A recent CNN Money survey ranked Georgetown as the second-most expensive college in the United States, finally eclipsing The George Washington University as the most expensive school in town.
The study showed that the total cost of a Georgetown education rose 2.9 percent (from $50,700 to $52,161) from the 2008-2009 school year to the 2009-2010 school year.
Naturally, CNN provided little insight on the reasons behind this increase, but we feel we can speculate about a few of the more important ones.
A quality education is in higher demand these days as more and more high school seniors make college a priority. From a demographic perspective, there have been more applications to U.S. colleges over the last few years than ever before. In addition, the recent recession has put a major strain on college endowment funds, forcing universities to find funding from other sources (by increasing tuition, for instance).
While demographics and education quality are important, we feel the most important reason for the increasing cost of education is actually the rise in property value around the most expensive colleges.
For instance, you don’t see Harvard, Stanford, Princeton or Yale in CNN’s top 10. Simply put, many of the most expensive schools are in the most expensive property areas in the country.
Of the top six schools, five are either in the Washington, D.C., or New York City metro areas; property values in these areas have been the least affected by the housing bubble burst.
Historical analysis of the Standard and Poor’s Case-Shiller Home Price Index (which tracks changes in home prices for different areas across the United States) shows that prices in New York and the District have risen 75 percent and 78 percent, respectively, from their values in 2000, versus the national average of 46 percent for the same period.
These data seem to indicate that there are unique factors that are keeping prices in D.C. and New York higher than they are in other cities.
Why? First, both cities have very little room for expansion. Manhattan is the same little island that it always has been, and it is difficult to do new skyscraper construction in the city. D.C. has a bit more room, but there is a restriction on how high any one building can be constructed (no taller than the U.S. Capitol), therefore limiting the total possible living space.
Second, both cities have attractive post-recession economies. D.C. has benefited from increases in government jobs since the recession’s onset. The recession may have hurt some of New York’s more expensive ZIP codes, but it remains a place of perceived opportunity for all those outside the financial industry, and therefore it is still a popular choice for relocation.
Why should you care about New York and D.C. property values, other than the fact that they may boost tuition costs? If you opt to live in one of these cities after college – which is very likely, since they are among the most popular destinations for Georgetown grads – you’ll have to foot the bill for rent.
A recent Nielsen study found that wealthy young people preferred the D.C. metropolitan area to any other area in the country, with Manhattan and San Francisco following close behind. Rent values in these areas have remained extremely high, as wealthy young renters create high demand for quality apartment space.
So how does a Georgetown student determine an affordable rent level, since he or she will likely have to pay a great deal of a starting salary to live in any of these pricey cities?
Georgetown real estate finance professor Brian Gill gave us a simple rule of thumb to follow: Simply divide your pre-tax salary by three, and then divide by 12, and you arrive at the most you should ever pay for your monthly housing expenses.
A survey of recently graduated Georgetown alumni by the Payscale College Salary Report showed that their average starting salary was $57,000. If we apply the rule of thumb, the maximum housing expenses (rent, utilities, etc.) Georgetown grads can afford is $1,583.
New York and D.C. are among the best places for new grads to kick off their post-college lives, and the cost of living reflects that fact. To make sure that you don’t have to move back in with your parents after a few years, follow the one-third rule when you search for apartments. Until then, be happy with how many years, months or weeks you have left on the Hilltop.
Charles Leisure is a senior in the College and chief executive officer of Georgetown Collegiate Investors, Inc. He can be reached at leisurethehoya.com. Max Gaby is a senior in the McDonough School of Business and chief operating officer of Georgetown Collegiate Investors, Inc. He can be reached at gabythehoya.com. Money Talks appears every other Tuesday.
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