing like the price of certain schools can be quite daunting. But if I were to speak to, say, a student who is considering to apply to these sort of elite schools, even a middle class student who may not get that much aid, that still might be very expensive for them. I wouldn't say to discount applying to, you know, an elite university or these kinds of places.

This is The Big Take from Bloomberg News. I'm David Gura. This episode was produced by David Fox and Rachel Lewis Krisky. It was edited by Patty Hirsch and Craig Giemona. It was fact checked by Adriana Tapia and mixed and sound design by Julian Weller. Special thanks to Anne Joy. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our executive producer is Nicole Beemster Boor. Sage Bauman is Bloomberg's head of Podcasts.