Just How Hard is University to Overcome
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@JaredBusch said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
So yes, you are reading that correctly. The average US high school grad who could have gone to university but chose to go into the workforce immediately rather than waiting to go to university first and invested the cost of university into an S&P 500 Index Fund instead of spending it on university would benefit to an order of $4.8M - $6M USD better than a counterpart that attended university.
Your problem here is assuming that people would invest that money.
While true, it doesn't really change the economics. Start making money 5-7 years ahead of time compared to 7 years of (very little) money and hundreds of thousands in debt to pay off even before you start working.
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@JaredBusch said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
So yes, you are reading that correctly. The average US high school grad who could have gone to university but chose to go into the workforce immediately rather than waiting to go to university first and invested the cost of university into an S&P 500 Index Fund instead of spending it on university would benefit to an order of $4.8M - $6M USD better than a counterpart that attended university.
Your problem here is assuming that people would invest that money.
It's not a problem, per se. That is the cost of lost opportunity. If those people feel that some other use of the money is more valuable to them than investing it, that is their prerogative and they should be able to show some usage that is even better than the financial benefits. I'm only showing what the most obvious, basic and "open to all" alternative to college would be.
It's the baseline. If people don't desire financial return as the comparative, that is fine. But anyone that is arguing for the financial benefit of university must do so in comparison to a minimum, reliable use of the money in another fashion. If the only alternative is simply throwing the money away that statement alone, I feel, shows how much college grads know that their degree was not for career or financial benefits.
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@travisdh1 said in Just How Hard is University to Overcome:
@JaredBusch said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
So yes, you are reading that correctly. The average US high school grad who could have gone to university but chose to go into the workforce immediately rather than waiting to go to university first and invested the cost of university into an S&P 500 Index Fund instead of spending it on university would benefit to an order of $4.8M - $6M USD better than a counterpart that attended university.
Your problem here is assuming that people would invest that money.
While true, it doesn't really change the economics. Start making money 5-7 years ahead of time compared to 7 years of (very little) money and hundreds of thousands in debt to pay off even before you start working.
Well, the chart shows that if they literally set the money on fire rather than doing anything useful with it (like buying a house, not going into debt or whatever) that over a full career the college graduates might pull ahead not including any of the other reasons that I listed as to why the list was ridiculously conservative in the direction of being pro-university.
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Considering investing to be something that people will not do has validity, few people will be willing to invest rather than to party with it. But nothing makes them do that. If the question is "university vs. throwing money away" then clearly, university is going to win. If the question is "university vs. doing something practical" then university clearly loses. And in any situation where we are discussing it as an option, I think that those are the only realistic options.
University is so negative that I regularly hear the only ways that people promote is being to both throw away any money that would have been spent on it as well as taking all of that time off of work and doing quite literally nothing, not even working at Mcdonald's.
What makes it difficult is that there are far more than two choices. It is not "Unversity or nothing". It is "University or this unlimited scope of other alternatives."
But, I think that it is only useful to discuss practical alternatives to university because only people with a desire to succeed (career, finance, early retirement, etc.) who actually are involved in a university vs. alternative discussion. We have to assume that there is actually a goal in mind, otherwise university could not have a "success" ranking under any condition.
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An average US BS is $146K? does that include living in the dorms?
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@Dashrender said in Just How Hard is University to Overcome:
An average US BS is $146K? does that include living in the dorms?
It would if that is required. When I was at university in 1994 dorm living was a requirement and that cost was part of the cost of classes. While they broke it out as a line item, it was a required cost so cannot be separated from the cost of the class line item. That it was a separate cost was really a means of hiding the true cost of the degree.
The site that I pulled the averages from stated that costs like that were included in the numbers. But they have to be as it is a major way that universities make their money.
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@Dashrender said in Just How Hard is University to Overcome:
An average US BS is $146K?
Based on an average of four years. If the average length to get a BS is over four years (I suspect that it is) then than number is actually low. I know almost no one who has done it in under four but lots of people who have done it in more, often lots more. Where I went to school, it was 5-7. No means of doing it in four. They didn't offer any possibility of that. Five has becoming increasingly common.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
An average US BS is $146K? does that include living in the dorms?
It would if that is required. When I was at university in 1994 dorm living was a requirement and that cost was part of the cost of classes. While they broke it out as a line item, it was a required cost so cannot be separated from the cost of the class line item. That it was a separate cost was really a means of hiding the true cost of the degree.
The site that I pulled the averages from stated that costs like that were included in the numbers. But they have to be as it is a major way that universities make their money.
OK that explains why it's so high. Yearly at Univ of Nebraska, Omaha it runs around $20k/yr, so $80 total, and really, it's probably closer to $60K total. No dorms required.
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I'm wondering how the investing figures are figured?
Do they take the HS+ people and device the cost of college by 4 years, then by 52 weeks to make an investment amount per week, then apply the interest, etc?
If yes, this is a savings amount of $701/wk. I know very few people who could save $700/wk when they were 18. So assuming the above is correct, it's incorrect in sure ability to save that amount of money.
When in college, that money is loaned to you - interest free while in school. If not for those loans, that money would never exist, at least not until much later in the person's life.
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@Dashrender said in Just How Hard is University to Overcome:
OK that explains why it's so high. Yearly at Univ of Nebraska, Omaha it runs around $20k/yr, so $80 total, and really, it's probably closer to $60K total. No dorms required.
It's an average, as are the income levels afterwards. State schools like UN and SUNY are far cheaper than private schools. I mean like often 1/10th the cost per year! And rarely have dorm requirements or whatever. SUNY is even less than that cost, I believe. Possibly far less.
But you have to look at averages to get anything useful. Schools like Harvard cost far more, but their graduates tend to earn far more. So if you want the advantages of "average income increases" you need to work with "average cost of acquiring those increases." If we had the same income differential numbers for just UN, then we could work with only the UN costs, as well.
Individual schools might give us a much better idea into if going there was good or bad. But I don't know how to collect the data on a school by school basis in a consistent way (or at all.)
There is little doubt that good state schools (here it would be SUNY Empire, Binghamton and SUNY IT) outperform basically any other category in ROI. But people almost universally pick expensive private schools because they believe this not to be the case. So either state schools don't provide good enough value OR a ton of people at the "best" colleges aren't very smart.
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@Dashrender said in Just How Hard is University to Overcome:
I'm wondering how the investing figures are figured?
As basically is they can be......
Take the cost of going to college that they would have to have spent (because there is only a comparison case to be made when someone had the option of college, if college isn't an option, then college can't be better for them because it's impossible.) Then instead of investing that into education, invest it into an S&P 500 Index Fund.
To be as conservative as possible I used the investment date as the graduation date. But this is unfair to the HS+ side of the argument because the university students would be investing that money into education year by year, not holding it interest free until the end and paying all at once. But I wanted to err on the side of giving university every chance to prove its value.
So assuming at the time at with their counterparts are done with college, the HS+ person in this case takes that same average cost and applies it to the index fund and never touches it or invests again until they retire when they cash at (and 65 in this example.)
The interest rate on the Index Fund is based off of the lifetime mean returns on that type of fund with every crash and negative year included (including the entire Great Depression era.) It's a quite conservative interest number for any period of over a decade (and we are way over that here.) 8.8% is the median, ~25% is the mean!
I calculated the returns annually only, again to be very conservative.
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@Dashrender said in Just How Hard is University to Overcome:
Do they take the HS+ people and device the cost of college by 4 years, then by 52 weeks to make an investment amount per week, then apply the interest, etc?
No, but that would be more indicative of the real world comparison.
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@Dashrender said in Just How Hard is University to Overcome:
If yes, this is a savings amount of $701/wk. I know very few people who could save $700/wk when they were 18. So assuming the above is correct, it's incorrect in sure ability to save that amount of money.
If you know people who can pay for college, then you know people who can do this. The ability to go to college in America is the ability to make this kind of investment.
If you can't do this and still go to college, then you are taking out loans (on average) and making the situation even worse for the college bound candidate because not only are they spending the money, they are paying interest on it. So making the differential even more dramatic in the favour of the non-college student.
Remember, I made this as ridiculously weighted towards the college student as possible to show how bad it is. If you take into consideration an inability to come up with that amount of money, it makes university worse, not better.
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@Dashrender said in Just How Hard is University to Overcome:
When in college, that money is loaned to you - interest free while in school. If not for those loans, that money would never exist, at least not until much later in the person's life.
Interest free only for while you are in school. Then you start paying interest. I know people with graduate degrees and professional jobs from those degrees who struggle to make interest payments alone, let alone pay down the debt.
If it was always interest free it would be different (and would only show that the loans are a bad idea for the economy, not that they are bad for the student.) But they are not. Trust me, I've spent most of my adult life paying off someone else's loans. They are far from interest free.
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If yes, this is a savings amount of $701/wk. I know very few people who could save $700/wk when they were 18. So assuming the above is correct, it's incorrect in sure ability to save that amount of money.
Tons of people save for college. Most, I would assume. When I went to college in 1994 I had tens of thousands in savings plus tens of thousands that my parents put in to my education. I dropped out so this was for naught, but the money was still there.
Later when I went to college again, I paid for it out of pocket, both undergrad and grad school. The amount that I was paying for some of that was above the $700/wk range. That I could do it without loans isn't really a factor, had I taken out loans it would have just made it worse, not better.
So those numbers, in my case, are insanely conservative. I could have put something like $50K into an investment on day one of my university experience rather than at the end of it, and many tens of thousands more when I returned and did it again. And this was over twenty years ago. So much more, comparatively, than the numbers show in this example.
Nearly everyone I know in the middle classes save for their kids' college education AND the kids work and save towards it as well. Combined the numbers may not be $50K, but often it is much more and even when it is less, it is still a substantial number.
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One part that you have to look at here is the big picture. Sure, few 18 year olds can save $700/wk. That's a silly number. And yet they spend $700/wk... that's an even sillier number. The more ridiculous you think the ability to pay for college is, the more ridiculous you actually think that college is.
Wherever the money comes from... trust fund, personal savings, working parents, grandparent gifts, doesn't matter. The point is if the same time and money were applied to getting a normal job, some study on your own and putting the same money that would be thrown at college into a simple investment account, the average puts skipping college into the "win" category, financially, by a staggering margin.
And it also puts skipping college into the "low risk" category. University appears to be both bad on average, and risky as it carries a vastly higher chance for total failure as opposed to just "not being quite as affluent as I could have been."
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Another way to cool at college prices... if you can spend it, you can save it. If you can't afford college, that just says that you can't afford it. It's that simple.
I think that it is just a cultural thing in American to think of crippling college debt as somehow different than, say, crippling credit card debt. If we were comparing the benefits of investing versus credit card debt would we be concerned about someone's ability to invest versus pay off the loan that they took out? No. It's only because it is education that we tend to overlook the penalties of that system.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
I'm wondering how the investing figures are figured?
As basically is they can be......
Take the cost of going to college that they would have to have spent (because there is only a comparison case to be made when someone had the option of college, if college isn't an option, then college can't be better for them because it's impossible.) Then instead of investing that into education, invest it into an S&P 500 Index Fund.
To be as conservative as possible I used the investment date as the graduation date. But this is unfair to the HS+ side of the argument because the university students would be investing that money into education year by year, not holding it interest free until the end and paying all at once. But I wanted to err on the side of giving university every chance to prove its value.
But what are the chances that someone who could go to college would have $146K in the bank ready to invest on the day the college person graduated? Again, you're talking about them needing to save $700/week. Few 18 yo are making $700/wk, let alone having $700/wk to put into savings. I suppose if they get what I'll call lucky, when they hit 20 or 21, they MIGHT have a job that allows them to save over the $700 to try to recover the missing money from previous months/years, but even that seems very unlikely.
So while this is a good math exercise (maybe), I don't see how it really stands up.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
If yes, this is a savings amount of $701/wk. I know very few people who could save $700/wk when they were 18. So assuming the above is correct, it's incorrect in sure ability to save that amount of money.
If you know people who can pay for college, then you know people who can do this. The ability to go to college in America is the ability to make this kind of investment.
If you can't do this and still go to college, then you are taking out loans (on average) and making the situation even worse for the college bound candidate because not only are they spending the money, they are paying interest on it. So making the differential even more dramatic in the favour of the non-college student.
Remember, I made this as ridiculously weighted towards the college student as possible to show how bad it is. If you take into consideration an inability to come up with that amount of money, it makes university worse, not better.
Well now you're just being ridiculous - what percentage go to college and don't come out with student loans? 5%? a number that low isn't even worth considering.
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@Dashrender said in Just How Hard is University to Overcome:
But what are the chances that someone who could go to college would have $146K in the bank ready to invest on the day the college person graduated?
You are missing my point. The chances are "on average." Because they either are spending this money already (on average) OR worse, they are taking out loans to do this.
So having $146K is exactly what they have to have already by that point. I've made this financially conservative in their favour dramatically already. In the real world they have to have had one quarter of that up front, each year as they want (or maybe at the end of each year.) Or worse, they are taking out loans and have to have that money plus interest later.
So no matter how unlikely you feel this is, it doesn't matter. Having that money at that time or more is the average amount actually spent by students. This is a simple number game. It doesn't matter how unlikely it feels. This is the amount that students are spending in the real world. That it feels outrageous isn't a factor.
