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The Ivy League Dream: A Generational Holdover That Overlooks Disproportionate Cost

I grew up in a family that valued higher education tremendously. My late grandfather was a Cornell graduate and worked for IBM as an engineer for 35 years. Although he was not a wealthy man, he was financially comfortable and able to put all seven of his children (Irish Catholic, not surprisingly) through college and retire on his IBM pension.

For him, the Ivy League education paid off and was well worth the cost. When he started his undergraduate program back in 1940, the total cost of attendance (i.e. tuition and fees plus room and board) at an Ivy League school was $924/Yr.

In today’s dollars, that is the equivalent of $9,832/Yr. assuming 80 years with an average 3% inflation rate from 1940-2020.

For the current 2020-2021 school year, the total cost of attendance at Cornell is a whopping $77,911/Yr. ($59,331 for tuition and fees and $18,580 for room and board)!  So, the total cost of college has outpaced inflation by a factor of nearly 8!

Now, multiply that $77,911/Yr. by four years for undergrad plus a rational assumption of 3% cost raises each year and that comes out to $325,951 total!

And this is just for undergrad! What if your student wants to go to graduate school that runs an additional $300,000!? We’re talking over $600,000 for an Ivy League undergraduate and post-graduate degree without financial aid.

Keep in mind that a lot of this money would likely be in the form of student loans unless the family could afford these very high amounts. By comparison, the average public, in-state education for the 2020-2021 academic school year runs $26,809/Yr., coming to a total of $112,159 total for four years assuming 3% annual cost increases.

Financial Aid, Opportunity Cost, and Getting a Better Deal

As an example, let’s assume a family has two very smart children who both get accepted to in-state schools and a couple of Ivy League colleges as well. Let’s also assume that the family’s income and assets are too high to qualify for need-based financial aid.

Ivy League schools do not typically offer a lot of merit-based scholarships or grants. Their endowment money usually goes to families with low incomes and assets.

If you determine you will qualify for substantial need-based aid, then an Ivy may well be worth it.

Have you calculated your Expected Family Contribution yet? Use our EFC Calculator here!

Need-Based Financial Aid: General Rules

Here is a good rule of thumb for need-based aid at expensive universities:

  • If your family income is over $200,000, you are unlikely to qualify for much need-based aid.
  • If your family income is $150,000, you may qualify for a moderate amount of financial aid (~ $10,000 – $20,000/Yr.).
  • If your family income is $100,000 or lower, you will very likely get sizeable financial aid assuming relatively low assets (income counts “against you” much more than assets – 47% for income vs. 5.64% for assets after exceptions on the FAFSA).
    • Several prestigious universities now offer free tuition (or even the total cost of attendance) for students whose families fall under certain income thresholds. These income markers range from $40,000 – $130,000.

These rules of thumb have some exceptions. They do not consider assets, so it would be different depending on your family’s financial balance sheet, but this is a good way to set reasonable expectations. In addition, these top schools also require the CSS Profile, which delves deeper into your family’s financial situation and may spit out a different EFC than the FAFSA.

Let’s get back to our example of a family with a high income and assets. That means the parents (or whoever is helping with the cost) would save up to $427,584 ($213,792 X 2 children), as discussed in the previous section, by sending their kids in-state or to another college with a similar cost vs. an Ivy League.

Let’s take this a step further. Let’s assume these parents are 47 years old and plan to retire at 67, so they invest this $427,584 of savings. Assuming an 8% annual return, they would have $1,992,950 at retirement.

We realize many parents do not have $400,000 of “pocket money” lying around and will instead use some combination of income/savings, scholarships, financial aid, and loans to cover college costs. We used this full value in the example to demonstrate the sheer amount of hypothetical savings and returns you could receive by opting for a more affordable education.

The Value of an Ivy League Degree Based on Rate of Return: Perception vs. Reality

This begs the question – is an Ivy League education worth the cost if you can save $213,792 going in-state or to another out-of-state or private college with a similar cost?

After extensive inquiry and research, the general answer appears to be NO.

If we put on our nerd glasses and analyze the discounted cash flows and starting salaries of going public vs. Ivy League, the results point to public school being the better financial option. Here is the link to the analysis of this study done by Investopedia.

To summarize in a little more depth: Students who graduate from Ivies do tend to make more money right out of school, BUT their overall rate of return is not as good as you think. In fact, you would probably get a better return going to an in-state public.

Source: Investopedia, “Is an Ivy League Degree Worthwhile?”

Want to Study Engineering? Think Twice About Going to an Ivy

Two professors of economics from BYU demonstrated that going to an Ivy League or elite school for some subjects (e.g. STEM) literally gains you no advantage when it comes to future earnings.

Instead, where the elite institutions make a difference is in subjects like business or liberal arts, suggesting that the Ivies do excel when it comes to soft skills and peer/industry connections, better humanities grad programs, and possibly better faculty and resources for these subjects.

In the aforementioned article, the authors provide a striking example: “If an engineering student chose to attend the University of Pennsylvania instead of Texas A&M, the average starting salary would differ by less than $1,000, but the tuition difference would be over $167,000. At that slightly higher salary, you’d have to work for more than 150 years before you make up for that vast tuition difference.”

The overall conclusion, which aligns with everything we have presented today, is this: stop making your college decisions based on prestige alone. There are so many other questions you should ask to enable your student to find the right academic, social, and financial college fit.

What About the Intangibles of an Ivy League Education?

But what about the “intangibles” that you get from these schools? The incredible connections and soft skills that come from attending an Ivy League school or even another highly ranked, pricey university like Duke, Johns Hopkins, NYU, USC, or Georgetown.  Most of us have a sense that these networks provide a substantial advantage.

And they do – but generally only for underprivileged and first-generation college students who often don’t have access to these networks in the first place. Research done by economists Stacey Dale and Alan Kreuger found that most students see a negligible boost in earnings by going to a highly selective school. Put another way, if you take two students of the same caliber, and one goes to an Ivy while the other goes to an in-state public, they’ll make about the same amount in their careers.

Now, bring this info into your own college search. If your student is smart enough to get into Columbia, they can probably get a ton of merit aid at a lesser-known in-state or private school. Imagine paying a FRACTION of the cost for your student to be just as successful and satisfied as if they went to an Ivy.

What about evidence that is not entirely based on finances? The 2014 Gallup-Purdue Index, which studied 30,000 undergraduates and aimed to provide a more holistic measurement of a college degree, found no correlation between college selectivity and future job satisfaction or well-being.”

Wait, So Does It Even Matter Where You Go to College?

Yes and no. It doesn’t matter as much as you might think. And prestigious schools may not offer that much of an advantage to already strong students.

What does matter is that you find the right fit at an affordable cost and graduate in four years or less (if college is the path for you in the first place – a whole other topic!).

The Most Important Contributing Factor to Success: Engagement

We talk a lot about financial fit. But what about academic and social fit? Finding a school with your student that meets his/her needs and interests is crucial.

Engagement is the main ingredient needed for your student to thrive inside and outside the classroom.

In an excellent article written for the Wall Street Journal, Denise Pope of the Stanford Graduate School of Education, makes the point that “a school’s selectivity…is not a reliable predictor of outcomes, particularly when it comes to learning. As common sense would suggest, the students who study hard at college are the ones that end up learning the most, regardless of whether they attend an Ivy League school or a local community college.”

Some of us don’t want to hear this. We have a vision of prestigious schools as magical bubbles that will utterly transform our kids just by association. It doesn’t work like that. What your student does in college is more impactful than what college they go to. Of course, it does help if said college proactively pushes its students to be less apathetic.

This is not talked about enough. Parents put so much effort into getting their kids into good schools as if that’s the end goal. They should really be asking questions to determine the most engaging schools for their child – what schools are right for their student? How can their student squeeze every last drop out of what the college has to offer?

What if your student is not the most motivated, lacking in self-confidence, or has absolutely no idea what they want to do? It is crucial to find a school that is better at DRIVING engagement than others. Which colleges will go out of their way to help your student grow as a leader, writer, thinker, communicator, advocate, etc., and of course, get a good job after graduation? Which colleges have the resources, programs, and communities that will help your student thrive? Which colleges will motivate your student to get involved?

Further Reading: Loren Pope, Looking Beyond the Ivy League and Colleges That Change Lives

The evidence suggests it’s time for a mindset shift. Let’s stop focusing solely on getting our kids into the “BEST” schools and start focusing on getting our kids into the “RIGHT” schools.

Don’t Sacrifice Your Retirement for a Crimson ‘H’

College is an enormous lost opportunity cost to parents if they pay out of pocket.

In addition, people are living longer and may need their retirement and investment accounts to last for 25+ years, which can be very challenging. Ironically, the children they spent so much money on for undergrad may have to take care of the parents when they’re 90 because they ran out of money.

In my experience as a financial advisor for over 12 years, I see too many parents taking out large 401(k) loans, HELOCs, or anything needed to pay these high tuition bills. Although parents may feel they are being generous and caring, it may come at a huge cost later in life and ultimately be detrimental to both them and the student they are trying to help.

I see parents put a ton of pressure on their children to get accepted into top-ranked schools, and their kids undergo a ridiculous amount of stress. The tragic part: these schools may be terrible fits for their kids, and they are expensive. Double whammy.

While striving to be the best you can be is admirable and encouraged, this obsessive grind towards schools of the “highest rank and standing” may be motivated more by personal pride so that parents can tell their family and friends, “my kid goes to Harvard” and put that red crimson bumper sticker on their minivan. Part of this motivation, of course, is you want what’s best for your kid.

But how many parents stop and think about whether that environment is the right fit for their student? Is it worth the massive out-of-pocket cost to send your kid to an Ivy just for the sake of prestige?

Ivy League Schools Are Still Fantastic Schools: The Case for Graduate School Instead

Parents should indeed be very proud of their children if they get accepted to Ivy League schools for undergrad, but that does not mean it is necessarily a good financial or personal decision to do so.

I want to be clear that I am not anti-Ivy League or very prestigious schools.

In fact, my stepsister is finishing up her MBA from Stanford next year, and my stepbrother just landed a great job as a recent Harvard law graduate. However, neither one incurred high undergrad costs, and both still got into great grad school programs.

My stepsister went to Georgia Tech on a full-ride scholarship for undergrad, and my stepbrother went in-state to Virginia Tech. Keep in mind that graduate school can be funded with 100% federal direct loans in the student’s name regardless of family income or assets.

By contrast, the government only offers $27,000 total over the 4 years of undergrad, whereas there is no cap on grad school debt.

So, parents do not need to pay out of pocket for grad school and probably should not in most cases (assuming they want to retire one day).

Federal direct loans offer flexible, income-based repayment plans and even loan forgiveness under certain circumstances, so they are usually a much better deal than most private loans.

This is just another example of why federal direct loans are a good deal, even with somewhat high-interest rates of around 6% for grad school (only 2.75% for undergrad in early 2021). Please check out my other blogs and podcasts here that dive into these student debt topics in more detail:

(1) READ: Navigating Your Undergraduate Student Loans Wisely

(2) READ: Conquering the Beast of Graduate Student Debt

In summary, I think it is wise to consider the long-term consequences of paying for or loaning $150,000 – $300,000+ for undergrad. I think families are better off spending as little as possible for undergrad and saving the big bills for graduate school.

If your child earns an MD or JD from an Ivy League school, you can be confident that will lead to a successful career, and they will be able to afford the graduate school loan repayments. If your family is fortunate to have the resources to pay for graduate school, that is excellent. Most families, however (even very successful ones), should leverage these federal loans as the default option first, and then they can always help their child with the monthly repayments post-graduation if they want to be generous.

A Final Point: Academic Success Is Not as Important as You Think

In recent years, more and more attention has shifted to emotional intelligence as an underrated driver of career and leadership success.

As you probably know, most schools do not teach emotional intelligence, nor is it something you can necessarily learn from a textbook. Studies have shown that high EQ (emotional intelligence) is a better predictor of success than high IQ (intellectual intelligence or “book smarts”).

One study found that those with high EQ make an additional $29,000/Yr. versus those with low EQ. On average, each additional point of EQ adds $1300 to an individual’s annual salary.

Even more interesting, in a similar study done for IQ, each additional point of IQ is associated with only $202 to $616 of increased annual income. This is substantially less than the EQ payout per point gained. The amazing conclusion to the study: after controlling for comingling factors like family wealth, divorce, years spent in school, etc., the researcher found NO link between IQ and net worth.

The Takeaway: I am not suggesting that being book smart or having a high IQ is not valuable. Of course, thriving in school is very helpful and can lead to great success.

Attending one of the top educational institutions certainly offers plenty of advantages post-graduation. But do prestigious schools bolster the EQ of their students? And do they do a better job at this than the thousands of other colleges in the nation? We very much doubt it.

To conclude with the ultimate question–are Ivy Leagues worth the additional cost?

In general, no.

Paying for college is a daunting proposition. The College Funding Coach® has got you covered! To learn more about saving and paying for college without sacrificing your retirement, register for one of our free educational webinars below.

Thank you for reading this, and please share my bio with family & friends to read up on these important topics!


Tim McFillin, CLTC

Tim McFillin The College Funding Coach










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