Thinking Of Attending Private School? Read This First.

If you haven’t heard, there’s a student loan crisis. Americans owe $1.1 trillion in student loans debt, with an average loan amount of $27,253 as of the end of 2012 according to FICO. 11.5% of that student loan debt is more than 90 days past due or is in default. 

So what is the solution to the student loan problem that is preventing the younger generation from buying their own homes, and forgoing saving for retirement in their 20s and even in their 30s? It’s cheaper education that provides a higher return.

Consider Public School

According to the College Board, the average cost of tuition and fees for the 2013–2014 school year was as follows:

• $30,094 at private colleges
• $8,893 for state residents at public colleges, and
• $22,203 for out-of-state residents attending public universities.

Given the median household income is roughly $51,000, paying $30,094 a year without financial assistance is an enormous gamble. The only way for many families to “afford” such tuition is to take on burdensome debt.

There are several myths about private school vs. public school – here are some:

Myth #1: Private schools provide better job opportunities. Although some companies have specific target schools for recruitment, one company can’t hire everybody from Harvard, just like how Harvard doesn’t admit everybody from Andover or Exeter prep schools. Once you get into an elite private college, the distribution curve happens again where most return to average. It can be argued that it is therefore harder to get a job out of an elite private college, just like it’s harder to graduate valedictorian from a magnet school vs. non-magnet school.

Myth #2: You make more money graduating from private school. There is no such thing as paying a starting analyst in any department more money just because they went to private school over public school. In fact, that would be illegal and discriminatory. Some private school attendees might have a leg up at certain firms, but the same can be said for some public school attendees who apply to companies whose employees come predominantly from public schools.

According to a survey that came out in July 2014 by the Department of Education’s National Center for Education Statistics, College grads from private four-year schools earned about the same as those from public four-year schools, about $50,000 a year. Of the 16% of students who took home degrees in science, technology, engineering or math, they were paid around $65,000 a year. The findings are based on a survey of 17,110 students conducted in 2012, about four years after the students obtained their bachelor’s degrees.

Myth #3: You have a stronger alumni network going to private school. Getting a job and moving up the ladder often has to do with who you know. According to the National Center for Education Statistics (nces.ed.gov), the breakdown of school populations in 2013 was as follows:

• 5.6 million attended private 4-year institutions.
• 0.5 million attended private 2-year colleges in
• 8.2 million students went to public 4-year institutions, and
• 7.5 million students went to public 2-year institutions

One remarkable stat: 50% more people went to public 4-year institutions than private 4 year institutions.

With Silicon Valley CEO’s, the number is higher:two-thirds of the CEOs of Silicon Valley’s 150 largest public companies earned their undergraduate degrees in the United States at taxpayer-funded public universities, state colleges and regional schools, according to a Mercury News survey in 2007.

Study Something In High Demand

In a world where education is fast becoming free thanks to the internet and pioneers like the Khan Academy, MIT Online, and MOOC, it seems backwards to pay rapidly inflating tuition prices. Given the Department of Education reports that public school and private school students make roughly the same $50,000 a year upon graduation, the clear variable to receiving a higher income and lowering debt is selecting a major that is in high demand.

Take a look at the top earning majors according to Payscale.com, and make a college savings plan.  Don’t let unnecessary debt or circumstances derail your long-term financial security. Sign up for a Personal Capital account and take charge of your retirement savings today!