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Why Do Smart Kids Make Dumb Decisions About Private School?

The College Of William & Mary
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I’ve long wondered why people still spend a fortune attending private school when education is 100% free now thanks to the internet. I attended The College of William & Mary from 1995 – 1999, a public school that charged $2,800 a year in tuition (~$10,000 a year all-in) because I felt guilty having my middle class parents pay for my education. I wanted to pay them back and knew that worst case, I could with a minimum wage job.

I’ve also wondered who are the kids that attend our nations most elite private schools? Are they that much smarter than the rest of us? Or are their parents so rich they don’t think twice about the astronomical price tags? Something must be wrong giving the student debt issues we keep hearing about.



I had a 3.7/4.0 GPA, was the captain of my varsity tennis team, and won a couple academic awards but didn’t have a snowball’s chance in hell of getting into private school mainly due to my mediocre SAT score. Then again, I’ll never know for sure because I never applied. The gap between in-state tuition versus out-of-state tuition or private school tuition was just absurd. 

I’ve invited reader Money Commando to break down the private versus public school debate as someone who graduated with the most lucrative major from one of the most selective private schools. Take it away MC!

A new school year has started and for high school seniors that means worrying about the biggest decision of their young lives – where to go to college. Students and their teachers pore over the latest college rankings, schedule school visits, download applications, and hope to get into their dream school. Applications are filled out, fingers are crossed, and when the acceptance letters come back students and their families are forced to decide what school to attend.

On its face, the selection process seems simple – go to the highest ranked school you get into, regardless of the financial sacrifices required. After all, an education at one of the elite private universities will pay for itself, right?



I’m not so sure.

About Me

I graduated in 1998 from Stanford University with a degree in Computer Science. I had originally gone to school wanting to be a physics major. I’d loved Physics in high school and was convinced I’d love it in college as well. The Physics program required a few introductory Computer Science classes, and after taking them I realized I liked the CompSci classes a lot more than I liked my Physics classes, so I switched majors. Talk about getting lucky!

I had stumbled into what ended up being the single most lucrative degree of the last 20 years (at least according to an analysis done by The Atlantic a few years ago that analyzed the average earnings for different degrees at different schools). Here is the graph from the article:

The most valuable college degrees



But here’s the thing – just because a Stanford CompSci degree resulted the highest average income over 20 years doesn’t necessarily mean that getting a Stanford CompSci degree was the best educational investment. This graph shows the earnings; it doesn’t factor in the cost of the degree itself. Here’s a better way to look at the decision – even if we assume that a higher ranked but more expensive school is a “better” school, is it worth the additional money to attend that school? Is a fancy private school, in fact, worth the additional money?

Educational ROI – Computer Science majors

Tuition at Stanford in 1998 (the year I graduated) was about $21,000/year, or approximately $84,000 for 4 years. According to the graph, the average Stanford CompSci degree was worth $1.7M over 20 years. That’s a 20.24x return over 20 years, or a 16.2% return per year.

UC Berkeley (a public school) was number 3 on the list. The average UC Berkeley CompSci grad had 20-year earnings of approximately $1.55M, yet the tuition & fees at UC Berkeley in 1998 were only $3,799/year. Berkeley CompSci majors made 91.1% of what Stanford CompSci majors made, but only paid 18.1% the tuition. The Berkeley CompSci grad had a 26.0% return per year vs. the 16.2% at Stanford. That’s an enormous difference!



It’s clear that going to UC Berkeley and getting a CompSci degree would have given me a much better return on my college investment than my Stanford degree did. To get the same 14.2%/year ROI that I did, a Berkeley grad who paid $15,196 for 4 years of school would only need to make $216,297.43 over 20 years. Because the cost of tuition is so low it would be almost impossible for a Berkeley grad to not have a higher ROI than a Stanford grad.

Educational ROI – Average Graduates

But that’s only comparing Computer Science majors. How does the average graduate from public vs. private universities fare?

Payscale.com did an analysis of the early and mid-career (10+ years experience) salary potential for various universities in the US. Here they are, ranked by mid-career salary.

Rank School Name School Type Early Career Pay Mid-Career Pay
1 SUNY – Maritime College Maritime Academy $65,200 $134,000
2 Harvey Mudd College Private School $78,200 $133,000
3 (tie) Harvard University Private School $61,400 $126,000
3 (tie) United States Naval Academy (USNA) at Annapolis Military Academy $78,200 $126,000
5 California Institute of Technology (Caltech) Private School $72,600 $125,000
6 Massachusetts Institute of Technology (MIT) Private School $74,900 $124,000
7 Stanford University Private School $65,900 $123,000
8 Princeton University Private School $61,300 $122,000
9 Babson College Private School $60,700 $121,000
10 (tie) Stevens Institute of Technology Private School $66,800 $120,000
10 (tie) United States Military Academy (USMA) at West Point Military Academy $78,500 $120,000
10 (tie) University of Pennsylvania Private School $60,300 $120,000
10 (tie) Washington and Lee University Private School $54,700 $120,000
14 Carnegie Mellon University (CMU) Private School $64,700 $118,000
15 United States Air Force Academy (USAFA) Military Academy $71,900 $116,000
16 (tie) Colgate University Private School $53,700 $115,000
16 (tie) Tufts University Private School $54,200 $115,000
18 (tie) Cooper Union for The Advancement of Science and Art Private School $62,700 $114,000
18 (tie) Rice University Private School $63,900 $114,000
18 (tie) University of California – Berkeley Public School $59,500 $114,000
21 Santa Clara University Private School $58,900 $113,000

If we ignore speciality and military academies we see that the highest rated public university on the list is UC Berkeley at a tie for #18. The average early career Harvard grad makes $61,400 and the average early-career UC Berkeley grad makes $59,500. in 2016 the tuition at Harvard is $45,278 vs $12,972 at Berkeley. For a 4 year degree the Harvard grad pays $155,168 more in tuition yet only makes, on average, $1,900/year more after graduation.

Again, the private school doesn’t seem to make sense from a return on investment perspective.

Caveat – Almost Nobody Pays Full Tuition



Of course, it’s a bit more complicated than that, because we’ve been comparing the list prices of the schools. Here’s the reality – the published tuition for a university is like the MSRP on a car… almost nobody actually pays it. Only the truly wealthy pay the full list price. Everybody else receives at least some financial aid.

One of the main reasons the top schools are the top schools is because they have enormous sums of money at their disposal. Here are the universities with the largest endowments and the ranking of each university from US News:

School name (state) End of fiscal year 2014 endowment U.S. News rank
Harvard University (MA) $36,429,256,000 2
Yale University (CT) $23,858,561,000 3
Stanford University (CA) $21,466,006,000 4 (tie)
Princeton University (NJ) $20,576,361,000 1

The schools with the 4 largest endowments just happen to be the top 4 ranked schools in US News. That’s certainly no accident. Larger endowments allow schools to pay for the best facilities, hire the best professors, and make other investments in their educational experiences.

It also allows them to offer financial aid, and most of it is need based. For example, in 2016:

Harvard

  • If your family makes less than $65,000/year you’ll pay nothing to attend Harvard. Harvard will cover all tuition, books, fees, room and board
  • If your family makes $65,000 – $150,000 your family will pay between 0-10% of income. That means the max you’d pay is $15,000 (10% of $150,000) per year

Stanford

  • Zero parent contribution for incomes below $65,000. There will still be a student contribution expected, coming from loans, summer jobs, etc.
  • No tuition for incomes under $150,000. The family will only be responsible for books, room, and board.


Given that the average family income in the US is $52,000, it’s fair to say that at least half of the students in the US would pay nothing to attend these top-tier schools.

My personal experience was somewhere in the middle. My parents were both in education and our family was probably upper middle class. Combined, they made too much money for me to get need-based grants but not enough money to be able to pay for everything themselves. They paid about 1/3 of the total cost to attend Stanford and I paid the rest through student loans and working (2-3 part-time jobs during the school year and a full-time job during the summer).

If you’re one of the students who will pay as much or less to attend a top private school as you’d pay to attend a top public school, it’s hard to argue against attending the private school. However, it’s not a slam dunk, as I believe there are both advantages and disadvantages to attending a top-tier private university.

Related posts: Should I go to public or private university? It depends on your guilt tolerance.

Advantages To Attending A Top Private University

You’re surrounded by great students

Jim Rohn has a great quote, “You are the average of the five people you spend the most time with”. One of the key advantages to attending a top school is the students you’ll be surrounded by for 4 years.

In 2015 Stanford was the most selective university in the country with a mere 4.7% acceptance rate. Stanford accepted less than 1 in 20 applicants, and the applicants were all at or near the top of their class. Just how selective is that? Look at it this way – there are approximately 37,000 high schools (public and private) in the US. Each incoming class at Stanford is about 1,750 students. Even if ONLY the valedictorian from each high school applied to Stanford there would only be space for less than 5% of them. The numbers are similar for all the top schools.



By definition, the students applying to and getting into the top schools are the best and brightest students. They are smart, driven, and hard-working. They genuinely enjoy learning, they want to take interesting classes, and they expect the best from themselves. They push each other. Being around other students like that is contagious.

In addition to taking classes with these students, you’ll have them as contacts later in life. We’ve all heard that it’s not what you know, it’s who you know, and it’s certainly an advantage to start your career with great connections.

But here’s the thing – there is essentially no difference between the incoming freshmen class at most of the schools. Just for kicks, I decided to look up the stats for the 2015 incoming class at Stanford, Princeton, UC Berkeley, and UCLA, taken from their admissions/FAQ pages:

Average unweighted GPA

  • Stanford – 3.95
  • Princeton – 3.91
  • Berkeley – 3.90
  • UCLA – 3.90

Average ACT score (75th percentile of students)

  • Stanford – 35
  • Princeton – 35
  • Berkeley – 34
  • UCLA – 33

Average SAT composite score (75th percentile of students)

  • Stanford – 2360
  • Princeton – 2380
  • Berkeley – 2330
  • UCLA – 2160


It’s clear that the students at the top schools, whether public or private, are essentially identical. They are all likely to be hard-working, driven, and success oriented. You’ll reap the same benefits from being around UCLA students as you would from being around Stanford, Princeton, or Berkeley students.

It’s A Wakeup Call

Let’s assume that Harvard only admitted students who were valedictorian of their high school class. These are kids who were the best students in their high school. These students walk into their first math class at Harvard, expecting to ace the class as they’ve always done. At some point during the semester one of those students is going to come to a terrifying realization – “I am the worst student in this class and every other student understands this material better than I do.”

Remember, this is a student that was the best math student at his high school! This student is probably better at math than 99% of college freshmen in the country. If this student went to a different school with a more typical distribution of students he’d likely be one of the top students in the same math class at that school. But here, surrounded by other top students, he’d struggle.

This was my exact experience. My first semester at Stanford was an eye-opening experience. I was the valedictorian of my high school class. I was used to getting straight A’s with little work. I arrived at Stanford and quickly realized that everybody around me was not only as smart or smarter than I was, but they were working harder than I was too! I was going to have to improve my study and work habits if I wanted to be successful.

Prestige

A very typical startup founder resume. They all have the same backgrounds.

A typical startup founder resume. They all have the same backgrounds. Yet, you don’t need a degree to be an entrepreneur!

Let’s face it – this is the primary reason most people go to a top school. Yes, they have amazingly beautiful campuses. Yes, they have professors who have won Nobel prizes and are doing cutting edge research. But ultimately, I think most high school kids want to go to a top school because they want to have that name on their resume for the rest of their lives. They believe that’s the ticket to success in life.

There is certainly some truth to this. There are employers that only recruit from top schools. Going to a prestigious school will certainly make it easier, all other things being equal, to get a great first job.

Disadvantages of Attending A Top Private University

Being a small fish in a big pond



When I arrived on campus my freshman year I was stunned to realize that approximately one-quarter of my fellow frosh planned to go to medical school and become doctors. By the time we graduated well under one tenth of my students planned to go on to medical school. What had happened?

It’s simple – by definition, half of the students in the pre-med classes had to be below the average. (Note: Stanford doesn’t actually have a pre-med major, so students who are unofficially pre-med usually major in Human Biology, Chemistry, or some similar science, but I’ll just call them all pre-med for simplicity). These students got C’s for the first time in their lives. For many students, this dissuaded them from continuing on the pre-med track. They told themselves that maybe they just weren’t meant to be doctors after all. They decided that maybe they weren’t as good at science as they thought they were.

It’s awfully tough to stand out when you’re surrounded by the best and brightest.

For some people going from being a big fish in a small pond to a small fish in a big pond is disheartening. Malcolm Gladwell writes about this in his book “David and Goliath: Underdogs, Misfits, And The Art Of Battling Giants”. His conclusion is that for most students it’s better to go to a university where you can truly excel rather than a university where you barely succeed. You build confidence, you are able to stand out among your peers, and you’re more likely to end up studying a topic that you’re truly passionate about.

Related posts:

Is an MBA a big waste of time and money?

Everybody should try a job in sales (Money Commando)

It’s Not Clear That a Top school Actually Adds Value



Does attending a top tier university actually provide a better education than an average school? After all, a calculus class at Yale probably uses the same calculus text-book that a class at University of Arizona does. A History major at Princeton has to take more or less the same classes that a History major at the University of Michigan takes.

I think the reality is that the success of graduates from top-tier schools is a function of their selectivity in admissions. Graduating from a top university says a lot more about how you did in high school than what you learned in college.

In addition, smart, driven, and hard-working people are likely to succeed regardless of what university they attend (or if they attend a university at all). That is, if you took the incoming class of Princeton and instead had those same students go to Rutgers (the top rated public university in New Jersey), it’s likely the students would end up just as successful. In fact, you could probably take those same students and have them skip college altogether and they’d likely do better financially than the average person.

Yes, the person attending a prestigious school will likely get a better job out of college, but as your career progresses it matters less and less where you went to school and more and more how you perform at your job. In fact, the person attending the less expensive school has a huge advantage – they’ll likely graduate with much less debt, which means they are freer to take chances.

This is important, because the real path to wealth isn’t through getting a salary paying job, it’s through starting a business or working at a job where you get paid based on production. It’s tough to start down those paths when you spend the first 10 years of your career paying off huge student loans.

Professors Care More About Research Than Teaching

My sophomore year I took a multivariable calculus class (I was still thinking I was going to major in physics). As you can imagine, this is the type of class where having a good instructor is important, as it’s not exactly a simple subject.

If the final exam for the class had been to pick my professor out of a lineup I would have failed. Why? Because I never saw his face. He walked into the class (always wearing exactly the same sweater with leather patches on the elbows), and spent the next hour with his back to the class, writing equations on the board. He didn’t ask or answer questions (although this didn’t really matter because he had such a thick accent that it was impossible to understand him anyways).

In short, he was terrible teacher. So why was he teaching the class? Because he was a brilliant mathematician.

I realized that the professors weren’t necessarily there to teach. The professors were the big names. They had won Nobel prizes and were doing cutting edge research. They were featured prominently in the school’s marketing literature. They were the ones who had written the (very lucrative) textbooks we used in classes.

And, as a general rule, they weren’t very good teachers.

There were exceptions of course, but the reality is that for many of the professors, teaching seemed like a burden. It was something to be endured.

I did have some great teachers at Stanford, but they tended to be lecturers, not professors. Lecturers weren’t on the tenure track and they focused on teaching, not research. They weren’t writing textbooks or publishing papers, but they were awesome at explaining things and answering questions and it was clear that they were investing considerable time in putting together interesting assignments.

The problem is that the university doesn’t advertise the lecturers. They fill the prospectus with information about the Nobel Prize winners that don’t want to (and probably shouldn’t) teach classes. I went to Stanford expecting every professor to be like Robin Williams in “Dead Poet’s Society” and every class to be a scene from “Stand and Deliver”.

My Experience Attending A Private University

I loved my time at Stanford. It was one of the formative experiences in my life. Through a combination of luck, hard work, and taking some calculated risks I’ve managed to put together a life that I’m very happy with. However, it’s not clear to me just how much attending Stanford had to do with my success.

The biggest benefit I got out of Stanford was realizing that I wasn’t NEARLY as big a deal as I thought I was in high school. I realized that if I wanted to do well I was going to have to put in some serious work. That’s a lesson that’s served me well ever since.

If I could go back and do it all over again I’d spend a bit less time on studying and lot more time on social activities to meet people outside my existing social circle. The reality is that the difference between getting an A or a B in a class is a lot less significant for your future success than widening your social circle and developing more “soft” skills. Since graduation nobody has ever asked me what grade I got in my “Data Structures and Algorithms” class, but I’ve been able to leverage my Stanford friends’ connections and knowledge many times throughout my career.

Public vs. Private – My Recommendation

It’s impossible to justify the list price of a private university. There’s no evidence that you’ll get a better education at a top private university than you’d get at an excellent public university. In addition, the difference in salary, both starting and mid-career, doesn’t vary much across different top schools, whether public or private.

Apply to a number of schools, both public and private, and don’t make a decision until your financial aid packages have been delivered. Depending on your family’s financial situation it’s possible that Stanford could cost less than the University of Arizona. Or, it might be that UCLA is 1/10th the cost of USC. Once you know the actual cost to attend the various schools you’ve been accepted to you can decide what’s the best fit.

Ultimately, a college decision should be made knowing that an excellent education can be had at many different universities, as long as the student is willing to put in the time and effort to study, work hard, and surround himself/herself with like-minded people.

Wealth Planning Recommendation

College tuition is now prohibitively expensive if your child doesn’t get any grants or scholarships. Therefore, it’s important to save and plan for your child’s future. Check out Personal Capital’s new Planning feature, a free financial tool that allows you to run various financial scenarios to make sure your retirement and child’s college savings is on track. They use your real income and expenses to help ensure the scenarios are as realistic as possible.

Personal Capital College Planning Feature

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There’s no rewind button in life. Therefore, it’s best to plan for your financial future as meticulously as possible and end up with a little too much, than too little! I’ve been using their free tools since 2012 to analyze my investments and I’ve seen my net worth skyrocket since.

Personal Capital Retirement Planning Comparison Chart

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The Money Commando is a software nerd who’s always been more interested in investing than technology. He spent the first half of his career in engineering before he realized that he’d never get wealthy unless he either started his own business or found a job where pay was linked to performance. He moved into a job in technical sales and started aggressively saving and investing with a eye towards early financial independence. He’s finishing his CFP (Certified Financial Planner) coursework with an eye towards a possible career change in a few years. The Money Commando has set a goal of having $120,000 of passive income by July 1, 2021.

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