The Cost of a College Education

The Cost of a College Education

Postby ucanit » Tue Mar 20, 2012 2:51 pm

Let me throw you out this bone to gnaw on for awhile:

Does investing in a college education give one a reasonable return?
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Re: The Cost of a College Education

Postby daisycutter » Wed Mar 21, 2012 9:53 pm

Ucanit, Excellent question! I think that would depend on MANY factors:

1) What was the final cost of getting the degree

2) What did you major in

3) Is that major in high demand

4) What is the expected return on investment from getting that "college education"

5) Did mom or dad help you with the finances

6) Scholarship?

Additional thoughts: Are we in a "college bubble"? It seems like whenever I turn around i'm hearing another commercial on the radio about advancing your career by obtaining that "advanced" degree to get a advantage over your competition. Are we being brainwashed into thinking that college is a slam dunk investment, despite the ever increasing costs, which are getting to absurd levels? I'm now hearing stories about recent grads being on the hook for a 100,000 or more in college loans. If they start out at entry level jobs paying 30,000 a year, how long will it take to pay of those college loans? I'm really starting to think that your much better off going to that local community college first, then getting the next two years at your state university. Then at the very least, you won't be saddled with ENORMOUS debt burden, on top of trying to get your foot in the door in a very difficult job market!
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Re: The Cost of a College Education

Postby daisycutter » Thu Mar 22, 2012 8:33 pm

Student loan debt tops 1 TRILLION!!!

http://online.wsj.com/article/SB1000142 ... lenews_wsj
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Re: The Cost of a College Education

Postby DDEATH » Fri Mar 23, 2012 1:06 pm

I gotta agree that it depends on the degree and what kind of job one can expect after graduation. My grandson, a HS freshman, has shown interest and abilities in marine biology and engineering. I am nudging him towards the civil engineering because there will be more opportunities in that field.

Also, for most, I think it's wise to go to a community college for the first two years and then a college for the last two. That's what my son did, and it worked out very well for us. He came out with no debt and a very good job.
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Re: The Cost of a College Education

Postby daisycutter » Fri Mar 23, 2012 9:50 pm

Damn it DDEATH! Why is it that we usually agree with each other on financial matters, but are polar opposites in regards to politics? ;)

I tell my kids all the time that math and science are the two subjects you must excel in to get one of those high paying jobs in the future. Community college offers most students a good start, at a very affordable price. At the very least you won't be paying confiscatory loans off for the rest of your life!

Professor ucanit, Get your ass back in here and tell your two students if we are correct in our thinking. What would you advise your kid if he or she was nearing graduation from high school, and was looking for your advice? Thanks!
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Re: The Cost of a College Education

Postby DDEATH » Sat Mar 24, 2012 2:04 pm

Daisy, I think we're both fiscally conservative and tend to be pragmatic when it comes to personal finances.

When it comes to what we expect from our politicians, we're a lot further apart. I think we both want the same ends........ a strong America, a strong free market system, and a fair distribution of wealth. We just disagree on how and what that should be.
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Re: The Cost of a College Education

Postby ucanit » Sun Mar 25, 2012 10:15 am

Okay guys, I was hoping more people (especially WestTx and WindowMan) would comment on my question.

I'm going to give you some numbers that are quite provocative and (coming from someone like me who actually takes part in the education of our youth) may surprise you.

Recently, there have been several news items about the value of college education. Most of these reports stated that the average college-educated person earned an additional $650,000 during their lifetime. Think about this!!!

1. Addition earnings attributed to a 4 year degree is $650,000 (which equates to $16,250 per year for 40 years).
2. The Present Value of that additional future income flow (discounted at a 10% potential investment return rate) is $158,908.
3. The average estimated cost to prepay for a 4 year degree is $96,000, bringing a degree's Net Present Value down to a mere $62,908.
4. But interest costs to finance the $96,000 education cost for 10 years at 6% is $31,895; increasing total education cost to $127,895.
5. The Net Present Value of all those 40 years of additional income (less financing costs) is now down to a mere total of $31,013.

Here's the kicker!!!! $31,013 is a pitiful wage (about $3.87/hr) for the nearly 8,000 hours of class, study and research time given by the student.

Some may think that I'm looking at it all wrong. Well, let's look at it from another angle.

1. The Future Value of investing that same "prepaid" $96,000 (compounded at a 10% potential investment return rate) is $4,344,864. (compared to $650,000)
2. If the investment (education) money must be borrowed; using line 4 info above, total cost is again $127,895 but this leaves only 30 years for investment return.
3. The Future Value of investing that borrowed $96,000 for 30 years after paying the loan (given 10% potential investment return) is $1,931,119. (compared to $31,013)

If you still doubt me, use your own time value of money calculators, along with your own estimates of interest costs and potential investment returns.

I still believe that education is important...if for no other reason than education often determines how hard you will have to work. But what one pays and how they finance education are critical considerations (along with what you can and will do with your education, coupled with how you use your additional income). Remember that the methods of acquiring and financing education (as proposed by financial institutions and our government) are most often a losing proposition and designed to limit wealth.

I am really very interested in all of your thoughts concerning the points I have made.
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Re: The Cost of a College Education

Postby DDEATH » Sun Mar 25, 2012 10:35 am

ucanit,

A few comments and questions:

You wrote;
1. Addition earnings attributed to a 4 year degree is $650,000 (which equates to $16,250 per year for 40 years).
2. The Present Value of that additional future income flow (discounted at a 10% potential investment return rate) is $158,908.


If that extra $16,250 per year were saved and invested over 40 years, wouldn't it equal at least a million by then?

You wrote:
Remember that the methods of acquiring and financing education (as proposed by financial institutions and our government) are most often a losing proposition and designed to limit wealth.


Designed to limit wealth???? Where does this come from?
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Re: The Cost of a College Education

Postby ucanit » Sun Mar 25, 2012 12:55 pm

I believe I did mention "what you can and will do with your education, coupled with how you use your additional income." I meant this to indicate something along the lines of your question that "If that extra $16,250 per year were saved and invested over 40 years, wouldn't it equal at least a million by then?"

Fact is, that if all of the $16,250 were invested at a 10% compounded rate for the entire 40 years, it would equal about $7,191,925. Of course, what good would that do you if you didn't spend some of it? You'd be just like an old, balding, formerly red-headed, postal supervisor from Chicago. You'd die and leave a small fortune for your heirs to fight over! ;) Honestly, an awful lot of people would spend most of that extra income just to live at a much higher consumption rate...don't you think?

By "designed to limit wealth," I mean that government supports and encourages seeking very expensive educational degrees with small economic incentives and also offers liberal debt instruments to support the remainder of the costs...usually with little or no consideration for the real potential value of the degree program. Secondly, government ensures that individuals are more or less permanently burdened with this debt because it cannot be eliminated through bankruptcy.

I guess I’m more upset that when people in government talk about the value of getting an education, they don’t provide any guidance or evidence that such value is not (1) guaranteed nor (2) equally accessible through every discipline.

Now again, I am not talking about the programs that allow students who take specific jobs for 10 or so years to gain forgiveness for educational expenses...but these jobs often do not provide the more lucrative incomes. I don't think you and I disagree over the greedy intent of those financial institutions. :lol:
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Re: The Cost of a College Education

Postby daisycutter » Sun Mar 25, 2012 4:26 pm

Damn ucanit i never really thought about it that way! If you take the presumed 96,000 to prepay the cost of a four year education, and instead put that money in a investment vehicle that compounds at a 10% annual rate, you could have MILLIONS of dollars by the time you hit retirement. Of course there would be very few that would have the discipline to leave the money in a account. I still think that College costs are in bubble territory, and about to burst. How can the average family afford college when the college inflation rate, far exceeds the income growth of the average family? Something has to give! Hopefully the bubble bursts before my kids attend college in 5 years.
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