I am going to do a little more analysis on the value of a college degree. In the past, I have pointed out that the whole concept of college education is based on an out dated concept. 250 years ago, most of college was devoted to literature, history and languages and still is. You would think that high schools could handle this aspect of education without having to devote college time to these subjects. I guess it is a jobs program for people who could not make an honest living any other way. Now back to a little compound interest with the same 5%.
We keep hearing about a college degree being worth at least a million dollars over the working career compared to a non-college graduate. That may be true, but as I have blogged, it does not tell the whole truth. Since the college graduates are smarter and more disciplined than the average, they would have made more than the others with or without a college degree. I said that no more than 50% of the additional earnings could be attributed to degree. So what is the present worth of the $500,000 additional earnings. Over 40 years from age 25 to 65, that works out to $12,500 per year. The additional earnings has a present worth of just $214,488. Now what did it cost for the degree? 5 years at $35,000 per year, plus 2 more years until the kid is 25 years old. This is so that we can compare the two numbers on the same date. The degree has a cost of $213,331.
Notice that the two values are almost equal? That mean there is no net advantage of the degree compared to no degree. If the cost of college was more than $35,000 per year or if it took more than 5 years to get the degree, college would clearly be worse than not going to college.
Once you have layed out the numbers, you are in a position to see what might be done to make the picture look better. Let's see what would happen if the kid were able to graduate in 4 years vs 5 and go to work a year earlier. The degree has a present worth of $166,388 vs $213.331 and his additional earnings has a present worth of $226,988. By graduating early our kids gets an extra year of earnings, or 41 years vs 40 years. It is even more important because the extra year's earnings can be compounded for 41 years. It counts the most. As you can see graduating in 4 years is a big advantage. What has been happening is that it is taking longer and longer for our kids to complete their degrees. That is costing them, their parents and the tax payers and no one seems concerned. If you look into the problem, you will find that our kids were "not" prepared in high school and take "remedial" classes in college at great additional expense. Most do not take a large enough credit load. I think the average is only about 15 semester units. I took 20 semester units in engineering and got my best grades, so I know it can be done.
You can play with the numbers to see if you can increase the "value" of a college degree. One scam being played on parents and kids is when kids take college classes in high school thinking that it will help. It does not. It only allows kids to opt out of classes, but they still have to take the same number to total semester units. It does not allow your kid to graduate sooner nor to save any tuition. It is a scam that you should check into. I blogged on this point in the past and proposed that kids be given full college credit for any class they can "challenge" without having to take it. Now, that would save time and money, but professors don't want it because many would be out of jobs.
PS----
I made an error on the compounding of the extra year of earnings. It amounts to $12,500. This just shows how important it is to get thru college and start earning rather than taking some time off for a vacation and spending money rather than making and saving it. The cost of a degree based on $35,000 and 5% at graduation would be:
* 4 years------$150,850
* 5 years------$193,410
* 6 years------$238,070
I have used $35,000 as the annual cost of going to college, but we know it is a lot more than that if we count all the money from parents, loans and taxpayers. What we really need are the real numbers. I know that if you divide the college's total budget by the number of degrees awarded times the average years per degree that the number is a lot bigger. Another factor that needs to be taken into account is the number of college drop outs. Their cost needs to be added onto the cost of final degrees awarded. It is a real mess when it comes to doing the economic calculations and getting the correct answer. There is too much "funny money" in the system.
If you think it is bad, wait until I get into the PhD degrees for liberal arts and social science majors. It would take a million years to pay back the tax payers for those degrees. If you don't think so, let me know?
