Money for the Rest of Us

The Minneapolis Star Tribune published a story today about whether it matters if you attend a “big name” college.

The first student profiled, Luna Yang, has “already been admitted to the University of Michigan and has been offered a full ride at the University of Minnesota. … But the mystique of schools like MIT and Harvard tugs at her.”

What will be the financial impact of her choice of school?

The article briefly discusses research on lasting effects of the college you attend:

“Research on the subject is mixed. Some studies have found that attending an elite school pays off in higher wages over a lifetime, while others say it’s the background of students — things like parental education and income — that has lasting effects.”

While the research about salary effects of an undergraduate school is “mixed,” it would seem that certain school choices in post-college education will greatly affect salary.

For instance, according to Princeton review, the average starting salary for a graduate from Harvard Law School is $125,000. Compare this to another competitive, top 20 school: the University of Minnesota Law School. The Princeton Review states that the average starting salary for a graduate from University of Minnesota Law School is $75,000. Despite the fact that Minnesota is also a “top” school (albeit, not top-5), the name appears to make a $50,000/year difference.

Personally, despite the mixed research, I think that attending a big-name school will impact your earnings—but is it worth it to go into that much debt? And at what point should you attend that big-name school—for college or for post-college education?

I went to a state school on a scholarship. I got into several “big-name schools” but turned them down because it just didn’t seem financially worth it to me. Why? Because I knew that I wanted to continue my education beyond a Bachelor’s Degree. My parents had set up a 529 account for me that would have covered about 1.5 years at an ivy-league school. The deal was that I could use this money to attend any school at any level—undergraduate, law school, Ph.D, etc. (I think my parents would have helped me out a little more had I decided on an expensive school, but I still would have had to take on a great deal of debt.)

When I made my college decision it wasn’t all about money; but money was a factor. Attending a very good state school with a scholarship just seemed like a better investment in my future. I wouldn’t have to go into debt and when I graduated I would still have some of the money in the 529 account to help with further education.

And this is exactly what happened. I graduated from undergrad debt-free. Even better, I got scholarships to attend a big-name graduate school and am able to use some of the 529 account to cover living expenses. (There are lots of tax-issues here, but you are allowed to take out certain “Room and Board” costs tax-free from a 529).

My overall philosophy was that the last school I attended would have the biggest effect on my job prospects and salary. Thus, by going to a state school for my Bachelor’s I could attend a big-name school later on.

If you had to give financial advice to Luna Yang would you recommend—based on future finances alone— that she attend University of Minnesota on a scholarship or (assuming she gets in) MIT with no scholarship?